Square, like all other merchant account providers has to pay interchange fees, which are ultimately sent to the banks that issue credit and debit cards, and assessments, which are how Visa and Mastercard make their money. It is possible that they have negotiated a sweetheart deal with Visa and Mastercard, for lower interchange rates, but I think it is unlikely.
With their pricing scheme Square loses money on every transaction below ~$6 in size. They will make money for transactions between $6 and $15, will lose money between $15 and $18 and will make money on transactions larger than $18.
The reason for the weird discontinuity at $15 is that Visa cards and Mastercard Debit (but not Mastercard credit) cards have a special, lower, rate for small transactions called a small ticket rate. If you are a merchant with a very small average transaction size, you absolutely should use Square - their price is so low for those transactions they are losing money and subsidizing the user.
In reality, their average transaction is not as small as you'd think. It's actually ~$83 (some simple math from the screen Jack posted on his twitter), so they are making a good deal of money, but at much smaller margins than most people realize.
With their pricing scheme Square loses money on every transaction below ~$6 in size. They will make money for transactions between $6 and $15, will lose money between $15 and $18 and will make money on transactions larger than $18.
The reason for the weird discontinuity at $15 is that Visa cards and Mastercard Debit (but not Mastercard credit) cards have a special, lower, rate for small transactions called a small ticket rate. If you are a merchant with a very small average transaction size, you absolutely should use Square - their price is so low for those transactions they are losing money and subsidizing the user.
In reality, their average transaction is not as small as you'd think. It's actually ~$83 (some simple math from the screen Jack posted on his twitter), so they are making a good deal of money, but at much smaller margins than most people realize.
More details (assumptions, charts, etc): http://feefighters.com/blog/can-square-make-money-with-its-n...
Also relevant: Compare prices of Square vs. a traditional merchant account http://feefighters.com/square-calculator