Micropayments, commerce, and conventional payment providers sometimes track me down on LinkedIn to discuss Â innovation in payments. When I get a chance to chat in person, the best discussions come from the entrepreneurs who see opportunity in shaking up how payments are done or addressingÂ under-servedÂ groups like the “unbanked” (those without an account at a bank or another financial institution).
The latest incarnation of payment wars is not micropayments however, but decidedly more mainstream – portable payments. The one that comes to mind is Square, that was discussed in a revealing article on Techcrunch here, where a sneak peek at their dashboard looked amazing before deeper analysis.
From the image on the dashboard there were a few key numbers:
One day revenue of $59,390
Card Payments on one day 23,630
TotalÂ FlowÂ $137M
That sure looks impressive, but how does that break down? Using some standard numbers:
Square’s fee: 2.75 percent
Standard credit card processing fee: 1.65 percent (also stated here)
This suggests that Square facilitate:Â $59390/0.0275 Â or $2.16M Â in transactions that day.
However, using the standard fees above they had to pay: Â $35,640.
That leaves a net revenue of: Â $23,750 per day, or $712,500 per monthÂ for the entire company.
Using a loaded cost per employee estimate at $100K/year or $8333/month, that pays for 85 employees.
Square might be breaking even or close to breaking even at those numbers, but consider the missing costs from this equation:
341,688 card readers designed, manufactured, and shipped
Customer acquisition costs
Customer support systems and processes
Their business is indeed doing well, but they still have a way to go, and the ride is a rollercoaster. In those 23,630 card payments that day lay an average transaction cost of $91.41, but from only 7 percent of their merchant base. Â That’s a hidden double-edged sword – they may be addressing the portable payments business and closing a ton of new merchants, but the merchants may be low volume.
On the plus side if they either increase the volume per merchant or increase the percentage of active merchants, their numbers could soar. Lastly, the question of transaction size brings up a good question – while Square advertises small sidewalk and alternate merchants being enabled, how do small merchants reconcile with the average transaction of $91 plus?
While Square hasn’t made it yet, they clearly have made significant progress toward solving a payment problem. By removing merchant fees and creating a simple and reasonable way to charge credit cards, they have opened up a new, potentially vast, and probably irregular new era of occasional merchants.
They have also attracted a lot of attention. Competitors like Intuit have stepped moved aggressively into the space. Some have of the competitors like Verifone have even leveled security accusations against them. They have also received attention from Visa who has made an undisclosed strategic investment in Square.Â So it is obvious that Square’s CEO, Jack Dorsey and team are on the right track. I look forward to following their progress.
About Duane Kuroda
Business ninja, deal hunter, Internet marketer, and technology fiddler obsessed about growing companies and launching products. Currently at Peerspin, Duane’s past lives include Vice President of Marketing roles at companies leading micropayments, Internet video, and online communities as well as research and consulting for mobile advertising. Duane has spoken at conferences including Digital Hollywood and Digital Video Expo on topics covering monetizing online content and online video, has appeared on TechNowTV and KNTV, and has been quoted in various magazines. Follow Duane on Twitter: @dkuroda.