Mobile payments' war on fees

Going back to the debut of the free Square card reader, the mobile payments market has made fees — or the lack of fees — a major selling point.

This trend goes beyond hardware sales or even the mobile point-of-sale niche. The pricing pressure is felt especially strongly when digital technology has an opportunity to cut costs.

Not all experiments in pricing succeed. But combined, they are creating an overall awareness of how much it costs to handle a payment — and how much fat can be trimmed from that process.

This listicle is compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun and Brielle Diskin. Click the links in each item to read more.

The simplified pricing of fintechs like Square and Stripe has finally caught up with banks' more complex fees, prompting Wells Fargo to restructure its billing for small businesses. Other banks will also face consequences—particularly community banks that depend heavily on local merchants for income.

For years, Square, Stripe, Braintree and other startups that process payments for small businesses have worn their fees on their sleeve, almost like a marketing pitch by FAQ, or at least a branding strategy based on simplicity and transparency.

Wells Fargo this month changed its fee structure for small businesses, or those that process less than $100,000 per year, to 2.6% plus 15 cents for a tap, dip or swipe card payment; or 3.45% plus 15 cents for a keyed-in transaction. For a large bank like Wells Fargo, it's a relatively minor adjustment—and most large banks don't get a huge chunk of their business from providing payment processing to small business clients. But most small banks rely on small businesses for their survival, and any pressure on their fee income is a threat.

"The banks that are the most vulnerable are community banks that get more than half of their income from the smaller merchants, and most of these banks don't have an acquiring solution," said Richard Crone, a payments consultant.

Wells Fargo's "percentage plus cents" fee more closely matches those from fintech merchant acquirers, deviating from the banks' typical table-based fee structure that can vary from one merchant to another.

"Square, PayPal, Braintree and Stripe are redefining the market," Crone said. The fintechs use algorithms to bundle costs, a system that improves over time as more data gets fed into the model, he added. "They're using a more simplified approach, hiding all of the complexity behind a bundled pricing model."