In the ever-changing world of Point of Sale technology, business owners have new challenges on their plate when evaluating which company to choose. For the most part, the process and experience of selecting a POS system and Merchant Service provider to work with, has been dramatically different in the United States than in Canada. In the US, you can often be setup for your POS, Gift Cards, and Merchant Services, all from the same supplier. While this one-stop-shop may seem like an easier process for the business owner, it can also be more costly.

Why is that exactly?

The credit card processing industry can be EXTREMELY complicated and considerably different in Canada than in the United States. Most business owners understand that the Merchant Service providers they work with charge them different percentages or discount rates, depending on the type of industry the business operates in, and also the type of credit card that is processed (rewards cards, corporate cards, or international cards). The rate also depends on if the transaction is manually keyed or inserted electronically into the payment device. A large percentage of these transactions are paid from the processor back to the card associations; known as Interchange. Interchange fees are set by the payment association (Visa & Mastercard) in conjunction with the card issuers or issuing banks. With far fewer banks in Canada compared to the US, we have a much smaller number of card types with different rates. There are approximately 50 different rates for Visa, and Mastercard, based on the criteria mentioned above. However in the U.S there are thousands of banks, with each one issuing their own type of credit card, thus setting their own Interchange Rate; this means there is over 500 different Interchange Rates in the US for each card plan!

So, how does this situation impact a Business Owner choosing a Merchant Services Vendor in the U.S vs. Canada?

While it’s true that it is extremely difficult to get an honest explanation, in both the U.S and Canada, of what you will actually pay, it is more challenging in the United States. Business owners operating in Canada have been fortunate to have associations such as CFIB (Canadian Federation of Independent Business), RCC (Retail Council of Canada), and Restaurants Canada, who work with Government, card issuers, processors, and associations, to bring more transparency to the industry. This has led to a more educated Owner/Operator when evaluating which Merchant Services Company to select. Within the payment processing industry, the United States is often referred to as the ‘Wild West’, as there seems to be no regulation. This has made it nearly impossible for an Operator to know what fees are Interchange, and which fees are set by the processor.

With the U.S. having little regulation, it has created an environment where we often see profitability three-times higher on an existing merchant service contract in the United States than what we would see for that same merchant in Canada. This coupled with the fact that processing volumes are often considerably higher for US merchants.

How does this model contribute to the ‘one-stop-shop’ for a POS, and your Merchant Services?

Easy!! Give away the POS, or promote it at largely discounted price, and make the owner commit to using your merchant services company. The costs of the hardware, software, and support, are recovered quickly when charging 3-times as much in credit card processing fees. Once again, it’s difficult for a business owner to truly understand what fees are the processors interchange cost, versus what fees are theirs; they often just accept it as ‘it is what it is’. This combined with a fast-paced environment in the US, leads to more impulsive decisions rather than gaining clarity on where the rates are coming from.

Many of the largest, and most reputable POS companies know that applying this U.S model of tying credit card processing to Point of Sale in Canada, is a recipe to lose clients. They understand that the only way to apply this model would involve charging higher credit card processing fees, which could not only lead to them losing their client’s merchant services, but losing that client entirely. In fact, many of these same POS companies that operate in Canada, and the US, treat credit card processing completely different. In the United States they follow this US model.  In Canada, they understand the environment is different, therefore they certify to multiple processors. This gives their perspective, and existing clients, the choice to pick their own merchant services company based on pricing, service, and reputation. This combination of more-educated business owners, and a regulated credit card processing industry, create clarity within an industry that by nature, just isn’t that transparent.

My advice to any business owners who are contemplating this combined POS/Merchant Services model, would be centered around asking more questions and carefully listen to the answers you are provided.

Questions such as:

  • What are ALL the fees you would be charged from the processor that this POS Vendor is mandating you go with?
  • What assurances are you given that these costs won’t change?  Who else in Canada is using this type of combined solution?
  • What kind of Canadian support center has been established to support billing concerns or statement questions?
  • What infrastructure has been established by the merchant-services vendor to provide on site support and equipment replacements?
  • If you elect to stay with your own merchant services provider, how much more will you be charged and why?

Let me give you an example— If they tell you it will be $2,000 more per year, you can rest assured that this $2,000 would ultimately be buried into your merchant service fees anyway.

I met with a local restaurant owner recently, that unfortunately left us to go with a POS Vendor certified to only one Merchant Services Vendor, and I really wanted to understand his decision. What I found out when I sat down with him was that his choice was largely driven by impulse, based on the dissatisfaction of the costs associated with maintaining his original POS.

I asked him the question: “How do you think your new merchant services company feels about providing you consistent pricing, knowing they are the only processor certified to your new POS?”

He replied: “I didn’t even think about that!”

I can tell you that the merchant-services vendor he signed with, definitely knows this business owner’s options are limited. When I asked if he compared the merchant-service rates of his new provider to SONA’s, he replied, ‘‘I didn’t really look at that, as I was more focused on the POS savings’’. This is the exact response that this Restaurant POS dealer is hoping to receive. They want those restaurant owners to direct their frustration at the high cost of the Point of Sale systems, both from the perspective of paying for upgrades and service, as well as the cost of the POS. By empathizing with the Restaurant owner on these high costs, and telling them ‘these costs will all but go away’, the marketing message plays right into their hands.

I believe we are fortunate as business owners, to be in a marketplace that provides us the ability to choose who we work with as suppliers. The reality is that those decisions are often based on a combination of who has the most competitive, and consistent, price. In addition to pricing, my decisions are based on who will effectively provide the best service, but most importantly, they are based on who I TRUST.  By POS Suppliers tying the purchase of their systems to another industry that provides a layer of complexity, such as credit card fees, my advice is to make sure you have that level of trust with who you choose to work with!