You're right, with a traditional merchant account there's a flat portion of the transaction fee. I'm paying (interchange + 0.04% + $0.10) to my current processor, which means the flat fee portion of each transaction is $0.15-$0.31. If you're selling single coffees and tacos, that's a significant percentage of the sale and makes Square's rates a very good deal. Square can also be cheaper for American Express for certain size businesses as well (if you're /very small/ AmEx has a flat rate program that's cheaper than Square, if you're too big for that but too small to negotiate better than the 2.89% rate they'll offer most small businesses, then Square is cheaper).
If you're ringing up $20+ sales most of the day, Square is much more expensive, especially for debit cards (whether swiped or PIN-authed, which Square doesn't do). Debit is by far the most popular form of in-store payment in the US, used more than twice as often as either credit or cash [1].
A few example fees using my quoted rate above --
For a swiped Visa debit card (interchange is 0.05% + $0.21):
$5: $0.32 (traditional) vs $0.14 (Square)
$20: $0.33 (traditional) vs $0.55 (Square)
$50: $0.36 (traditional) vs $1.38 (Square)
$100: $0.40 (traditional) vs $2.75 (Square)
For a basic swiped Visa credit card at a supermarket (interchange is 1.22% + $0.05):
$5: $0.21 (traditional) vs $0.14 (Square)
$20: $0.40 (traditional) vs $0.55 (Square)
$50: $0.78 (traditional) vs $1.38 (Square)
$100: $1.41 (traditional) vs $2.75 (Square)
MasterCard fees are nearly identical. Giving away $1 here and $2 there on every single sale all day adds up quickly, which is why Square can't move up to more lucrative clients while maintaining that fixed rate.
My experience as a retail store owner was quite a bit different with only about a third of volume on debit cards. And I suspect the debit card stats are skewed by things like groceries and gas which aren't good proxies for independent retail, square's sweet spot. And I'm not sure who's offering interchange rates without any markup.
> And I'm not sure who's offering interchange rates without any markup
I'm not a payment industry insider, but I made my best effort to be accurate based on my own experience with several merchant account providers and with Square.
Those were per-transaction cost comparisons using the actual rate my CC processor charges (as I said). That's interchange plus 0.04% plus $0.10, not interchange rates without markup. "Interchange plus" pricing has seemingly become pretty common the past few years, at least in what's advertised to new businesses, and now there's a couple of ISO/MSPs offering interchange plus $0.10 flat to small businesses out there, which would be even less than those costs I quoted.
That "boutique retail" store a relative of mine opened that I mentioned in another comment -- the first MSP to walk through the door to try to sell him credit card processing offered interchange-plus pricing. None of the constantly-shifting "downgrade tiers" stuff anymore. It makes cost comparisons like this possible for once.
There's still some BS costs like "statement fees" and "daily batch fees" with some companies, but that kind of thing gets overshadowed by the per-transaction savings pretty fast. If I'm overlooking something else, I'd love to know, I don't want to be giving bad advice.
> And I suspect the debit card stats are skewed by things like groceries and gas which aren't good proxies for independent retail
The study those stats came from breaks it out by merchant category. Cards were the preferred payment method at all types of retail stores they listed (grocery, department store, drug store, discount/warehouse, etc). Cash was preferred only at fast food restaurants, coffee shops and theaters. Debit was the preference over credit at all but department stores.
Can't argue with that. The one question I would ask is if the stats were # of tons or $ volume? That's also another way that debit usage can be skewed.
If you're ringing up $20+ sales most of the day, Square is much more expensive, especially for debit cards (whether swiped or PIN-authed, which Square doesn't do). Debit is by far the most popular form of in-store payment in the US, used more than twice as often as either credit or cash [1].
A few example fees using my quoted rate above --
For a swiped Visa debit card (interchange is 0.05% + $0.21):
For a basic swiped Visa credit card at a supermarket (interchange is 1.22% + $0.05): MasterCard fees are nearly identical. Giving away $1 here and $2 there on every single sale all day adds up quickly, which is why Square can't move up to more lucrative clients while maintaining that fixed rate.1: https://www.firstdata.com/en_us/insights/payments-101-white-...