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January 14, 2019 • Issue 19:01:01

Street SmartsSM

To POS or not to POS

By Steve Norell
US Merchant Services Inc.

Today's POS is all together different than the POS of 10, 20 or 30 years ago. It is a full blast, feature rich operating system that allows merchants to run most of the important tasks for their businesses, as well as provide sales, inventory, loyalty programs reports and much more.

In the mid to late '80s, most small and midsize (SMB) merchants viewed a POS system as an overpriced piece of hardware they didn't need. They bought a cash register at Office Club, and away they went. As tabletop credit card terminals improved, merchants plugged them in, placed them next to their cash registers, and they were good as gold for the next decade or more.

The evolution of POS system sales

However, much larger merchants, especially decent-sized restaurants, needed full-featured POS systems. The problem was that they were not cheap. A merchant would spend thousands of dollars upfront and most likely incur continuing expenses until the business ceased to exist. The only place where merchants could purchase POS systems was from value-added resellers (VARs).

The sales cycle went something like this:

  1. Merchant is opening a new business and wants to purchase a POS system.
  2. Merchant calls several POS companies by way of referral or looks up names he or she has heard mentioned.
  3. Several POS VARs do presentations claiming their software is the best money can buy. Most merchants understand neither what they are looking at nor what the salesperson is saying – except when they are told how much it's going to cost.
  4. The merchant asks such questions as whether the POS system will do inventory or time and attendance, what type of support they will receive, who trains them, and what it is going to cost.

Merchants usually picked the least expensive software. And the real pain started after the install. Most POS systems are computer and server based, and all problems would surface at merchant locations. For merchants this meant another bill from the VAR to drive to the location, fix the problem and, if necessary, replace the hardware.

When it came to the credit card piece, the VAR would either refer a merchant level salesperson (MLS) or tell the merchant to find one himself. Since Internet Protocol was not really a big thing in those days, the VAR did not even think about making money from credit card processing. For VARs, it was sell the hardware and software and, hopefully, get a support contract. Usually, VARs were using money from the next sale to pay for completion of the last sale. I believe more SMB merchants did not purchase POS systems because of all the reasons I stated above.

The MLS provided the processing, and the VAR provided the POS. This was perfect for the MLS and not so good for the VAR, since the VAR made nothing from the processing, and hoped for occasional referrals from the MLS.

Putting POS before processing

Jump forward to 2001 when Mercury Payment Systems introduced a new ISO/VAR partnership model. This would not mean much for most MLSs, except that the VAR was now competing to take business from them. And the VAR was receiving free integration for software it sold, basically locking out the competition. MLSs that really wanted to compete had to use Datacap's NETePay, which was expensive and almost impossible to purchase directly unless and MLS was a certified reseller of that software.

Then several processing companies got into the POS business in order to compete with the VAR and Mercury. And one of them offered a POS system for free. It was not 100 percent free, but for all intents and purposes it was marketed as free. The processing industry does one thing better than any other. We are the best at taking a product or service and taking all the profit out of it. Not because we need to but because we think this is the only way to sell it. As most MLSs are known to do, they sell on price not value.

My team got into selling POS in the mid 2000s, and I learned that once you sell merchants a POS, you are tied to them until they die or go out of business. This does not address the manpower you need to provide to perform customer service and installation, training, cost of hardware inventory, and sales minimums you must meet with your software provider. In short, it doesn't make enough money to warrant doing it – even when you get the processing.

The game changer – cloud-based software

Someone somewhere figured out how to provide app-driven POS software with the operating system in the cloud also known as software-as-a-service. This means no hard drive, no crashes, no upgrades to purchase. For a small monthly fee, merchants get the best of all worlds: customer service, free upgrades, an operating system, and a feature rich system with very few moving parts. Now the MLS can be in the POS business with very little cash or manpower outlay – or even knowledge.

Sounds great doesn't it? But a nagging problem remains. Many cloud-based products that are becoming the real players are proprietary when it comes to the processing, which cuts out the MLS. They want it all and they don't want anything to do with the MLS model. If you don't believe me, look at Square, or Clover.

For today's MLS, this means partner with a good cloud-based POS company. Master their system and make sure that to lock down the processing so they can't switch on you. If you're thinking of building your own POS or buying a startup POS company, don't. I will alter an old saying for the sake of this article: If you want to make a small fortune, start with a much bigger one and build or buy a POS company. If we want to be profitable with the rates we charge, we must sell a POS system with processing included. The POS is the real meat. It is what merchants focus on.

Years ago, when Mercury came on the scene, its VAR partner would sell the POS system, tell the merchant that processing was included at no additional cost, and that someone would call to set up the processing. The VAR then referred the merchant to Mercury, and the rates were hefty and extremely profitable. Why? Because merchants didn't have a clue about what the rates should be. All they cared about was having a working POS.

I believe this sale type can still be achieved, but only when selling value, and value is only achieved by us when a POS system is included. Find a POS system, learn it, sell it and profit from it. end of article

Steve Norell is director of sales at US Merchant Services Inc. Based in Port St. Lucie, Fla., he oversees the USMS sales force and maintains the company's bank and processor relationships. You can reach him by email at steven@usmsllc.com or by phone at 772-220-7515.

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