A business' processing equipment is one of the most common reason that a merchant decides to stick with their current provider. If I change providers, will I need to buy a new Point of Sale (POS) system? Or, will I lose information from my current system if it’s updated? Will I be unable to accept cards for a time while the update is underway? These are all valid worries, and any of these fears could potentially come true when implementing a new integration into your current POS. It’s entirely possible your current system will not integrate with a new merchant account (we’d know before you sign up!), and it’s also very possible some features may not work the same after a new integration. Oftentimes systems will work to their full potential after making some back-end adjustments, but it’s still a potential headache to consider.
Speaking of headaches to consider… I’m feeling I may have placed the cart just a bit ahead of the horse. After years of being in this industry I found myself wondering how we got here; why does choosing a POS feel so cumbersome? Together let’s take a quick step back in time to understand more of what brought about the modern point of sale environment. Why does choosing a point of sale have so many dependencies? Networks, gateways, processors, etc... Why does the POS I want require my business to move merchant providers? How many more questions should I have that I'm not considering!?
We don’t need to go back too far; sure, we could trace back to the “Ritty’s Incorruptible Cashier” introduced over 100 years ago, but the decades of use of the mechanical cash register don’t play much of a role in the current climate that is POS systems. We’ll start in the 1970’s, when we’re seeing mainstream commercial applications for computer technology. Some of you may even remember when big chains like Dillard’s department stores and McDonald’s restaurants introduced their first Point of Sale systems at their establishments in the mid-70’s.
Early POS use
In the decade of bell bottom jeans and disco only the larger businesses had the ability to implement new POS technology, with McDonald’s being one the few leading companies displaying the benefit the technology. For customers the ordering process was streamlined, and the food ordered was clearly printed on the receipt for them; for employees they simply clicked a few buttons for the order, and the POS system would do the rest. At this time McDonald’s was increasing both the menu options, and the amount of physical locations around the US, and these two increasing variables led McDonald’s to implement the first Point of Sale system to meet their operating needs.
The point of sale addressed processes that were costing time and money by making it easier for both the employee and their manager to do their job, which in turn heightened the customer experience. Inputting the order into the restaurant’s interconnected POS system digitized placing an order. Effectively, the customer’s order is now data that can be tracked across the POS system. Inputting an order was simple; select the quantity, the item (each menu item had its own button), send the order to the grill (another button), and total the cost of the order (one last button). And, done. Rinse. Repeat. McDonald’s front-end process was ready for broad expansion, but were the back-end operating needs able to handle the same broad expansion?
Alright, we all know where the story heads in regard to McDonald’s expansion; the answer is of course a good old-fashioned "Yes". At the present day we often think of data as being a commodity that has direct monetary value. Back then though, the data obtained by the point of sale provided value by calculating the appropriate tax for the restaurant’s location and by retaining what was ordered throughout a day. The additional benefit was seen on the accounting side of operations, but departments like marketing and research and development also benefited from having access to a restaurant’s ordering trends. It was clear the new system unveiled opportunities for more innovations to the McDonald’s business model.
Modernizing the POS experience
The POS system McDonald’s implemented was designed specifically for their business and its needs. So, enough about 1970’s McDonald’s. (But, remember when the PlayPlace was introduced!?) If POS systems were to gain traction they would need to cater to more businesses, and make the cost of implementing a POS go down dramatically. And, that's exactly what they did. POS industry began growing. We’re now hitting the 1980’s; the POS industry and its available products are starting to resemble what we see today.
In the decade of big hair and LA Lakers finals appearances, computer technology paved the way for innovations in POS technology that expanded the capabilities of what a POS can truly do. Systems created specifically for certain industries allowed for niche markets to form, and POS makers were able to cater to a specific business customer. With these innovations we start seeing point of sale solutions ingrain themselves into a business and its operations, so much so that eventually it’s almost impossible for that business to operate without their point of sale ecosystem. If you’ve ever shopped around for a new merchant account you may have been asked before, “are you married to your current point of sale system?”
Whether you’re married to your current point of sale or not depends on plenty of factors within your control. Sadly, there are also factors out of your control that may play a role in your POS flexibility. For starters, there are multiple processing networks, and a point of sale system must ensure it can communicate a sale through one of these networks. POS designers can choose to integrate on only one network, or choose to make their POS product available across multiple networks. Naturally, the more networks your POS can utilize means the more potential merchants you can board on your system, but there is added cost to the development of the POS system should it be designed to be "network agnostic".
