Can Square, Intuit and Other Mobile Payment Providers Compete With A 12-Cent Debit Card Transaction?

They may provide ease of use, but new mobile payment providers targeting small and medium size businesses don't seem to offer transactions cheaper than post-Dodd-Frank debit card payments.

The ranks of companies offering mobile payment solutions targeted at small businesses is growing, with Intuit GoPayment and Sage Mobile Payments joining Square and others in offering simple devices or services that enable businesses to accept payments from customers through a mobile phone. These are sure to be viewed with interest by small business owners such as physical therapists who don't want to have to buy a merchant terminal or cash register, nor pay merchant card processing fees. The SMB Group, a research firm focused on the small and medium size business market, is conducting a study of SMB payment behavior; preliminary data shows that 3% of SMBs accept mobile payments today and this number will increase to 7% in the next 12 months, and 16% by the end of 2012.

But while these alternative providers market themselves as being easier and less expensive to use than the traditional merchant terminal and card network model, many of them do use the card networks and their transaction costs are high when compared with the post-Dodd-Frank debit card transaction, which if the Fed's current proposal goes through will have a transaction fee cap of 12 cents per transaction. Some seem higher than the typical credit card processing fee, which is around 1.79%.

Square, whose one-inch-square card swipe device attaches to an iPhone, iPad, or Android device, charges 2.75% plus 15 cents for each swiped transaction; typed-in transactions cost slightly more.

Sage Mobile Payments, which launched yesterday, offers a credit card reader that plugs into the audio jack of a smartphone. The company plans to charge customers a set-up fee and then a monthly fee starting at $10.95, as well as varying card transaction fees.

Intuit's GoPayment, which works with iPhone, iPad, iPod Touch and BlackBerry devices and will be one of the first mobile payment apps available on Android 3.0-based tablets, provides a free card reader but charges 15 cents per transaction along with 2.7% per swiped transaction or 3.7% per keyed transaction for low volumes; businesses that process more than $1,000 a month pay $12.95 per month and 30 cents per transaction as well as 1.7% for swiped transactions, 2.7% per keyed transaction.

These solutions offer do merchants a cheaper, often free, alternative to the card swipe terminal, which typically costs $200 to $800 as well as maintenance fees. And they offer a more mobile solution, allowing the small business person freedom from being tethered to a cash register or merchant terminal. But they don't seem to offer lower transaction costs.