Do not sign a contract/addendum with any processor – Part 2

This is the second in a series of articles design to educate and enable merchants make a solid business decision when choosing a credit card processor.  Please do not sign a contract or addendum with any processor until you have read this series.

Important Point #3

U.S. merchants should never lease a terminal/PinPad and should avoid salespeople/processors pushing leases.

Unfortunately, I’ve have had to tell many merchants who leased their terminal that they now have an expensive boat anchor because the terminal is absolute or cannot be reprogrammed with another processor.  Understand that a typical chip card terminal cost the processor $200 -$250 and a PinPad cost $100 -$200.   If you do the math on a typical lease pushed by many salespeople, a merchant will probably end up paying 10-20 times more than the actual cost of the terminal.

However, the reason to avoid leases goes well beyond the high cost and is more a function of the salesperson’s reason for leasing.  A salesperson can make $1,000 -$2,000 upfront on a $49-$99 monthly lease so he may do whatever it take to sell the illusion that his processing rates/fees are great. Unfortunately, the rates/fees are often anything but great plus many processors who push leasing will increase the rate/fees down the road.  This is why a high percentage of merchants who lease terminals never see their salesperson again.

Even worse, a third party leasing company generally holds the lease.  Therefore, when a merchant signs a personal guarantee on the leasing agreement it is with the leasing company and not the processor. Unfortunately, many merchants have found out the hard way that the leasing company generally doesn’t care if the processor fails to live up to their promises.  Therefore, many merchants have been forced to continue paying the lease through fruition even after changing processors obtaining new terminals.  Lastly, all leases are not the same.  With some leases you own the equipment when the lease ends, others you are required to buy the equipment when the lease ends, and others are essential non-ending leases and continue to renew.

If possible, it’s always best to buy the equipment at a reasonable markup ($50 -$100 over cost). The one exception is wireless terminals.  Wireless terminals (not just a smart phone with a dongle) that are used in the field and work on cell phone communication are more prone to failures. Therefore, a monthly rental program directly with the processor which includes free replacements on failed terminals is generally a better option than buying.

Note: Terminal leasing is pretty much the default standard in Canada. There are only a few processors that will rent or sell terminals.  However, the leases are generally directly with the bank/processor and should never be more than $25/mo.  Also, the Canadian “Code of Conduct” does give protection against the abuses seen in the U.S.

Important Point #4

Always have the right attitude when dealing with processors.  I realize that many merchants may require some level of software integration, recurring payments, and other special needs.  I’ll cover the options available to merchant in a couple articles.  However, understand that there are over 1000 processors and resellers in the US and many in Canada that would love to have a merchant’s processing business because it is a very low risk and very straight forward business.

When dealing with any salesperson/processor just have the attitude that there are a 1000 other processors that would love to have your business so the one you are dealing with better offer great rates and service.

Important Point #5

NEVER sign up for a Tiered pricing plan.  Merchants should only be on an Interchange Plus pricing plan.  HOWEVER, understand that Interchange Plus does NOT guarantee a competitive cost.  Some of the merchants I have helped save the most money were already on Interchange Plus programs. Interchange Plus just allows for the ”possibility” of being priced competitively.  I’ll discuss interchange plus pricing in the next article.

Tiered pricing plans generally have a “Qualified”, “Mid-Qualified”, Non-Qualified price structure.  There are other versions of tiered pricing as well but the Qual, Mid-Qual, Non-Qual plan is the most common from.  There are several reasons why merchants should avoid tiered pricing so I won’t go into the details. However, I’ll just say as a rule of thumb that tiered pricing is used to benefit the processor and not the merchant.  It makes it easier to sell the illusion that a merchant is getting lower pricing than he real is.  It also makes it easier for the processor to increase rates and fees and blame it on the other card companies (Visa, etc.) when in fact the bulk of the increases may go directly to the processor.

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