Credit card processing is highly competitive and companies are willing to do anything they can to get an edge. One of the most common ploys is offering “free” terminals to new customers. Seems like a pretty good idea considering most terminals are a few hundred dollars.
What people that fall for such tactics don't realize, however, is that companies offering “free” terminals will get their money back in no time through numerous payment tactics, including tiered pricing, increased rates and hefty cancellation fees.
Although it may seem like a good idea for a new business to receive a “free” terminal during a time when money is particularly tight, such a decision will be a very bad one in just a few months.
When companies offer “free” terminals, they are starting out hundreds of dollars in the hole. This means that they have to make that money back as quickly as possible using the techniques described above. The only problem is that once the money to pay for the terminal is paid back through higher rates, those rates don't go down and merchants end up paying far more in the long run.
Comparing “Free” Terminals to Fairly Prices Terminals
If merchant 1 decides to go with a “free” terminal with an average rate of 2.93% and merchant 2 chooses a fairly priced terminal ($400) with an average rate of 1.87%, lets see how their payments differ for the same volume of transactions as time goes on.
If each merchant handles $15,000 of transaction per month, during the first month merchant 1 will pay $439.50 (.0293 * 15000) and merchant 2 will pay $680.50 (400 + .0187*15000).
For the first month, the “free” terminal plan is favorable but how about after a year? After a year, merchant 1 will pay $5274 and merchant 2 will pay $3766.
To put it another way, merchant 2 will pay $1508 less in only 12 months. Now multiply that by 5 years....
As you can see, the tempting “free” terminal becomes very expensive in the long run.
As you may expect from the example above, merchants catch on to the elevated rates that come along with their complimentary terminal. At this time, they may also learn about the associated cancellation fee.
Companies that offer “free” terminals attach hefty cancellation fees to keep customers using their rates or make money on them before allowing them to opt out of their agreement. As we have seen before, large cancellation fees are a good sign that the agreement between the merchant and card processor is in favor of the card processor. Otherwise, they would be able to offer fair cancellation fees.
“Free” terminals are far from free
The term “free” terminal is a misnomer. In reality, they are very small loans with very high interest rates. Similar to fixed rates, “free” terminals are a red flag and should be avoided. At 99 Merchant Account, we charge you a fair price for the equipment and then provide wholesale rates on credit and debit card transactions. This allows you to avoid both “fixed rates” and “free” terminals and gives you transparent payment options. With 99 Merchant Account, you know what you're paying for and can have the peace of mind that you're not being taken advantage of. Sign up today to start saving!