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Latest Square uber-competitor undercuts in fees

Tina Orem

By
September 25, 2014

For most of the history of the credit card, there were only two ways to accept these pieces of plastic: Either jam the card into a heavy, brick-sized contraption called a manual imprinter that would rub carbon paper over it and get an impression of the card, or swipe the card's magnetic stripe through a clunky card terminal that was usually screwed into a checkout counter. The limited options made it pretty hard to take credit cards if you were, say, having a garage sale, selling produce at a farmers market or bootstrapping a new business.

In 2009, a team led by Twitter co-founder Jack Dorsey and Jim McKelvey turned that problem on its head with the launch of Square — a tiny piece of white plastic that plugs into a tablet or cellphone and can swipe credit cards. Square also runs a credit card processing network that charges merchants a 2.75 percent fee for every dollar in sales it makes with the device.

To be sure, those big clunky terminals still dominate (and those manual contraptions — called “knuckle busters” — are still around, too, in case the power goes out). But soon after Square launched, it became clear which direction things were heading.

That's why Square is attracting competitors, the latest of which is Amazon. On August 13, the company launched Amazon Local Register, which is a combination of a rectangular (not square!) card reader and a mobile app that lets businesses accept credit cards from smartphones or tablets.Click to email me

Amazon is coming after Square and other competitor PayPal Here hard. Square and PayPal Here charge a 2.75 percent swipe fee for every sale merchants make with the devices. Amazon, however, will only take a 1.75 percent swipe fee through the end of 2015 for businesses that sign up by October 31, 2014. Even after that promotional period ends, Amazon will undercut Square — as its “regular” swipe fee will be 2.5 percent.

PayPal Here and Square both charge 3.5 percent plus 15 cents for manually keyed transactions. Amazon says it only charges a flat 2.75 percent for that. Amazon says it won't charge monthly fees, require long-term contracts, or charge extra for chargebacks, refunds or international cards, although Square and Paypal Here have made similar claims. PayPal Here charges an additional 1 percent for international cards.

Amazon's Local Register Reader, which is the device that swipes the cards, costs $10 (you can order it on….wait for it…Amazon.com), but the company offers free shipping and a $10 processing credit, which basically makes the device free. Square and PayPal Here have similar deals. The PayPal Here device costs $15, though it too comes with a rebate that makes it essentially free.

When a customer buys something from a merchant using Local Register, the payment typically goes from his or her credit card lender through Amazon's payment processing system and into the merchant's Amazon Local Register account. Merchants then transfer the money to their bank accounts on a daily, weekly or one-time basis. We checked; there are no fees associated with making transfers, according to Amazon. (Be careful, though: If you want your money in your account the next business day, you'll need to initiate your transfers before 4 p.m. local time.) One cool extra is that merchants can use their balances directly to buy stuff on Amazon.

Like most modern card processors, Amazon offers a variety of reports that are updated every few minutes. Amazon also sells a variety of cases, stands, receipt printers and cash drawers that work with the device.

Amazon Local Register only works with iPhone 4s and higher and Samsung Galaxies S3 and up. For tablet users, it only works with Amazon's own Kindle Fire HD and HDX 7″ and 8.9″, as well as the iPad and the iPad Mini. Those are serious limitations; Square and PayPal Here both work with more devices, giving them the advantage in this area.

More than one report speculates that Amazon's foray into the credit card business is an attempt to boost its fledgling payments business. On July 17, the company introduced a beta version of its Amazon Wallet application, which lets users store barcodes and QR codes from gift cards, loyalty and rewards cards and membership cards so that they can be accessed and used via mobile phone.