Choosing a Point of Sale and Credit Card Processor for a small business

I Sun

Jul 11, 2020·5 min read

As a new small business owner, you’ll have to figure out how to accept payments. You’d think this would be fun, who doesn’t enjoy accepting money?

Welcome to the nebulous world of credit card processing and POS hardware sales. They need a Truth In Lending Act for this stuff as it feels more complicated at times than buying a house with the games that get played with pricing and fees.

Figure Out What You Need

Before you can compare anything, you have to sit down and figure out what your business needs out of the system. As a restaurant owner, my requirements were:

• Payroll
• Timekeeping (want this to integrate into payroll)
• Employee management (different permission sets for different roles, separate logins)
• Inventory
• Loyalty program
• Online Store integration

Transaction Fee Pricing

Next, to prepare for the mathematical warfare to ensue you have to figure out what your transactions are going to look like:

• Average Ticket
• Gross sales (from which you can guesstimate the number of transactions per year)

The way transaction fees work you’ll typically see something like this:

• 2.9% per transaction plus…
• $.10 per transaction
• Monthly fee which is sometimes hidden in a equipment lease or software fee. This is where the credit card processing will try to play you by offering transaction fees but are shifting that into some sort of monthly fee.

If you have small, frequent transactions then the $.10 per swipe will add up quick. If you have large transactions you’d care more about the 2.9% eating away at your profits.

The other way you’ll see pricing is “interchange fees” plus a markup by the credit card processor. The quote will say interchange fee + $.30 or something like that.

The interchange fees are published information from the likes of Visa and MasterCard but there are tons of different rates based on the type of credit card (e.g. what kind of rewards it offers). This makes it hard to compare unless you take an average of the credit cards you expect to accept.

Building Up the Data

So how are you supposed to come up with these numbers if you’re starting a brand new business?

You can come up with projections all you like and you should do this but nothing beats actual data.

Square had the lowest cost of hardware to start off so we started with that.

• IPad (already has one laying around)
• Square Stand $169
• Cash register $100
• Thermal printer — got one on OfferUp for $150

All the other people we talked to Cake (by Sysco), Clover and Toast had equipment costs in the $1500+ range. An interesting thing we learned about Clover is we wouldn’t be able to buy the equipment used or resell it if we changed providers.

Some had installation fees, application fees, software and hardware maintenance fees.

With Square there was none of that, the transaction fee was a little higher but they give it to you straight.

Now We Have Data, Now What?

So 2 years went by and now we had reliable financial data to go on. We knew the total cost of ownership:

• Monthly subscription fees to cover all the functions we needed
• Average ticket prices
• Number of transactions a year

We were able to negotiate a better rate with Square where they eliminated the charge per transaction and kept it at a flat percentage rate.

Still, being a responsible business owner means you always have to be looking for better value in the market. I say “value” because cheaper isn’t always better.

Banks are Trustworthy Right?

We reached out to our bank to see what merchant services they could provide. They had a sales rep contact us to tell us more about Clover.

The rep gave me a spiel about how they offered a superior product and better rates and wouldn’t hold money from us like Square does (we never had that problem). I said “ok great”, these are all the features I need, this is how much I pay. If you can beat that then I’ll consider switching.

The proposal I got back was extremely confusing.

• The transaction percentage they charged was lower but the cents per swipe was high
• There was a hardware lease fee of $52 for 36 months ($1,872). For a Clover Mini which on their official website lists for $750.
• It boasted of no monthly software fee, just an annual fee of $79 which they dropped down from $199.
• Application fee of $250
• Installation fee of $150 which they would graciously waive
• For things like payroll and loyalty programs, they told me to look at the App Store for options

Thanks, But No Thanks Clover

When I pressed about the transaction fees and how I’d be paying more by switching the response was that I probably didn’t understand what rates I was paying with Square (they didn’t believe I had negotiated my rate).

I tried to be understanding to see if other parts of the switch might result in savings. Turns out the monthly software fee that is mentioned on the official Clover site was hidden in the “hardware lease fee” after I started questioning what would happen after the 36 months whether I’d own the equipment (I wouldn’t own it, the “lease fee” would continue).

I did look at the apps and found that I could use HomeBase for time tracking and Gusto for payroll then several different options for loyalty. It’s just why would I want to bother getting different apps when it’s already well integrated with Square? If I ever did switch to Clover I’d probably go through their website, at least I’d know I wasn’t getting BS’ed. Just at our level of sales it wasn’t currently worth it.

Toast Is Promising

We did meet with a rep from Toast as well who did a better job of being upfront and knowledgeable about their product.

Tip for salespeople: Don’t make us go dig around to find what might work for us in an App Store. Recommend something at least.

Functionality wise their were some really user friendly options geared towards restaurants that would be timesavers for us. However the hardware costs just weren’t worth the switch just yet.

Takeaway

Understands your needs and costs and come prepared to talk to sales reps. Don’t get roped into something you’re uncomfortable with.

If you can’t get a straight answer or get it in writing something fishy probably is going on. There is still potential savings to be had by switching based on your volume and average ticket prices but beware of hidden fees. If the headache of always verifying you’re not getting ripped off is overwhelmed by the savings then go for it.

I prefer the peace of mind of a getting a transparent deal, I’m willing to pay a premium for that. Plus, during the onset of COVID Square voluntarily waived their monthly fees for 2–3 months so that scores some brownie points.