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Price war beckons for mobile payments

Twitter founder's Square goes cheaper

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Square, the beloved mobile payment system set up by Twitter founder Jack Dorsey, has dropped its 15-cent transaction fee as it tries to compete in the real world.

Square was touted as revolutionary when launched in 2009, and had VCs falling over themselves to contribute the $37.5m needed to implement its smart-phone-attached mag-stripe reader and accompanying back-end designed to spread credit cards to small traders in the USA. But Square now cutting its prices as it discovers that in the real world price matters a lot more than iPhone bling.

The idea behind Square is to allow small companies to accept credit card payments, with the addition of a plastic box that balances on top of an iPhone to read the magnetic stripe. That plastic box is essential as it differentiates Square from the various iPhone applications that already facilitate credit card transactions; those require the merchant to type in the number, which isn't nearly as cool.

Unfortunately, the box differentiates Square from Intuit's GoPayment system which also offers an iPhone-attached reader, and one that appears rather better attached. So we're into a price war. GoPayment charges 2.7 per cent, plus 15 cents per transaction, while Square (now) just charges 2.75 per cent – some swift calculations show that for a transaction greater than $300, GoPayment is cheaper for the merchant, but for everything below that Square can undercut its competitor. There are other differences, Business Insider has a nice (if now slightly outdated) rundown, but for most merchants price is the most important factor.

According to Square, the removal of the 15-cent fee means that "you no longer have to wade through a complex maze of hidden costs and fees". We're not convinced that adding 15 cents to each transaction qualifies as a "complex maze", but we do know that Square prefers to be seen competing on features, not price.

Last November, Square told TechCrunch it was handling a million dollars a week, but at that rate it will take 30 years to pay off the investment – even if one ignores the running costs – so the company needs to sign up a lot more merchants while avoiding any more price cuts. ®

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