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Education

StreetSmarts SM

“Starting in the Street

and ending at the

Merchant’s front door”
Steve Norell

Beware the Square effect

By Steve Norell that on a competitive basis, all anyone had to do was offer
US Merchant Services Inc. to do it for 20 basis points over, and the next one said 10,
and the race to zero profit was off and running.
n today's highly political atmosphere, all we hear
about is the Trump effect. Since the mid term elec- The second issue was that the brands and the issuers
tions are just around the corner, I thought I would added new rates and increased fees. So even though we,
I use a bit of that model and look at the Square effect as ISOs and MLSs, never raised our pricing, the cost to the
and how it has impacted all of us and what we have merchants kept rising.
learned from the company, as well as how to compete
with it. Last but by no means least, statements got to the point
where no merchant or MLS can understand them, and it
Before Jack Dorsey started Square, most merchants were makes it much easier for any competitor to put a spin on
in a one-to-one relationship with a processor and most what a merchant doesn't understand in an effort to flip
likely boarded by a merchant level salesperson (MLS) the account – even though, in fact, there is very little to
who visited the merchant in person, sold a terminal and no savings.
negotiated rates and fees.
OK, along comes Square with its little dongle, the ability
For those of us that have been around this industry for to sign up anyone in virtually minutes, and with one rate
a long time, the rates and fees were for the most part for swiped and one for keyed. No monthly minimums, no
straightforward: a discount fee, transaction fee, statement PCI, no statement fee or, as I like to put it, no nickel and
fee and maybe a monthly minimum fee. It couldn't have diming the merchant with fee after fee. All done through
been easier. However, along the way the rates and the Square's website without anyone talking to or visiting the
fees started to go up, and additional fees appeared, which merchant.
started to eat away at the tried and true method of tiered
pricing. What could be better? Most of us didn't really worry about
Square since most of the upstart's merchants were lucky
This gave way to interchange pass through or cost plus to process $100 a month and were the ones we didn't really
pricing. This method of pricing became extremely popular want as merchants due to very low processing volume.
because, in theory, it was extremely simple. All you had to Skip ahead to present day and guess what? Square is
do is say, "I will charge you 30 points over cost." kicking all our asses.

Sounds great doesn't it? In the beginning it was great, but And do you know why? Because of one simple reason:
as in all things that start out great, time chips away at it, Square reached back in time and did what we all used to
and we all end up looking for a better mousetrap. One do and made it better. Square made it simple. One rate, no
problem that appeared with cost plus pricing was the fact other fees, only pay when you process a card, easy online

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