This past week brought the news of a fairly significant development for Square — the rollout of Square Stands in bars, Whole Foods restaurants, and other venues. This comes a year-and-a-half after the huge deal the payments company inked with the coffee and beverage giant Starbucks.
The lengthy wait between these big deals was a signal to some in the payments world that perhaps Square wasn’t ready to attract large retailers to drop legacy systems and processing deals.
But then the Whole Foods deal was announced. While the partnership isn’t for the grocery checkout side of the business, it’s still a lucrative deal. And we’re hearing that Square is aggressively working to do more custom pricing for merchants, especially chains and big names, in order to bring in bigger names and retailers.
Square is also now crafting a big sales team; the company is staffing up on sales people, we hear, which is something CFO and operations head Sarah Friar had said in the past that the company was trying to hold off on.
Square’s pricing is 2.75 percent for swiped transactions, Square Wallet payments, and Square Market transactions, and 3.5 percent + 15 cents for manually entered transactions. The company cut a deal for custom pricing for Starbucks and we’re also assuming for Whole Foods, but previously this was done on an exclusive basis.
Now, any larger chain merchant can apply for custom pricing via Square’s site. For example, Square tells TechCrunch that the Butterfly Studio Salon in New York City is processing millions in payments per year, and has negotiated a custom rate of 2 percent for each swipe using Square. The custom pricing allows merchants who are growing to stay with Square instead of moving to a POS system with better rates.
As Adlin Palencia, manager of the Butterfly Studio Salon explains, “I switched to Square because it was simple and had a flat rate for all cards, including American Express, which is how many of my customers like to pay. As the business has grown, I’ve been able to stick with Square because my custom rate saves me more than $2,000 a month, which is money I can invest back into my business.”
Palencia considered switching from Square to another POS system as her business grew, but she stayed with Square because of the custom pricing deal she got.
Square commented on the change: “As our sellers continue to grow, we want to ensure we are growing with them. Custom rates, like many of our other new offerings, make Square a great fit for larger sellers.”
The fact that they are open to negotiating with mid-size to large merchants, as well as large ones like Starbucks, is telling. It’s likely that Square was “encouraged” to start negotiating with some merchants on fee structure after eliminating the flat, monthly fee structure last fall.
The question I have is whether Square is making any money off of the deals where the company goes down to 2 percent per transaction (or less in more high-volume deals like Starbucks). We’re also not sure what the exact criteria is for merchants to be eligible for custom pricing. And in terms of sales, it’s still not clear what Square’s actual revenue looks like beyond what the company is processing per year.
Square has notoriously done little marketing beyond simple advertising. At one point the company did a TV commercial, but for the most part, Square has prided itself on word-of-mouth marketing to target small to medium-sized businesses. As Friar infamously said at a Goldman Sachs Technology and Internet Conference, she doesn’t want to be involved with hiring sales people. But that tune has changed, and Square has been quietly building an army of sales teams focused on bringing small to mid-sized retailers onto the platform.
It’s unclear how big the sales team will be, but according to this LinkedIn job posting for a sales recruiter, “Square is beginning to build a world-class Sales team for the SMB and Mid Market marketplace.”
The company has attracted the attention of large brands as well more recently, with the Whole Foods partnership, as well as small promotional deals with Godiva and Uniqlo. But it seems like with these deals, these larger retailers are dipping their feet into the pool, and not diving in. Whole Foods has not enlisted Square stands to replace its cash registers on the grocery line, and it’s unclear yet if the promotional partnerships will amount to a bigger deal. Burberry has been using Square to take payments at a few of its stores, but it’s not a widespread implementation.
Another area where Square is beefing up in the hope of attracting larger retailers is in customer support. Square is adding phone support, which the company previously didn’t have available to merchants. The lack of phone support had been a pain point for many merchants, who want access to a live person to get problems fixed in real-time. If Square is pitching large retailers on switching from legacy systems, then phone support is a must.
While Square still has consumer-facing apps (Square Wallet, and most recently peer-to-peer payments app Square Cash), these changes are squarely focused on the merchant services side of the business. And all of these moves aim to collectively accomplish the goal of attracting more large merchants to the platform. As the company matures, and is potentially looking at a public offering, Wall Street will be looking not only at the number of small merchants and revenue, but also how many mid-size to large merchants are willing to forgo legacy POS systems in favor of Square.