When Square unveiled Square Cash for Business in March, the accompanying 1.5 percent payment processing fee seemed too good to be true. Turns out it was.
Square has twice increased the processing rate since launch, first to 1.9 percent in the summer and most recently to 2.75 percent earlier this month. A Square spokeswoman said the most recent hike came as Square added credit cards as a payment acceptance option for business owners using the service, in addition to debit cards. Credit cards cost Square more to process. The spokeswoman did not offer an explanation for the initial price change to 1.9 percent from the summer.
Square Cash started out as a free money-transfer app that let people send money digitally to friends, a la PayPal or PayPal-owned Venmo. In March, Square started to allow business owners who typically get paid by check or cash — think landscape companies or music instructors — to start accepting debit card payments via Square Cash too, for the 1.5 percent fee.
On one hand, the new rate makes sense because it’s the same as Square’s main payment processing fee for brick-and-mortar businesses that use its card reader. But the price hikes can also be viewed as part of Square’s push to wring more revenue from Square Cash, which started out as a free service, as it prepares for the scrutiny that comes with life as a new public company.
It’s also likely one way to boost profit margins. Most existing Square Cash users have linked a debit card to their account, from which they can send money to other users. If those same people start paying businesses through Square Cash, they will likely use that same card, which is cheaper than a credit card for Square to process. That means Square will keep more of the 2.75 percent fee. It’s not clear, however, what the incentive will be for businesses to use Square Cash now that the rate has increased, but those who signed up for the 1.5 percent or 1.9 percent rates will keep those.
It also could be a step toward — and this, I admit, is simply informed speculation — allowing Square Cash customers to use the app to pay for services or products they get from physical stores. I’m not pulling this out of thin air. CEO Jack Dorsey told me yesterday that he still misses Square’s now-defunct Square Wallet app, which allowed people to pay in stores with card information stored in the app along with simply telling a cashier their name.
“I still want [the Square Wallet] experience, personally,” he said. “I think Square Cash shows a path.” Emphasis mine.
This article originally appeared on Recode.net.