Point of Sale Terminals - What is better: Renting or Owning?

This may not be as daunting a question as Shakespeare's "To live or to die...that is the question." but nonetheless, a important decision that merchant's need to address.

Consider the following points when trying to decide would be better to rent or be better to own your Point of Sale Terminal.

In Canada their are 2 types of card processing companies that small business owners can get their debit/credit card point of sale terminals from:

1. Bank

2. Private Label Companies

Bank's traditionally only offer a rent only program on Point-of-Sale Terminals

Private Label Companies offer a lease-to-own or purchase outright on Point-of-Sale Terminals

The question is which is better...?

In my opinion is always a more empower position to be in when a business owner has ownership over their debit/credit card machine(s).

Here's my two reasons why:

1. Ownership

2. Control over your payment processing system

Let's look at the basics of math first:

Rent is never ending. Payment Processing Terminals have been around for about 20 years now and many merchants who I have helped have been renting a terminal for 5, 7, 15, and even a few for 20 years.

Math:

Rent Option:

5 years X $35 X 12 months = $2100 spent on renting, with no business asset.

- Most Banks rent their retail point of sale machines between $30 - $50/month depending on the type of unit needed. Most Private Label Payment Processing Companies can lease-to-own a terminal for the same price or sometimes less. The benefit of the lease-to-own is that it has an end date, usually 48months. At which point, there is usually an 5-15% buy-out option that can be exercised by the merchant.

For example:

Lease-to-own option:

$35 X 48months (4 years) = $1680 X 10% (buy-out option) = $168

$168 + $1680 = $1848 total investment and now the merchant owns a asset and has terminated the never-ending rental costs on the debit/credit card machine.

Purchase Out-right Option:Most Terminals retail for a basic dial-up Point of Sale Terminals at about $1000 plus taxes.

Let's compare the three Point of Sale Terminal options using the $35/month examples from above over a five year period:

Option 1: Bank costs: $2100

Option 2: Lease-to-own: $1848 ($252 savings)

Option 3: Purchase Out-right: $1000 ($1100 savings)

Let's compare the three Point of Sale Terminal options for Merchants over a 10 year period:

Option 1: Banks costs: $4200

Option 2: Lease-to-own: $1848 ($2352 savings)

Option 3: Purchase out right: $1000 (3200 savings)

Let's compare the three Point of Sale Terminal options for Merchants over a 15 year period:

Option 1: Banks costs: $6300

Option 2: Lease-to-own: $1848 ($4452 savings)

Option 3: Purchase out right: $1000 ($5300 savings)

I think you get the point.

Now I know what the two major objections will be to these formulas above will be:

1. Technology - what if the machines change and become obsolete?

2. What if I am don't know if I will be in business for four years?

Let me answer these common concerns.

The technology concern is a valid objection, due to how fast technology seems to change. New PC computers are out-dated the day they are released to the market place, however in the payment processing industry it is not as easy to release a new product, due to all the regulations that need to be met to make sure all technology is secure from fraud. The only major technology change that I am aware of that is entering the Canadian Payment Processing market is Smart-Card Technology.

It is to implemented in 2010 for credit cards and 2012 for debit/interac cards. Most new Point of Sale Terminals have been ready for this technology since 2000. As you can see, the technology is available yet it is taking the Canadian industry a decade plus years to implement the smart-card technology into the market place.

My personal opinion is that most any hardware that is currently available will work for quite some time, however, I do realize nobody has a crystal ball and we don't know if someday in the future we will maybe using our eyeballs and fingerprints or implanted chips in our bodies as the new payment method (I think this is whole other topic on it's own). My standard is this, if you think the current technology will last, at least two years, then you are most likely saving money by putting yourself into a ownership position.

Now to address the second concern about ownership, which is the question many business owners have asked themselves at one time or another, "what if I am not in business in four years?" Well, I hate to be negative, but if those are your concerns I question whether you should be going into to business in the first place, and secondly, if you are going out of business a $35/month lease is the least of your worries. Remember, most companies (even the banks) have a 3 minimum agreement that states if you cancel your services early you will be required to pay a cancellation fee (usually around $250 -$300). Every vendor you need to help make your business run smoothly will have agreements and penalties that will be required to be paid when a business fails.

Try and look at this way, is it better to 'rent a house' or to 'own a house'? (I will let you answer this question yourself.) Why did you become a Merchant? To be a "Business Owner" not a "Business renter", right?

Now that we have looked at the 'Math' of renting Vs. owning a Point-of-Sale Terminal, let's look at how by owning you have more control over your credit card processors.

The Payment Processing Industry was deregulated for the sole purpose to empower small business owners with more choices and options for their payment processing services.

Most Private Label Payment Processing Companies will allow you to use which ever Credit Card Processor you would like when you have ownership on your Point-of-sale Terminals. Yes, these companies can also usually connect you to a credit card processor too or if you so decide to find your own credit card processing company that is okay too.

All you need to do is supply the Visa/MasterCard Merchant Account numbers to the Company and they will have them programmed on your Debit/Credit Card Terminal. Why is this good...? Well, rates can change and be increased over time. You may not be happy with the current discount rates you have from your credit card processor and have discovered lower discount rates with another provider yet do not want to over-haul your whole system.

Well, if you are with a Bank on a rent-only program they do not allow you to choose which credit card processing company you would like to use. You must use them and if you choose to switch credit card processor's you will have to change your Point of Sale Terminals too.

Ownership on your Point of Sale Terminals gives you options, and more control over who's services you would like to use.