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A Thing

Now is the time to embrace payment software

By Bill Pittman

A few years ago, I was talking with George Wallner, the founder of Hypercom Corp., and he asked me, "Why do payment terminals exist?" I was taken by surprise. I had just sold GO Software, a company I started with the mission to displace payment terminals with PC software, and here was the founder of a major terminal manufacturer asking me why his product dominated the small business market.

My answer was twofold:

  • Terminals embody the KISS (keep it simple stupid) principle.
  • Salespeople make more money selling terminals than they do software.

These statements were true at the time. However, in this article, I'll argue that things have changed, and there is no better time than now to consider software as your payment solution. And, I'll show you how to make more money with software.


In the early 1980s, VeriFone invented the now ubiquitous payment terminal. VeriFone and others were successful because they built a product that met the market's needs by being very easy to use and operate.

Perhaps more importantly, terminal manufacturers built an effective sales channel to sell and support terminals. This channel was highly motivated by profits from selling and/or leasing terminals.

Due to our complicated industry and market dynamics, payment terminals did not show up in office supply stores, so merchants didn't learn their true cost. ISOs and merchant level salespeople (MLSs), being entrepreneurs, took advantage of this and sold/leased terminals at whatever the market would bear. A lot of people made a lot of money.

After I started GO software in the early 1990s, I knew I faced challenges when I visited a local computer store, an ideal candidate for PC-based processing software, and even that business was using a payment terminal.

I asked the owner why he was using a terminal and how much he paid. He told me he was on a lease for around $60 per month, and he never even knew PC payment software existed.


Let's categorize software for a moment. I see it breaking down into three categories: fat clients, smart clients and thin clients.

Fat clients are traditional, full-featured PC applications. They have a database, local reports and so forth. VeriFone's PCCharge is an example of fat-client payment software.

Smart clients are a hybrid application. They use local resources, have a rich user interface (UI) and use the Internet to exchange data with other systems.

A key component of a smart client application is that it can operate online as well as offline. Two examples of smart client applications are Microsoft Outlook and TPI's SmartPayments Client.

Thin clients are online applications that run in Web browsers (virtual terminals). They act almost like standard PC applications stored on local hard drives, but no installation is needed. TPI's SmartPayments Server is gateway-on-disk software that provides a browser-based UI with a virtual terminal and a thin-client Web services application programming interface.


I think we all agree that software has become much more powerful and easier to sell, use and maintain, but it still presents difficulties. Much can go wrong with existing fat client software applications at merchant locations, and this drives up support costs.

Also, since these applications store data on site, they are inherently less secure than terminals. Even so, as the Internet becomes more pervasive and reliable, the industry will transition to thinner and thinner clients, making software as easy to use as a browser.

Just about everyone surfs the Internet and is comfortable using a browser. As software moves to a thin-client model, it will ultimately become easier to maintain and support than fat-client software or terminal applications. That will mean no more terminal downloads and software patches: KISS, indeed.

Show me the money

Perhaps most important, you can make more money right now offering software versus offering a payment terminal. Why?

The Internet has changed the landscape. While payment terminals may not be in office supply stores, they are on eBay and all over the Internet. In a capitalist country, markets are efficient.

Consequently, this industry has become very competitive. Not only do you have to compete against other ISOs, you also have to compete against everyone on the Internet.

Ten years ago $60-per-month terminal leases were common. Today that figure has dropped to about $20 and is in the process of eventually dropping to zero due to the free terminal trend.

Giving away terminals, which only began a little over a year ago, means that as ISOs and MLSs you can no longer count on generating income through hardware sales. But you can make good money by selling or even giving away software because software is less expensive for you than terminals.

Why is it less expensive? Because terminals have become a true cost that can no longer be passed on to the merchant. Put another way, terminals are part of the cost of sale rather than a revenue stream like they used to be.

If you are selling merchant service processing, it is in your interest to find the least expensive enabling technology, and if you get additional benefits, that's an even bigger plus.

Software to the rescue

Software is and will always be less expensive than hardware. With PC software you are able to piggyback off PCs that merchants already own and leverage Internet connections that are already in place for e-mail.

With software, once it's developed, your variable costs are minimal compared to hardware, where you have physical costs to manufacture and ship equipment.

Therefore, if you are just looking to enable a merchant's credit card processing, your lowest cost solution is going to be software.

Software functionality is also far superior to that of terminals because it runs on a more powerful PC. Imagine being able to sell a merchant another product, such as gift/loyalty, or adding functionality, like recurring billing, without having to deal with memory limitations and downloads. Also, if you are using thin-client technology you can just turn the functionality on at the host and see the new revenue start rolling in.


Standard software can be private labeled so it looks like your product. Unlike terminals, where everyone is selling the same boxes, with software you can create your own version with your unique brand and logo. You are no longer competing with the guy down the street with the same terminal.

One of my maxims about the Internet is, "Branded products move to the lowest cost seller." Once the product you are selling is a known brand, it's viewed as indistinguishable in the buyer's eyes, so it turns into a price game. And competing purely on price is not where you want to be. If you sell products that are branded by others, you end up spending your time educating customers on products that they can purchase online for less money.

Your competitors in cyberspace can afford to sell products for less money because you're doing the sales work for them.

Private-label software protects you from having to compete on price and makes your product unique in the eyes of the merchant.

Grow your markets

Software is inherently more flexible than hardware, so you can grow your market opportunities with the same software. For example, ISOs who have purchased our server gateway software use it to target many markets that traditional terminals are unable to serve. These include:

  • Virtual terminal software
  • Terminals including dial, wireless, Internet protocol terminals, pay-at-table, kiosk and PDA/cell phone installations
  • Integrated solutions such as PC POS systems like Microsoft's Retail Management System (RMS) and Intuit's QuickBooks
  • Industries such as retail, restaurant, MO/TO, e-commerce and petroleum.

Reduce churn with lock in

Integrated solutions lock customers into your offering and reduce attrition. An ISO once told me if he walked into a business and saw that it had a PC POS system, he walked right out the door. He said, "There's no way I'm going to get them to switch their business processes to save a few pennies per transaction."

Our software works with most PC POS applications including Microsoft's RMS and Intuit's QuickBooks. Rather than walk away from PC POS, you can partner with POS dealers and turn them into your sales channel. You may have to revenue share with them, but think of them as your sub ISO.

If you form the right partnerships, your cost of sales will drop, and you will lock customers to your services. In addition, integrated solutions are sticky and have much higher volume, which translates into much higher revenue for you.

Furthermore, private-label software can be easily configured to work only with your merchant services. You can state in the license/sales agreement that merchants can only use this software with your services, but it doesn't hurt to disable switching in the software, just in case.


I hope I have convinced you that now is the time to embrace software as your primary payment solution. Software costs less, helps you stand out from the crowd, helps you grow your markets, reduces churn and, most importantly, you can now make more money with software.

Bill Pittman is President of TPI Software LLC (, which helps resellers of financial services target new markets and grow their customer base with high value payment software solutions. E-mail him at .

Article published in issue number 060401

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