Square Drops Transaction Fee as Mobile Payment War Escalates

Square Drops Transaction Fee as Mobile Payment War Escalates

Mobile payments startup Square is dropping the per-transaction fee it charges businesses that use its service, hoping to spark more widespread adoption of its wireless dongle in the growing field.

The San Francisco-based company had previously charged 2.75 percent of each transaction amount plus a flat 15-cent fee for each payment. Now, the company is dropping the flat fee for merchants.

“The vision of Square is to simply create zero friction and complexity around payments, which is difficult to do in financial services,” said Keith Rabois, Square’s chief operating officer.

Square makes a dongle accessory for the iPhone that allows users to make mobile payments with businesses that use its terminals to process financial transactions. Square is the latest venture from Twitter co-founder Jack Dorsey, who co-founded Square in 2009.

Along with simplifying the payment system for businesses, Square aims to take on the hidden fees and rate structure that are convention in the credit card industry. Traditional payment systems not only charge a 15- to 30-cent charge per transaction, but also take a variable percentage on top of that, causing merchants to either refuse credit card transactions below a certain amount, go cash-only or add fees for using credit cards.

Eliminating the per-transaction fee also makes Square more competitive as other financial services begin to roll out their own mobile payments system.

Intuit began offering a GoPayment service last month for free with transaction fees, and Verifone also now offers Payware Mobile. Both services currently take about 2.75 percent of transactions and also around 15 to 17 cents per transaction.

Square’s announcement is the latest movement in the emerging but complex field of mobile payments, which has been seeing growing competition on several fronts as consumers show an increasing willingness of consumers and businesses to make financial transactions through mobile devices.

In addition to more systems rolled out by financial services like Intuit and Verifone, device makers and software companies are entering the field. An industry group of nearly 800 carriers recently announced an initiative to create a standardized mobile-payments system, and tech giants Google, Apple and Research in Motion have also shown interest in mobile payments.

Google, which sees mobile payments as a “mega-scale” opportunity, according to chief executive Eric Schmidt, has acquired startups like Zetawire, and already integrated mobile payments technology into its flagship Android smartphone, the Nexus S. Apple has sparked rumors that it is developed its own “iWallet” technology that could leverage the iTunes billing system.

In addition, earlier last week, Research in Motion’s co-chief executive Jim Balsillie announced the company is integrating mobile-payment services into its BlackBerry devices.

Mobile payments are a highly complex field with a variety of players, including online services, banks, credit cards and merchants. Square has created a device system for both consumers and merchants, and by dropping the per-transaction fee, its services and products will be more attractive to businesses. But the larger question of who will ultimately emerge as dominant in the field remains up in the air.

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