Jason Del Rey reports for Recode:
That said, the company raised some eyebrows a few weeks back when it said it would charge businesses eight percent for these order-ahead transactions, rather than the 2.75 percent flat rate for most credit card purchases that run through Square’s platform. The reasoning, it said, was that the feature would help bring in new customers.
But critics countered that it seemed more likely that the capability would be used initially by a shop’s existing customers, which would mean Square was taking a larger than normal cut of purchases made by customers who were going to buy something from a given store anyway.
Compare to what Ben Thompson said last month
Credit card processing fees are one of the largest expenses a business faces, and every percentage point increase is a significant incentive for said business to go to the trouble of setting up and managing their own merchant account.
This is the blessing and curse of building on credit cards: you get instant ubiquity, but massive competition. The end result means Square is unprofitable, and getting the scale to make these numbers work – or, as Square tried to do, the user experience that makes paying these fees worthwhile – is a challenge that would be faced by anyone looking to build a payment system on top of credit cards, including Apple, Amazon, or Google.
Thompson’s takeaway was that Square couldn’t really charge more because merchants would seek other avenues that aren’t nearly as expensive to run. Square, on the other hand, is betting that they can charge more. Del Ray, again:
Varma admits that the Order app may initially appeal most to a shop’s current customers. That said, early results from a beta test show that these customers begin ordering more frequently than they previously did.
Over time, though, Square’s goal is indeed to drive new customers into businesses that use Order. How? Square is going to run advertising on behalf of businesses listed in the Square Wallet app, include them in loyalty programs and fund discounts to get new shoppers in the door, Varma said.
In Square’s favour, they’re launching this product amongst the typically higher-spending denizens of New York City and San Francisco. Against Square is that this service is available in fewer than two dozen stores between those two cities. I’m a little skeptical that many businesses will be willing to fork over 8% of every transaction made with the app, but remember that Google, Amazon, and Apple all charge around 30% (or more) for sales through their stores, and some businesses are willing to work with that.