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Squaring up Loyalty Cards

Squaring up Loyalty Cards


Have you ever used a stamp card at your favorite coffee shop? You know, those business card-sized pieces of paper, the space of one side of which is apportioned among numbered squares (typically ten). Then every time you get a coffee there, the barista stamps a whole through the square that is next in line and eventually, when all squares are punched through, you get a free coffee. Now tell me, how many such stamp cards have you started, but never finished (and so missed out on that free espresso)? For my part, as far as I can remember, I’ve only crossed the finish line once, and not for the lack of trying! I just keep losing those things.


OK, why am I asking you questions about stamp cards, of all things? Well, we’ve just learned that the good guys from Square have built a digital stamp card (or punch card, as they call it) into Square Register, the company’s point-of-sale (POS) system. It’s just the latest upgrade of a payment service that keeps getting better and I wanted to take a closer look at it.

Square Register


Square Register is an application that enables brick-and-mortar retailers to accept credit and debit cards at their stores through an iPad. In addition to supporting swiped and key-entered card transactions, which every traditional POS system does, Register allows customers who have downloaded the Pay with Square app on their iPhones or Android-based devices to make payments simply by saying their name. Additionally, Register keeps track of the retailer’s inventory and transaction details through its analytics feature.


The “Rewards” component of Register’s system is the subject of the latest news and is where the punch-card option can be found and its settings customized by the merchant. Retailers can also choose from two other rewards programs. “First Visit Rewards” allows merchants to give customers using the Pay with Square app a discount on their first purchase at the store. “Regulars” provides a way for rewarding customers who make a certain number of purchases within a given period.


So Square Register is a really powerful POS system, one that gives small retailers access to features that were hitherto available only to their biggest competitors. Square makes this possible by giving away its POS system for free with the only requirement being that the merchant owns an iPad.

Is Square Register a Good Deal for Merchants?


Now, given everything I’ve just written, this may sound like a rhetorical question. After all, I have clearly stated that I like the system very much and, crucially, it’s free. Moreover, the company tells us that “Square Register users are five times more active on a weekly basis than Square Card Reader users and they process approximately 2x more revenue.”


Well, the question is not a rhetorical one. Yes, the system is a very good one and yes, it is free. However, Square’s fee structure is designed to favor merchants processing small-ticket transactions. Retailers processing larger-ticket transactions would not like the deal Square gives them. We’ve discussed this subject before, including in our cupcake posts, but let me briefly go over it once more, as I think it’s necessary.


So Square charges a flat 2.75-percent fee for all swiped transactions and 3.50 percent plus $0.15 for all key-entered transactions. These rates apply to all types and brands of credit and debit cards. Now let’s compare Square’s swiped fee to the interchange-plus pricing model (I’m using this model for comparison, because it is the only one to which a larger merchant would ever agree). Let’s assume that this merchant is charged 0.50 percent plus $0.15 over interchange by its processor, which is fairly reasonable. Here is what we find.

Card Type and Interchange rate

Transaction Amount, in $

5

10

100

200

Square

Traditional Processor

Square

Traditional Processor

Square

Traditional Processor

Square

Traditional Processor

Visa CPS/Retail, Debit – 0.05% + $0.21

$0.14

$0.39

$0.28

$0.42

$2.75

$0.91

$5.50

$1.46

Visa CPS/Retail – All Other – 1.51% + $0.10

$0.14

n/a

$0.28

n/a

$2.75

$2.26

$5.50

$4.27

Visa Credit/CPS Rewards 1 – 1.65% + $0.10

$0.14

n/a

$0.28

n/a

$2.75

$2.40

$5.50

$4.55

Visa CPS/Small Ticket – 1.65% + $0.04

$0.14

$0.30

$0.28

$0.41

$2.75

n/a

$5.50

n/a


As you can see very clearly in this comparison table, Square provides substantial savings to merchants processing smaller-ticket transactions. However, as the transaction amount increases, the savings grow ever smaller until eventually the dynamics are reversed and the traditional processor becomes the more cost-saving option. The higher the transaction amount, the bigger the traditional processor’s advantage. You should also note that the cost difference is especially stark in the higher-ticket debit transactions (and remember, there are no non-qualified fees in the interchange-plus model).

The Takeaway


So, if you process larger-ticket transactions or if debit payments make up a substantial share of the total, signing up for Square Register may not be such a straightforward decision. Yes, it would be free to set up, but it would commit you to paying higher transaction fees. Of course, you would be getting all of the really cool Register features that we discussed and that may well be worth the extra cost. However, one thing should be very clear: Square Register will come at a cost.


Image credit: Vimeo / Squareup.com.

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Tags: mobile payments, point of sale (POS), Square
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