The POS and payment industries are both evolving rapidly. And they have been since their inception. But a newer trend is emerging that should concern retailers and other small business owners. The two industries are beginning to merge.
As of this publication, most POS software providers are now also payment processors. And many of these require that the POS user also sign up for their processing solution.
Meanwhile, the world of payments is seeing consolidation through acquisition on a monumental scale. It’s always concerning when an industry transforms into one with only a few players controlling the vast majority of the market.
While we’ve written a lot on this trend and how it can affect business owners, there’s a new online resource that is working tirelessly to do that same. POS Hero has cataloged over 1,000 software and payments companies. In so doing, they’ve created the largest single resource for POS ratings of any review website. Check out POS Hero for yourself. But below, we’ll go a bit more into what they do and why their work is so important.
How POS Hero Works
The goal of their database is to educate business owners, resellers, and ISVs on point of sale solutions.
Their most basic premise is giving each solution a sort of pass/fail grade. They assign a “Hero Approved” or “Denied” tag to each POS software. This grade is based on how the POS solution operates its payment processing.
If they are processing agnostic (meaning, their users can use any given payment processor that they please), POS Hero grants it “approved.” If, on the other hand, the POS company requires that its merchants sign up for their own processing solution or they raise their software rates should a user opt for a third-party processor, they are granted a “denied” label.
Beyond this, POS Hero also provides a basic profile of each solution, including a short description, feature list, pricing, video content, and screenshots.
The Reasoning Behind the Approved/Denied Label
There is a whole lot that goes into what determines a good or bad POS solution. But POS Hero’s decision to start with an approved/denied designation is getting at an important trend in the industry.
Point of sale software companies are realizing just how much money can be made in the payment processing world. Merchants typically pay a processing fee of between 2 and 4 percent of all credit and debit transactions. Even though it’s a small percentage, retailers across the country are completing trillions of dollars of transactions each year. Therefore, the credit card processing industry is a multi-billion dollar one. And it’s no wonder why so many POS companies are scrambling to get a piece of the pie.
But many of these software businesses now require that their users also sign up for their processing. By bundling the two services and signing long-term contracts, they’re able to raise rates, quietly skimming a small, though not insignificant, amount off the top of every transaction.
How Much Money Are We Talking About?
Well, it depends on each store. An extra half percent on $10 million in sales is a lot more than an extra half percent on $100,000. Instead, it’s helpful to think about the percent increase from what you would otherwise pay.
For instance, a rate change from 2.4% to 2.7% doesn’t sound like a whole lot. It’s only 0.3% after all. But it’s a 12.5% increase from your previous rates nonetheless. Processors and POS companies prefer to advertise the fact that they’re raising your rates by 0.3% not 12.5%. Business owners, though, would benefit from thinking about the latter number.
A while back we wrote an extensive blog post on Square’s rate changes. In 2019, Square changed its rates from a flat 2.75% to 2.6% with a $0.10 fee. They created an interesting scenario that’s also meant to deceive their users. The rates actually decreased, and they only added the seemingly innocuous $0.10 fee. In reality, though, it’s incredibly costly to the average small business. Compared with their old rates, a $5 transaction had a processing hike of 67% and a $10 transaction 31%. Over an extended period of time, this can cause a lot of financial damage.
So ya, we’re talking about a lot of money. This is precisely why so many of these POS solutions are scrambling to also process payments.
How to Shop for the Right Processing
Most of the time, processing is processing. There are some payment processors that provide additional services, like processing analytics or advanced hardware, but in general, it’s a straightforward service that rarely differs in quality.
But the important thing is that you have choice. Start with your POS provider and make sure you’re looking for a solution that is processing agnostic. Any long-term agreements or processing requirements should be a red flag.
Additionally, look for transparency. There are a lot of factors that go into a final processing rate. But just because it’s complicated doesn’t mean that you shouldn’t understand where each penny is going. Look for processing solutions that are interchange-plus. This pricing model offers businesses full transparency into their costs.
Of course, it’s also important to make sure the processor provides full PCI compliance, integrates with modern payment hardware, and operates consistently. But these boxes are easily checked by 99% of all processing companies.
Start Saving Money on Your Processing
KORONA POS is proudly processing agnostic. And, unlike most of our competitors, we’re happy to say that we received a Hero Approved label from POS Hero. Our team will even provide all existing or prospective shoppers with a rate comparison free of charge. We’ll run your current rates against other processing solutions of your choice to find you the best solution.
Click below to sign up for a free trial and get in touch with one of our product specialists. They’ll walk you through the basics and start saving you money.