“Free POS” offers can be tempting to new business owners. Their budgets are usually tight, and they’re looking for the least expensive and easiest ways to get their new businesses off the ground. But as VARs and ISVs know all too well, “free POS” isn’t free. In fact, “free POS” is often defined by no upfront costs and monthly fees buried into processing contracts.
One of the best ways to compete against free POS is to work with a payments company or payments integration partner that supports all payment processors. It allows you to offer something that free POS doesn’t: choice. Sharing these three facts with prospects who are ready to sign a free POS contract will help you guide them toward making the best decision for their business.
3 Benefits of Providing Payment Processing Options
1. Ability to get the best rate
Free POS offers usually require the merchant to use a specific payment processor — which may charge a higher-than-average rate. To illustrate how different payment processing agreements can impact a small business’ budget, consider a store that has 1,000 transactions per month and an average transaction of $10. If the store works with a payment processor that charges:
1.7 percent plus a 10-cent transaction fee, they’d pay (0.017 x $10 x 1,000) + (0.10 x 1,000) = $270 per month.
2.99 percent plus a 20-cent transaction fee, they’d pay (0.0299 x $10 x 1,000) + (0.20 x 1,000) = $499 per month.
Even though this is a simplified example, it’s obvious that the difference, $229 per month or $2,748 per year, could negate any savings the business owner had by choosing a “free POS” system. A payment processor can also charge additional monthly fees and incidental fees, such as fees for chargebacks, which can represent even more of a cost difference.
With the option to provide your customers with a solution that’s compatible with any payment processor, you can help business owners choose the system that represents the lowest total cost of ownership (TCO) and not just the lowest upfront cost.
2. Easier to cancel a contract
Free POS offers also lock business owners into a long-term contract, sometimes as long as five years. U.S. Bureau of Labor Statistics data shows that about 20 percent of new businesses don’t survive past one year, and 30 percent won’t make it to their second anniversary. If a business that has a free POS contract fails, however, the merchant is still under contract for the full term.
If the payments company or payments integration partner you work with can support any processor, you can recommend POS and payments vendors who are new-business friendly. The solution you build can remove some of the risk of signing contracts by finding companies willing to agree to less punitive terms if the business should close.
3. More payment options
Free POS with an iron-clad contract puts merchants at the mercy of the payment processor when it comes to the payment features they are able to use. If payment technology or the merchant’s industry standards change over the course of the contract — which, with the speed of disruption, is likely — the payment processor may not support the new functions or features the merchant needs.
A payments company or payments integration partner that supports all payment processors gives merchants the freedom to stay current with industry trends and leverage the most up-to-date technologies to create the payment experiences consumers demand.
How to compete
Beyond the issues with payment fees and features, free POS offers most often provide a merchant with only a basic system with limited functionality and integrations. The system may not give the merchant the features that competitors utilize to create exceptional customer experiences, and it may not scale when the business grows. This is where a seasoned POS provider can gain the upper hand.
To level the playing field, you need to address the driver that forced the merchant to explore Free POS in the first place. Generally, most merchants are savvy enough to understand that nothing of value is ever really provided for no cost, but if the merchant is lacking up front capital to cover the initial cost of an independent Point of Sale solution, they may have no alternative but to lock themselves into a potentially bad deal to obtain a POS. Many banks simply won’t provide loans to new businesses – especially in the restaurant space where most of the free POS providers operate. So, in an effort to address the capital issue, independent POS providers are engaging with funding partners who specialize in providing capital to SMBs. If a POS provider can provide a funding connection for a merchant, the up front cost objection dissolves.
To compete against free POS, enlighten your prospects on the real story behind the offer — and do the math. Truly budget-conscious business owners will recognize the better deal.