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This article appears in the June 18, 2009, edition of ISO&Agent Weekly.
The difficult economy and lower credit scores are causing some merchants to seek lower-cost methods of obtaining point-of-sale terminals for their businesses, note industry insiders. For instance, a merchant that previously considered buying a terminal today may be more interested in leasing or renting one.
Many customers ask, "Is there anything else you can do for me?" when agents from Global Processing Systems Inc. approach them about purchasing or leasing terminals, says Jose Lopez, vice president of operations with the San Dimas, Calif.-based merchant-service provider. "They want the lower-cost options," he says.
If a customer does not want to purchase or lease a machine, "then maybe we say we can do a used machine or maybe a rental," says Lopez. Less than two years ago, 60% of Global Processing's sales were lease contracts, and "now it's about 30%," he says.
"We tell the reps to try and get the lease," says Lopez, but "a lot of merchants" say they need to rent the equipment, he says, adding that Global Processing specializes in mom-and-pop retailers.
Typically, an equipment lease requires that a merchant qualify for a long-term contract, while an equipment rental often is a month-to-month agreement.
Agents may lose equipment revenue as merchants downgrade to less-expensive terminal options, or they may lose clients, should they choose to switch ISOs.
Some merchants may opt to switch service providers that provide free terminals to avoid paying for equipment, adds Lopez. "I think you're starting to see more merchants gravitating to free-terminal programs because they can't afford other terminal programs," he says.
Fewer merchants today have the liquidity to purchase POS terminals, agrees Charles Baratta, executive vice president of Merchant Service Group Inc., a Syosset, N.Y.-based ISO. "Merchants are strapped, so they are looking to lease," says Baratta, adding that Merchant Service Group has seen an uptick in lease business during the recession.
Deteriorated Credit
Some merchants that opt for leasing terminals over buying, however, may have difficulty qualifying for a long-term lease contract.
Some terminal lessors are rejecting an increased number of merchant lease applications because more merchants are facing financial difficulties and have lower credit scores, according to industry insiders.
"There are a lot more customers out there" with deteriorated credit, says Lopez. Many merchants are facing foreclosure or are failing to make necessary bill payments, which negatively affects their credit standings, he says.
International Lease Center has seen "a big downturn in people's credit" in recent months, which has led the leasing company to reject 60% of merchant applications, says
Lisbeth Fairbanks, vice president of the Oxnard, Calif.-based lessor of POS hardware and bankcard-industry products.
"We have never declined 60% of" applications before, says Fairbanks. The lessor, which rates credit scores in the 500s on the "medium to poor side," recently started seeing more merchant credit scores in the 400s, she says.
Tighter Standards
As merchant credit scores and finances have deteriorated, some terminal-leasing companies have tightened the criteria they use to approve merchants for long-term lease contracts, according to industry insiders.
Northern Leasing Systems Inc. tightened its underwriting standards and "ended up limiting the credit we offer to merchants with lower credit scores," says Ron Kincheloe, president of the New York-based company. Kincheloe credits the increased standards, in part, to helping mitigate the number of Northern Leasing clients that have gone out of business.
International Lease Center also has tightened its merchant standards, says Fairbanks.
"What we'd like to see is" merchants with credit scores of 620 and above, she says.
The company also has added an online verification with a background check to its approval criteria, says Fairbanks.
Despite tighter standards, the number of delinquent clients has increased for Northern Leasing, notes Kincheloe. The company's typical delinquency rate is between 7% and 8%, but "we have seen delinquency rise 50 basis points," he says. Northern Leasing considers any account one day past due as delinquent.
Though lessors are less likely to have merchant clients in delinquency or default with tighter underwriting standards, some merchants may encounter greater difficulty in leasing equipment. "Merchants with lower credit scores, it is more difficult for them," says Kincheloe.
