How does one go about purchasing a credit card terminal for business transactions? What are the different options for credit card terminal purchases in merchant services?
According to Wikipedia, payment terminals were first introduced by Visa in 1979. Verifone a small Hawaiian company at the time introduced the Zon model of terminals in 1983.
The Zon terminals became the industry standard. The credit card terminals in the late 1980s were fairly expensive. Today the hardware for processing credit card transactions has dropped in price, or have they? The purpose of this article is to share the different options for a business owner to get and use a credit card processing terminal. In my research, the options are purchase, rental, placement and lease.
Assuming you’ve found a good agent and company for processing here’s some information on how equipment gets to the merchant for accepting credit card transactions. If you are still looking for a good agent and company, here’s an article which may be helpful.
Credit card processing terminal options
Credit card terminals come in all shapes and sizes, today. The basic or standard credit card terminal today comes with the ability to accept credit cards with EMV or chips, mag-stripe, and NFC. Wired phone (dial) and/or Ethernet connections come standard on the basic credit card terminal. Basic credit card terminals connection abilities are called Dual Comm. Dual Comm means connect via the phone line or Ethernet connection. An Ethernet connect is one where processing of credit card transactions happens via the internet. One of our favorite standard credit card terminals is the Verifone Vx 520. The Dejavoo z11 and Pax s500 terminals also offer WiFi connections (Tri-Comm) along with Ethernet and dial to run credit card transactions. The Pax and Dejavoo credit card terminals run cash discount programs, surcharging, and standard merchant account processing. See the images below.
A couple of great options for Wifi or true wireless processing come from Pax and Dejavoo
Work to understand which credit card terminal works best for your business. Every business is different. Some of the newer credit card terminals come with back office reporting. This can be really helpful when trying to run additional authorizations or perform refunds. Most payment processing companies can provide similar information, no matter which credit card terminal is selected. However, the real-time data seems to be more and more demanded by business owners.
Breakdown of common purchase options
The chart shows the most common 4 ways we’ve found merchants getting the credit card terminals to process credit card transactions. Here are the options and pros and cons.
|Payment per month||Term||Total Cost of ownership|
|Lease||$ 34.95||48 mo||$ 1,677.60|
|Rental||$ 34.95||24 mo||$ 838.80|
|Placement*||$ 99.00||3 yrs||$ 297.00|
|* Placement has a three year term, $99 per year.|
|Affects of Rate increases are omitted from this example.|
Lease to own option
Lease is the most expensive option to purchase a credit card terminal by double over the rental and more than triple the cash price. The lease price offered is common with some banks. Unfortunately for the business owner, the $34.95 per month pales in comparison to what we’ve seen. We have uncovered leases for single credit card terminal for $299 per month for 48 months.
Pros for a credit card terminal lease:
- Some leases have a warranty if the equipment stops working.
- There can be tax benefits to a credit card terminal lease. Please consult your CPA, as Stillwater Payments is not advocating a lease for tax purposes.
- Smaller monthly payment, verses a cash purchase.
- $1 buyout lease, allows the lessee to purchase the equipment when the term is up for $1.
- Great for larger purchases, such as Point of Sale or multiple smart credit card terminals.
Cons for a credit card terminal lease:
- Leases are non-cancel-able for the entire term, no matter what happens to the business.
- Leases are exponential revenue generators for the person and company selling it. They are typically a lose for the merchant buying the lease.
- Monthly payments are locked for the term.
- Additional fees such as insurance, taxes, and administrative fees may apply.
- In an FMV lease or operating lease, there is a buyout to own the equipment.
- Leases have been used to leverage monthly savings in order to generate high sales commissions.
- Many times lease documents are now included in merchant services agreements. When leases are included in merchant agreements, confusion may ensue? Leases must be easy to identify and understand. Separate paperwork from a third-party leasing company will be a key to identify a lease in the purchase of a credit card terminal.
- If you choose to switch processors, you may need a new one?
- Why pay 3x-10x more than a cash purchase?
Click here for more explanation of leases and credit card terminals. There are a couple of more ways to purchase a credit card terminal.
Rental of a credit card terminal
A credit card terminal rental is another option to use or purchase a credit card terminal. Rentals are typically sold on an “affordability” or “monthly payment” idea. These can be a good thing for a merchant, depending upon who is administering the rental.
Pros of a credit card terminal rental:
- Some rental have a warranty if the equipment stops working.
- Please consult your CPA for tax benefits of rented equipment. Stillwater Payments is not advocating the rental of a credit card terminal for tax purposes.
- Smaller monthly payment, verses a cash purchase.
Cons of a credit card terminal rental:
- Rentals on credit card terminals seem to be perpetual.
- Additional taxes are charged.
- Merchant never owns the credit card terminal in a rental.
- If one changes processing companies, you will need to secure a new credit card terminal from the new processor.
Renting a credit card terminal may be a good option for a merchant. Rentals usually can be cancelled. Please review the agreement. Please make sure the company from which you are renting is reputable. Rentals typically do not have a large upfront commission paid by a third party to the sales person. Therefore, rentals are typically uncommon merchant services sales.
Purchase a credit card terminal
As Dave Ramsey says, “Debt is dumb and Cash is King”. Purchase of a credit card terminal is a single event. In fact, look for companies who encourage cash purchases with some sort of warranty on the hardware, greater than 1 year.
Pros of a credit card terminal purchase:
- Once a person has paid for the credit card terminal, there are no further obligations.
- It is owned by the business
- Purchasing a credit card terminal has the lowest cost of ownership. Please make sure when purchasing a credit card terminal, that your rates are locked. No guaranteed rates, the processor most likely will raise your rates, so that they make more money. (This has been a source of great frustration, voiced by numerous merchants)
Cons of a credit card terminal purchase:
- Credit Card terminal purchase can be more expensive than a lease or rental in the first few months.
- No warranty if the terminal breaks. There are a few companies who do have a warranty.
- If searching for a new processor, most likely will need to purchase a new payment terminal.
Placement of a credit card terminal
There are numerous ways credit card processing companies use “free equipment”. There are placements with a monthly minimum. Placements come with annual fees. Many times, we’ve seen placements with monthly minimums and annual fees. A free placement of a credit card terminal is only as good as the company processing the payments. What does the processor do in April and October?
Pros of a “free” credit card terminal placement:
- Limited upfront expense to get a merchant account started.
- Low risk vs a purchase, rental, or lease- return the equipment if the merchant account is bad for your business.
Cons of a “free” credit card terminal placement:
- No ownership, what happens if the terminal breaks?
- Must get a new terminal when changing processors.
- Must return equipment to company who provided it.
- Last to receive the newest technology
- Typically the minimum is done to bring on the merchant account.
- Confusion about ownership, can cause huge penalties if merchant doesn’t return the equipment.
Bottom line, if you are in business, you most likely need to accept credit card payments from your customers. The most common way for a retail business to accept credit card transactions is through a credit card terminal. There are 4 main options to acquire and use a credit card terminal, purchase, placement, rental, and lease. After reading this article, if you have questions, please give us a call, 877-651-1655