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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.

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 There are other differences, Business Insider has a nice (if now slightly outdated) rundown, but for most merchants price is the most important factor.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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