Should you buy a terminal, or use a free one?

If you are starting a business or you follow the trends of the processing industry, you would know about the free terminal programs that are being offered by many merchant account providers. If you have been watching a little closer, you would also see a division in merchant providers. Some think the free terminal programs are a great idea, and some think that they are not. I personally fall on the “free terminals are a bad idea” side, but even so, free terminals programs are very popular and continue to be a strong marketing tool for many providers in the industry.

This brings me to the question, is it better to get a free terminal, or purchase one outright?

First off, free terminal programs are not ownership programs. I cant speak for the specifics of every program out there, but generally they are a free rental of processing equipment. If the business closes their merchant account, switches companies, or needs to upgrade they must give the terminal back or pay for it.

Free terminal programs can be great for new businesses that don’t want to spend a lot to accept credit cards. These programs offer them a way to start accepting cards with a terminal, sometimes a wireless terminal, without any upfront cost.

On the other hand, purchasing a terminal is for an outright ownership of the terminal. You can choose what processor you do business with, and you don’t have to give your terminal back if you do decide to switch. You do have an upfront cost, but many terminals are reasonably priced and there can be less strings attached in your contract.

Neither of these are a best solution for every business. Different businesses have different needs, and the business should choose what is best for their business.

Why I don’t like free terminal programs:
The reason that I don’t like free terminal programs, is that they force processors to add extra fees in other places. Since processors normally compete with each other on price (Another truly terrible practice) they have to at the least make their cost appear to be comparable. But, they are taking a several hundred dollar gamble on the business processing with them. Multiply this several hundred dollars per business across hundreds or thousands of businesses, and the cost to the processor can be well into the millions. Since it may take several years for the processor to make up this money from a single business’s free terminal, they try and make some of it more quickly. This is done with higher monthly and statement fees, sometimes yearly fees, higher processing rates, and other fees. What makes the matter worse is that since the processor wants to look competitive they very often get ‘creative’ with their application. They obscure fees and change the normal structure of the fees so that the extra cost is easily overlooked. They will almost always raise their termination fee, so that if the business leaves them before the contract is up (normally 2 – 3 years) they will get the cost of that terminal back immediately.

I am quickly seeing myself head towards a previous post which I don’t want to do, but the point is, that the processor will make up that money somewhere else. As a business owner, I would much rather know what all of the fees I will pay are, than have my bill be much higher than I originally planned because of factors I never accounted for. I hate surprises in situations like this.

On the other side of the fence, purchasing a terminal is not always the best idea. There are proprietary terminals that keep merchants with certain processors (Linkpoint, FD100, Eclipse). Terminals can break, and even if the terminal is under warranty it is still a major inconvenience to get it replaced. Hopefully you have some sort of overnight replacement program with your processor, and if not, how do you accept cards without your terminal. If the terminal becomes outdated, you need to get a new one. This is happening more often since some platforms are disqualifying older terminals with lower memory due to security concerns(Older T7P’s, Tranz 330’s, ZON’s, Some Linkpoints). Credit card terminals are normally inexpensive to maintain, and are very reliable, but the cost of high end terminals can be substantial. Since most free terminal programs have overnight replacement warranties, it is another reason for businesses to like them, especially if higher-end terminals are offered.

Whatever you decide to do, make sure that you weigh your options knowing exactly what you are getting into.