Buy, Rent, Lease – or “Free?”
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The equation changes with each move 
in interest rates – and each “generational” 
change in equipment.

So what’s in the merchants’ best interest now?
And what should you recommend?


Should your merchant buy, rent or lease that new terminal or other equipment?  
It has never been a simple decision, and merchants often rely heavily on the 
salesperson’s recommendations.  When our industry was young (20 years ago) 
the only option was to purchase point-of-sale devices.  Merchants paid $1000 or 
$2000 or more for a piece of equipment that cost $450.

Salespeople earned most of their income from equipment sales, and by the time 
the ISO and regional managers took their cut, that $450 device was $700 or $800 
to the salesperson, and the cost to the merchant had risen to between $1000 
and $2000.  No question: the merchant’s cost of entry for card acceptance 
was high.  However, sales were brisk, regardless.

The high cost of getting into the electronic payment world did preclude some 
from participating, though.  That’s when the lease, salvation for many small 
merchants and agents, debuted.  The leasing of bankcard POS equipment 
expanded exponentially the field of potential merchants who could pay to play.

Typical leases ranged from $20 to $60 per month for a 36 or 48-month term.  
Some leases we knew of were written at $25 or $30 per month for 60 months – 
arguably, the POS equivalent of the infamous “dollar a month for life!” plan.  
The equipment cost to the salesperson went down to around $325, and the 
leasing company assumed some risk.  Leasing created opportunities for far 
greater unit sales.  Revenue went up even more.

Notably, in that environment, equipment did not become obsolete every 
3-4 years. It worked until it wore out, which could take a decade or more.

Rental agreements are newer, and have evolved substantially, but today they 
are primarily negotiated for short term and seasonal situations.  Common 
examples include charities with fundraising programs, civic organizations with 
special events, merchants planning a sidewalk sale, and ski slopes and boat 
rentals that need a POS system for a few months.

Whatever their purpose, though, rentals cause a lot of angst.  People who 
“do the math” on any equipment rental get very bothered about the cost.  
No doubt, the money you pay for a three-day car rental equals what the 
company pays on its lease for the entire month.  But short term rental is 
about convenience and minimal commitment.  And rental costs have to 
absorb the cost of the non-use of that equipment, depreciation, and other 
expenses involved with having equipment available at a moment’s notice.

And the “free” terminal?  Well, like the free lunch, there is no such thing.  
All agreements have stipulations, conditions and provisions for cost recovery, 
albeit in (very) fine print.  (hint: watch for the term “processing contract”)

Putting emotion, and marketing lures aside, I believe that the #1 factor that 
should drive today’s “buy vs. lease vs. rent” decision is equipment obsolescence.  
What we see today in the POS market,  whether products are sold, leased or rented, 
is that they are technologically obsolete, literally from day one.  Because of the 
elapsed time from development to delivery, POS equipment is near or at the top 
of its curve, (and often heading down the other side) in terms of technology, 
on the day it’s installed.

Obsolescence is the one equipment feature that is universal.  It is also accelerating.  
Software in our industry is under a constant state of flux in terms of functionality. 
As it is enhanced,  and functionality increases, memory requirements increase, too.  
Yet terminal memory is static – no memory expansion allowed.  Merchants will 
not tolerate major outlays for new terminals every 2-3 years, so as a salesperson, 
you need to offer a program that answers these challenges, and has long-term 
benefits for both your merchants – and you.  This is why rental should be the 
option that you should advocate now,  and that represents the best value for 
your merchants’ dollar.

Mind you, I am not talking about the “traditional” rental, whose terms are 
generally twice as long as lease agreements.  We need a paradigm shift in 
thinking about rental agreements.   These are unusual economic times, 
but when there is true recovery, things will still be “different” than before.   
Will a merchant commit to a long-term lease at $60 per month, per unit 
when business viability itself is potentially in question?  Should you even 
propose that he do so?

Also, the long-term lease makes no accommodation for changing needs.  
Programs that are agile, short-term and comprehensive are far more beneficial, 
and more viable.  That means bundling-in a service program, and perhaps an 
upgrade feature at the 6-month point, or some other logical interval.

The new rental paradigm has to be to create substantial value now, with the 
understanding that this is a flexile, month-to-month agreement, cancellable at 
any time, that provides merchants with best-available options for keeping 
equipment as long as it meets current needs.

We as salespeople do not like surprises, and neither do merchants.  
So, as part of the agreement,  merchants should also get processing,  
and peace of mind.  If the equipment fails to function, a replacement is 
provided quickly.  If the POS device is no longer relevant, or becomes obsolete 
from the standpoint of functionality or regulatory caveat, the merchants can 
upgrade at a predictable cost.  If processing needs change or there’s the need 
for added functionality, he can upgrade by simply cancelling the rental of 
“generation 2” and replacing it with generation 3 –or 4.  A nominal transition 
or upgrade fee would cover the necessary reconfiguration requirements.  
The key is that the merchants get to decide.

What this does for the salesperson is create a merchant relationship that is 
likely to endure. You’ll have a greater opportunity to build stronger, more robust 
residual revenue streams, because you have predictable foundational income.   
Commissions are nice, but a residual stream is what you retire on.  That‘s why 
I believe that an agile rental program, with service and upgrades built in for the 
long term, is more viable for both the salesperson and the merchant.

Of course, much of the industry is still hawking “free” terminals and various 
leasing schemes.  Equipment leased today for 3-4 years will doubtless become 
obsolete before the end of the lease contract, yet the merchant is committed – 
he has no flexibility.

“Free” is even worse, thanks to those 2-5 year processing contracts that 
often include periodic, unspecified, rate increases.

If a merchant keeps rented equipment 5-6 years, he will have paid considerably 
more than a straight purchase.  However, service will not have been included, 
upgradeability will not have been provided, and there will have been no provision 
for cancellation if the business falters – or upgrading if it thrives.

Businesses today are concerned with their own longevity, and often do not have 
the capital for a lease, much less a purchase.  Rental is, for the foreseeable future, 
the best answer. It is more flexible, more fair, and ultimately, a better tool for 
building relationships than any of the alternatives.

Biff Matthews is President of Thirteen Inc, the parent company of 
CardWare International.  He is one of 12 founding members of the ETA, 
serving on its board, advisory board and committees.  (740) 522-2150