Keep Your Dollars in Your Pocket

A few weeks ago my letter-carrier delivered a plastic box smaller than a deck of playing cards. It is an electronic payment and credit card reader produced by Square, Inc., the now-publicly traded San Francisco-based technology company that launched its mobile processing system and companion “magstripe” reader in 2009. The new device now sits beside an iPad on the counter at Beehive Sewing Studio + Workspace. (Side note: author purchased a few shares of Square stock during the November 2015 IPO.)

New Square EMV reader shipped in January, 2016

This upgrade is concurrent with banks’ issuance of credit and debit cards with an embedded chip (EMV). You may already have a chip card in your wallet or purse. Cards issued by European and Canadian banks have included chips for several years, making it impossible for American travelers to use their credit cards for certain overseas purchases, like Paris’ “Velib” bikeshare.

As an innovative downtown Northampton, Massachusetts retailer, I’m pleased to move to the new transaction scenario where the purchaser dips his or her card, rather than handing it to someone for swiping. For those using services such as ApplePay, the transaction will now be “contactless.”

Unlike some businesses, ours does not and will not require a minimum dollar amount or “swipe tax” for customers who choose to pay with plastic.

Last year an industrious young man attempted to use a debit card to purchase a $0.50 skein of embroidery thread to repair his jeans; we learned that Square, Inc. does indeed have a $1.00 minimum for card transactions.

During the research and start-up phase of this retail company, our initial financial models took into account credit card transaction fees as part of standard operating costs. We created a matrix based on best assumptions for expected number of transactions and average dollar amounts per transaction, juxtaposed against various processing fees certain banks and services like Square, Inc. and PayPal (through its mobile reader, “Sail”) charged.

Rather than considering transaction fees as costs to be cut or passed to the customer, they were incorporated as an expense of running a storefront retail business.

My takeaway? Unlike a few decades ago, Square’s fees fund a critical business service. They support seamless transaction processing over reliable cellular or high-security enabled wi-fi networks, while offering a cloud-based customized point-of-sale system containing hundreds of items. Daily email “low-stock alerts” help us stay on top of physical inventory.

More important is the data security attached to chip cards; many of us know someone whose credit or debit card has been compromised — at gas stations, big box stores, or small independent businesses. The encryption and dynamic nature of chip data is a significant improvement over the static data on a magnetic stripe (technology that’s been in use on cards since the 1960s). Given these improvements, 2.75% plus $0.15 per transaction seems reasonable to our company.

So why have minimums? There seems to have been an historical pattern of banks charging exorbitant processing fees to small business owners and brick-and-mortar retailers while providing little value in return. Surely, one response would be for merchants to criticize such practices and prod customers toward cash or check transactions. Another response would be to request a minimum transaction amount to process credit cards.

However, disruptive technologies like Square force us to reconsider this argument. Not only are the fees the same across card types, the fees themselves are low when compared with the merchant accounts some banks offer. Are the fees simply a skimming-off-the-top of the small business owner’s revenues? It doesn’t appear that way. Rather, they facilitate sales by streamlining the transaction process for customers.

Still lukewarm toward card transactions? Consider this: in 2014 after trekking for days in the remote backcountry of Iceland, hours from civilization, my journey ended at a mountain hut and dirt field peppered with 4WD vehicles, horses, and tents. In the corner of the field was an old, rickety school bus that had been converted to a mini-mart offering packets of cookies, chips, gum, and other items hikers might be craving. I bought a cup of coffee and biscuit — for the equivalent of roughly $3.00 — using a chip-embedded Visa card. No minimum, no hassle, no data breach.

Landmannalaugar Campsite. Photo by Pietro By Pietro via Wikimedia Commons

Times and technologies are changing. So is the American economy, from the Big Box to the e-tailer to Main Street. After three years, I’m still thrilled, grateful, and humbled when shoppers choose to purchase an experience, service, or product from the studio. We’ll keep working hard to impact consumer behavior to invest in a creative experience. We’ll appreciate the support, from $1 to $100, regardless of the form of payment.