Square Drops Transaction Fee as Payment Battle Heats Up

In a shot across the bow of Intuit (s intu) and Verifone (s pay), mobile payment start-up Square is dropping the transaction fees it charges businesses. It will now rely solely on the 2.75 percent flat fee on purchase amounts and is waiving the 15-cent-per-transaction fee it previously charged merchants who used Square. The move ratchets up the competition between Square and rivals such as Intuit and Verifone, which have their own mobile payment services for businesses.

Square General Manager Keith Rabois told TechCrunch the move was aimed at simplifying the process for merchants and removing surprise fees. By dropping the fee, Square is able to better position itself against Intuit’s GoPayment service and Verifone’s Payware Mobile. Both those services currently take about 2.75 percent of purchases and also about 15-17 cents per transaction. Intuit last month began offering its GoPayment service for free with transaction fees, a move it later said it would continue indefinitely.

These developments reflect the growing competition in the mobile payment space as companies look to profit off the increased willingness of consumers and businesses to transact by mobile devices. Square’s decision also highlights the growing confidence of the start-up, which was launched by Twitter founder Jack Dorsey. The company received $27.5 million in new funding last month and boasted that 50,000 businesses were using Square’s payment system. Now it looks like the company, possibly valued at $240 million, is reportedly signing up 100,000 merchants a month and is on pace to do $40 million in transactions in the first quarter.

This is also a good sign that some of the existing fees that stand in the way of adoption of mobile payments are getting whittled away. We’re seeing a similar situation with carrier billing, which has brought down fees to the mid-teens, making it more appealing to merchants. As the fees get minimized, it opens the possibility for mobile payments to take their place alongside credit cards. I expect we’ll see more counter-moves in this space from Square rivals soon. It means combined with all the movement on NFC and carrier billing, 2011 is increasingly looking like the year mobile payments finally break out into the mainstream.

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