Wise Up: Payment Platform Fees That Are Strangling Small Business Owners

Business.com / Financial Solutions / Last Modified: February 22, 2017

Don't allow your limited resources to be drained by unnecessary fees and expenses from payment platforms. Learn the offenders inside.

Starting up and managing a small business is no easy task.

Literally every decision you make has far-reaching consequences that impact how your company will thrive into the future.

But, among the worst decisions you can make is to allow your small business’ limited resources to be drained by unnecessary fees and expenses.

Below we’ll look at two of the worst fees hitting small businesses around the globe.

UpWork Has Raised Rates From 10% to 20% for Freelancers

Elance was recently bought out by its rival, UpWork. While Elance was very generous to freelancers and clients, offering a fair fee structure and minimizing delays in payments, UpWork has managed to tarnish Elance’s legacy in recent months.

The fees incurred by freelancers using the site to find work went up from 10 percent to a sliding fee from 20 percent to 5 percent on initial interactions with clients. In addition, clients are now being forced to pay a 2.75 percent fee for all payments made via the site; which is ridiculous considering that many payments are made via ACH, not credit cards with transactional fees.

Related Article:Payments Suck: Breaking Down the Current Landscape of Payment Processing

A recent discussion on Reddit highlights the fee changes and their likely negative side-effects on the broader market. It’s truly unfortunate to see a company which was once a cornerstone of the global freelance market give into pure greed.

The impact on small businesses is two-fold. First, the fees charged to freelancers and clients will significantly increase the cost of acquiring services for small businesses; many of whom rely on freelancers to supplement a lean team. Second, the small businesses that offer their services on UpWork are taking a more than a 10 percent cut; necessitating the increase of prices or a lower income.

$1 Fee to Access Funds Instantly via PayPal

As if the fee structure wasn’t lucrative enough for UpWork, they have started charging freelancers a $1 fee to receive payments via PayPal. With all of the other rate increases, you would think they could avoid nickel and diming freelancers after they’ve serviced their clients successfully, but then again, UpWork appears to be putting massive profits ahead of a long-term growth strategy. It’s incredible to me that they are not considering the competition in this decision.

Fees Go Higher Than 3.5% for Merchants Using Square

Square launched in 2009 and quickly became the entrepreneur’s best friend in mobile payment processing. Plugging in a simple card reader into the headphone jack of a smartphone turned the entire world into your physical storefront.

Related Article:Pocket Payments: How To Find The Right Mobile Payment System For Your Business

Beyond the convenience factor, the savings over more traditional payment processing companies was significant as well. An entrepreneur could use their Square credit card reader to process up to $21,000 in monthly transactions for a flat-fee of $275 per month. That’s just .013 percent. Compare that to the industry standard charges that can be as high as three percent and it’s easy to get excited about those massive savings.

But the fun times came to an end when Square made the decision to pivot to a 2.75 percent swipe fee. Those $21,000 in transactions are going to cost you $577.50 in transactional costs. That’s more than double what it would have cost you before the changes to Square’s payment terms.

Beyond the cost savings of finding a lower payment processing company, the impact of payment processing fees hits the global economy. Arun Ramamurthy, Founder of Credit Sudhaar, stated that “In India, we’ve seen how access to credit card processing and banking facilities has spurred job creation and broader economic activity. The cost associated with accessing these services has a direct impact on the clients we interact with every day.” 

So, what are your alternatives for payment processing?

  • PayPal’s fees hover around 2.7 percent (just slightly lower than Square).
  • EMS provides mobile payment technology with just a 2.25 percent fee (without per-transaction fees).

Related Article: 5 Things Most Small Businesses Don’t Know About Payment Processing

Affordable Access to Payment Platforms and Freelance Specialists Is Critical for Small Business

Competition is a good thing. Without it, we would be stuck working with greedy companies, like UpWork, or companies that change their entire fee structure to the detriment of their customer, like Square. While these are both companies with a successful track-record, their recent decisions are putting that success in jeopardy. Don’t let their poor decisions hurt your business.

Rigorously compare alternative providers for all the services your small business utilizes. You’ll find ways to improve the bottom-line without negatively impacting your customers.

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