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This article appears in the Dec. 11 edition of ISO&Agent Weekly.
Free point-of-sale-terminal offers are assumed to be an effective means of gaining merchant contracts for ISOs, but merchants today are swayed more by value-added services and consultative selling, according to observers.
Many merchants are less likely to choose an ISO based on free-terminal offers because the merchants are wary of hidden fees, observers say.
Typically, free-terminal programs offer merchants a point-of-sale terminal in return for a processing contract for a specified period of time. ISOs began using free-terminal offers to gain contracts roughly five to seven years ago, says Jamie Savant, a partner with The Strawhecker Group, an Omaha, Neb.-based management-consulting firm.
"Merchants have become smarter, and as the merchant population has contracted, there are only so many you can give free terminals to," says Tom Stone, chief operating officer of Vision Payment Solutions, a Portland, Maine-based ISO. The economy has made it difficult to find merchants that can afford to "trade a free terminal for the onerous cancellation fees associated with those plans," Stone notes.
Many times merchants that take advantage of free-terminal programs end up paying more fees for other bankcard services, says Gino Kauzlarich, president and CEO of MerchantService.com, a Sarasota, Fla.-based ISO. "There is no such thing as a free lunch," says Kauzlarich. "There will be fees in other places."
"The average merchant is wise to" the additional fees often associated with free-terminal offers, agrees Wayne Koniac, president of American Money Systems, a Phoenix-based merchantservices provider. "It always sounds good to get something for free, but my experience in 60 years: If it says it's free, it really isn't."
Free-terminal programs are less effective because "the business has changed," says Savant. Merchants are affected less by such programs and more by value-added services and consultative selling, he notes.
The 'Easier' Sale
Many sales agents find free-terminal offers attractive because they can sign merchant contracts more easily when offering them. "In this economy, to go in and say, 'Your up-front cost is zero. Sign the contract, and we give you a new piece of equipment,' it gives the ability to make the sale easier," Matt Nern, president and chief operating officer of U.S. Merchant Systems, a Fremont, Calif.-based ISO, tells ISO&Agent Weekly.
By offering a free terminal instead of leased equipment, agents have one less objection from the merchant to overcome, he says. "A good portion of agents are trying to sell on value, but it's easier to make the sale if you have the free equipment on you," says Nern.
Taking the easy route, however, may cause some agents to lose the "art of salesmanship," he says. ISOs and agents should focus on customer service and selling services, and use free-terminal offers as "last ditch" efforts, Nern recommends.
"By giving things away up front and making less on the back-end, they're really cutting their own throat," he says.
Potential For Harm
The concept of free-terminal offers "was brilliant when it came out. It revolutionized some things, but at this point and day, it's kind of bitten us," says Nern. Agents that rely on free-terminal offers to gain merchant contracts may earn less revenue and may damage long-term merchant relationships, observers note.
Though merchant-level salespeople for ISOs may sign more contracts overall with free-terminal offers, their revenue could be less than if they leased equipment and had fewer sales, according to one ISO.
"If they give it away for free, they make nothing for the equipment," David McMackin, president of AmericaOne Merchant Services, a San Jose, Calif.-based payments processor, tells ISO&Agent Weekly. "It may help them get a few more accounts, but they give up hundreds of dollars in revenue by giving it for free."
Agents should not be leery of approaching merchants with lease offers, says McMackin. "Most of the time, businesses are used to leasing," he says, giving the example of restaurants that lease kitchen equipment.
Free-terminal programs also can harm the agent-merchant relationship if merchant-level salespeople do not fully disclose any additional fees associated with the promotions, says Koniac.
"A lot of these guys give a free terminal and sign [merchants] up, and odds are they aren't going to see them again" or disclose any additional fees for other bankcard services associated with the program, says Koniac. "It's a hit-and-run sales process," he says.
Merchants that discover the additional fees may stop trusting the agent and switch ISOs, Koniac says. Sales agents for ISOs are not likely to get business referrals when they use hit-and-run sale tactics, he contends.
Instead, agents should focus on signing and keeping merchant contracts using customer service, Koniac suggests. "Offer customer service instead of free terminals," he says.
