Payment providers, POS companies, and electronic gift cards

Choosing a payments provider, POS system, and electronic gift card (EGC) program can be among the most confusing and frustrating things an owner or operator has to go through when setting up their business.

There are so many products to choose from — often from different providers — and, regrettably, too many salespeople are only interested in closing their end of the deal.

This is a problem, especially in an integrated environment where the merchant needs all three things (payment terminals, POS system, and EGC program) talking to each other seamlessly. I've seen many scenarios where a merchant has been given bad information on an integration. And guess who is left pick up the pieces when it doesn't work as it should?

There's another issue here, and that's the potential conflict between the salesperson's desire for a "sticky" deal (one with strong retention) and what's in the merchant's best interest. The salesperson could be motivated by setting the merchant up with an exclusive integration, thus locking the merchant into multiple relationships without the merchant knowing how hard it will be to make any changes down the road if they're not happy.

For example: recommending a POS company that only integrates with the salesperson's payment processor, or vice versa. Or, recommending a gift card program that only works with the salesperson's payment processor or POS system.

I recently had a small business customer begrudgingly turn down $7,000 in annual credit card processing savings because they were locked into their existing gift card program that wouldn't port over easily to a new provider. Processing companies love using EGC as a retention tool. I don't like it, and always recommend third-party EGC companies so the cards can easily port over to a variety of providers if my clients aren't happy with their processor down the road.

In some scenarios — due to exclusive integration relationships that the merchant won't likely know about — the merchant can find themselves stuck with really high costs on the processing side of these integrated deals. The processor knows that the pain of changing multiple components in these integrated relationships is very high for the merchant, thus, the merchant isn't likely going anywhere, even if they're not happy with their processor.

I see this happen in the restaurant space where some POS companies only integrate with one payments provider. What happens if that payments provider (who might have a revenue sharing relationship with the POS company) jacks your rates during the contract term?  

I've also seen this type of scenario occur in a variety of industries — with ERP systems for example. I've seen companies, big and small, locked into exorbitant processing arrangements because they didn't understand they were getting into a closed system.

There are perfectly good closed systems, of course — if it's the right solution for your business and you understand the nature of the relationships and trust your account representative. But, as the merchant, you should always know what you're getting into and what your options are — today, and in the future.

There are enough excellent payment providers, POS companies, and EGC companies out there that you shouldn't have to compromise and lock yourself into any exclusive arrangements. I'm a big believer in open systems, or "processor neutral companies".

Even if you end up going with an exclusive integration, you should come to that decision with full knowledge of what you are getting into. The best companies and salespeople will be open and honest with you about what integrates with what, and they won't try to shoehorn you into an arrangement that isn't in your best interest. But, you need to educate yourself, and you need to ask the right questions.

Baseline Tips

- DO ask POS companies which major payment providers they integrate with, and DO double check what salespeople say. You'd be amazed at how many people out there don't know what they're talking about, or say what they need to in order to make a sale.

DO ask payment providers and electronic gift card companies how easily it will be to port those gift cards over to another provider should you change your mind down the road. DO double check with both sides of these arrangements.

DO get a clear picture of who, exactly, will be assisting you with the integration, and what you will be charged for setting up these integrations. I've seen many instances of people washing their hands of the technical setup once the sale is made. One company tells you to call the other, and vice versa.