The other day 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 publicly traded San Francisco 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. This upgrade coincides with banks issuing credit and debit cards with an embedded chip. 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.
As a downtown Northampton retailer, I’m pleased to move to this new type of transaction, in which 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.”
What’s this all about?
During our research and start-up phase, our initial financial models took into account credit card transaction fees as part of standard operating costs. I calculated how many transactions we’d make, and at what amounts, and looked at processing fees charged by banks and services like Square, Inc. and PayPal (through its mobile reader, “Sail”).
Rather than consider transaction fees a cost to be cut or passed to the customer, I considered them just another aspect of running a storefront business.
My takeaway? Unlike a few decades ago, Square’s fees fund a critical business service. They support transaction processing over reliable cellular or high-security enabled wi-fi networks, while offering a cloud-based point-of-sale system containing hundreds of items. Now, daily email “low-stock alerts” help us stay on top of physical inventory.
Increasingly 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 independent businesses.
The encryption of chip data is a significant improvement over static data on a magnetic stripe — technology that’s been in use on cards since the 1960s. Given these improvements, a fee of 2.75 percent plus 15 cents per transaction seems reasonable to our business.
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.
Yet disruptive technologies like Square force us to reframe this argument. Not only are the fees the same across cards, 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 to me. Rather, they facilitate sales by streamlining the transaction process.
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.
In the corner was an old, rickety school bus that had been converted to a mini-mart offering items hikers might be craving. I bought a cup of coffee and biscuit — for the equivalent of roughly $3 — using a chip-embedded Visa card. No minimum, no hassle, no data breach. Times and technologies are changing. So is the American economy, from the Big Box to the e-tailer to Main Street.
We’ll keep working hard to invest in a creative experience. We’ll appreciate the support, from $1 to $100, regardless of the form of payment.
Tess Poe is founder of the Beehive Sewing Studio + Workspace in Northampton.