Why are some companies offering free credit card terminals with their merchant accounts?

Free Credit Card Terminal Merchant Accounts

The big craze in the merchant account industry is the new free credit card machine offers that many providers are offering.

About 20 years ago up until about 6 years ago, free credit card terminals were a fairly common practice in the payment processing industry. It was standard for banks and merchant service providers to offer a Tranz 330 or Zon Jr. to their customers, especially for the larger ones. Until last year, the free credit card terminal offers had all but disappeared. Brought back again in full force by a company called United BankCard, the free terminal offers have become very popular over the past year. Many merchant service providers have followed suite and are now offering free terminals to their new customers.

Free credit card terminal offer have their advantages, and they have their disadvantages. As true with almost everything, if something seems too good to be true, it most likely is…

There are now a plethora of providers that are again offering free credit card terminals. Free terminal merchant accounts are no exception to the too good to be true offers. On the outside these offers seem like a very good idea. They almost completely eliminate the processing startup cost for many businesses. The cost of equipment nowadays, is normally the only significant cost that a businesses with incur when getting setup to accept credit cards. This cost can range from nearly free for simple phone processing or virtual terminal merchant account, to extremely expensive for mobile and wireless processing equipment. The terminals that are offered for free are normally terminals in the $300 – $400 range.

Obviously someone has to pay for the equipment. After all, the companies providing these ‘free’ terminals are getting them from somewhere. And, that somewhere that they are getting them from is charging them. So, who is going to pay for the free terminals in the end?

What you really get with a free credit card terminal merchant account.
While not every company offering a free credit card terminal merchant accounts are the same, there are some things you can be sure of with every company offering these.

• An early termination fee
• An application and / or setup fee
• Additional Yearly and / or Monthly Fees

• An early termination fee is charged to any merchant who goes out of business, or leaves the processor before their contract is up. Contract lengths vary, but are normally 3 to 5 years in length. Termination fees vary, but are commonly over $300, and almost always over $200.

So what happens if you don’t pay?
Unlike a credit card where the penalty for not paying is comparatively low, if you don’t pay your processing bill, you get placed on a list called the TMF (terminated merchant file) or match file. If your name appears on this list for any reason, you and your company will never be able to process credit cards with an American bank, until you get it removed. The only company that can remove it is the one that put it on there.

• An application and / or setup fee is normally charged with free terminal merchant accounts and can vary from $30 to several hundred dollars. Sometimes both an application and a setup fee is charged.

• Additional Yearly and / or Monthly Fees which can be as high as $300 to $400 / year , and are in addition to your companies processing fees.

The bottom line:
The bottom line is that you should read your contract very carefully, no matter who is going to provide your company with a merchant account.

After $300 / year in fees, a $200 setup fee, and being locked into a 3 year contract, that $250 terminal the other company offered without the termination or random yearly charges, is looking pretty good right now.