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United Bank Card Inc., a big independent sales organization that touched off the so-called free-terminal trend seven years ago, has begun offering merchants full-blown point-of-sale business-management hardware and software at no charge. It is also offering its outside sales representatives a $300 commission per terminal sold.
Many merchant-acquiring industry observers have decried the free-terminal tactic, which has been copied over the years by many other ISOs, as a drag on margins, but UBC chief executive Jared Isaacman says that’s not the case, at least for his company. Any loss in upfront equipment revenues will be made up over time, with no small boost to profitability coming from reduced merchant attrition, he tells Digital Transactions News. Isaacman expects the typical merchant using UBC’s Harbortouch-brand POS system that does more than run-of-the mill card processing to stay with UBC four to seven years or even longer, at least twice as long as the average merchant with a conventional, limited-function countertop terminal. “Merchants don’t leave when they have a POS system,” he says. “With that we’re willing to extend our return on investment.”
Isaacman adds that UBC is not charging merchants high discount rates to make up for forgone equipment revenues and the sales commissions. “There’s no games as far as the rates, we’re not making the merchant pay 5% or 6%,” he says.
United Bank Card processes about $9 billion in payments annually from 110,000 merchant locations. It uses about 3,000 smaller ISOs, ranging from one-person shops to businesses with 40 or more sales people, to generate merchant accounts. Already 340 have inquired about offering the new Harbortouch system since UBC issued a press release about it Jan. 1, Isaacman says.
UBC is targeting small and mid-sized restaurants and retailers as the primary users of its new system. In addition to handling payments, the system manages numerous business functions such as pricing, inventory, and ordering. It also has a remote-management feature that enables a business owner to log in from anywhere and change prices in all locations simultaneously, Isaacman says.
The new POS system will cost a merchant “thousands” of dollars less than equipment from competitors such as Micros Systems Inc., Radiant Systems Inc., or other suppliers that include card-processing capabilities with specialized business-management functions, according to Isaacman. The hardware includes a 1.6-gigahertz Intel dual-core processor, 160 gigabytes of data storage, and 1 gigabyte of memory, which UBC says is double the industry standard. The monitor reportedly can handle 35 million “touches,” or finger taps from waitresses, clerks, and managers.
In contrast to most merchant processors, UBC is selling hardware and software it developed itself. Isaacman says his staff went to China, Hong Kong, and Taiwan to find components and a contract assembler, but UBC did all the design and development work. And 80% of the software is proprietary, he says. The applications run on Microsoft Corp.’s Windows operating system. UBC launched Harbortouch in 2007 using hardware from Toshiba America Inc. and applications from Microsoft and other developers. About 5,000 merchants, 60% of whom are restaurants, use those full-price systems.
UBC is requiring its sales people to go through a 400-slide online course from its new “Harbortouch University” and pass 30 quizzes before they can sell the new POS system. To support their sales efforts, UBC’s call center will provide the ISOs with leads of merchant prospects in their geographic areas.
Acquiring-industry researcher Paul R. Martaus, president of Mountain Home, Ark.-based Martaus & Associates, says Isaacman is right to look beyond the conventional POS terminal, which has become a commodity product easily substituted by a new processor, but he still wonders about profitability. “There’s no such thing as ‘free,’” Martaus says. But he adds: “I applaud his looking for alternative solutions. It’s got to be faced.”
