Square Pulls a Game Changer on Credit Cards

NEW YORK (TheStreet) -- Just a week after announcing a deal with Starbucks (SBUX) that shone a spotlight on mobile payments, Square may have just changed the game again.

The mobile payments specialist has announced that it's adding the option for businesses that do up to $250,000 per year in credit card transactions to cut costs. It will allow merchants to pay a flat fee of $275 per month, with no fees or cut. Square had previously charged merchants a flat 2.75% rate.

"Small businesses typically pay higher credit card fees than bigger merchants. We don't think that's right. So we created this first-of-its-kind pricing plan for small businesses processing up to $250,000 per year," the company's Web site said. "The total amount of sales you process in a day is the same amount deposited in your bank account. No additional cost per swipe. Just a lower monthly bill than ever before."

A business processing $250,000 a year in credit card transactions would have had to pay $6,875 per year in fees to Square. With the new pricing structure, it'll cost merchants $3,300 per year. If a business does less than $250,000 per year in transactions, the 2.75% fee is cheaper.

Square, led by CEO Jack Dorsey, is innovating as it tries to upend the credit card processing industry, attempting to break the stranglehold of Visa (V), Mastercard (MA) and American Express (AXP). Square recently announced a deal with Starbucks to bring its technology to the coffee giant's 7,000 U.S. locations. Starbucks is also investing $25 million in Square, and Starbucks CEO Howard Schultz is joining Square's board.

It's unclear at this point how much Square is making from lowering the cost substantially and if it plans to make it up on volume, similar to the Wal-Mart (WMT) school of retailing.

I've reached out to Square for comment on this. Credit card companies, consider the game changed. Again.

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--Written by Chris Ciaccia in New York

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