The Point of Sale Database and Cloud
The technology of the 1990’s allowed the POS database to further expand into a business. Businesses have access to real-time inventory on hand at the warehouse. Hospitality merchants could have a database of clients, purchase histories, personal information, and unique needs. Before the widespread availability of high-speed internet, the locally available database allowed a business to monitor their stock counts in real-time, or offer a discount to a returning customer. The hardware was becoming more powerful, and quickly. Hardware purchased in 1990 would be very behind the times if it sat side by side with a system utilizing technology from 1999. Maybe a little more mainstream example than POS systems are gaming consoles; consider how much changed from the 1990 release of the Super Nintendo gaming console compared to the 1996 of Nintendo64 – and that’s only six years. Small and mid-sized businesses could easily purchase expensive equipment that quickly became obsolete.
With the increase in the capability of the available hardware, the software developed was able to get more and more robust. Back in the early days of the 90’s a differentiating item of a POS system was its hardware, but as time went on the hardware a POS used was less of a concern as the desire for the software to meet the needs of a business. Take Kitchen Printers as an example; they started out as a method to streamline getting the order from the cashier to the kitchen, and only need a power and internet connection. From a fundamental perspective, they haven't changed over the years - same form-factor, same shape, same basic idea. Most printers from 2020 look the same as ones built in 2000. But now, many kitchen printers are cloud based. So, from an installation standpoint you don’t need to run long wires from your customer-facing POS to the kitchen. The cable management was made far easier, and the cloud based printer also allows remote printing from anywhere with an internet connection. Advanced POS systems can allow users to pair specific printers with specific users, devices, or geo-locations. At one point in time we may have thought a kitchen printer was as good as it could get, then with small hardware and big software advances, something as basic as a large receipt printer became a powerful device.
A relationship with your Point of Sale
How does all this history have a bearing on your POS decision process? Essentially, just like other industries, the POS systems developed over the years have come about due to a market need. There are plenty of options out there, and choosing one depends on far more factors than just the cost of the system itself. As you now know that first POS system was designed for a specific business, but you likely don’t have the finances or need to make this an option; the systems of the 80’s expanded on new technology and continuously innovated their technology to foster more business; and the hardware and software of the 90’s and 2000’s made it so a business owner and/or manager could maintain a constant view of their operations.
It’s a natural trend to innovate your product where your customer’s have a need, but what that has done within the point of sale industry is foster some sneaky avenues to increase revenue and stickiness. Think about it for a moment, if you’re in the point of sale business what steps may you take to optimize your business’ growth? First, the obvious is to board merchants and gain understanding of what works and doesn’t, but once you have a sizable portfolio of clients using your products you’ll naturally see additional areas to increase revenue, which is exactly what consistently happens. I’ll use ShopKeep POS as a basic example. ShopKeep has a strong POS system that meets the universal needs of many businesses. When they started ShopKeep was hungry for clients and for years incentivized merchant service providers to sell their POS directly to merchants. But after a number of years the company had enough users (and enough users that were ‘married’ to their system) to create an option for their “preferred provider”. In ShopKeep’s case, they eventually added a monthly fee onto their costs if a merchant chose not to use their preferred provider. Since the company I worked at was not that preferred provider, we saw merchants make the decision to leave.
The other side of the “preferred provider” trend we see in the POS industry is the increased revenue generated for the POS company. When a POS company sends one of their clients to their preferred provider, they are gaining access to a larger pool of potential money. POS providers commonly charge a monthly fee for their services. When the POS company partners with a payment processor, the POS company may receive additional residual payments from the provider, to compensate them for the referral. In essence, they get paid to send your business to this "preferred provider" so of course they're going to try to incentivize it however they can.
Now, to be clear, the preferred provider to a POS relationship can have benefits for a merchant, and I don’t want to create the idea that it’s always a negative. It's not. But, often these benefits are not directly seen on the fee side. Fees usually are a little higher in the “All-in-one” processing setup rather than a “third party” integration. The all-in-one integration experience when starting is (usually!) ironed out to be seamless and perfect - they've built the only avenue for processing, so they can ensure it's perfect. On the contrary, a third party integration can sometimes be a bear, depending on the circumstances. And sometimes this is a designed frustration by the point of sale company to say, “you wouldn’t be having this integration issue with our preferred provider!”
More players in the POS game
Some may say the industry has gotten smarter with direct payment integrations, seeing it as a beneficial consolidation within the industry. There are still plenty of independent POS companies out there where all they do is offer their POS solution, but once they have a large enough client base those additional methods of generating revenue mentioned earlier manifests themselves again. The small ones get big. They want to sell. They do things to make them selves more monetarily attractive to potential buyers, by making their customers stickier and gaining additional revenue lines. In the same way that POS providers want to "tap in" to payments, payment providers want to do the same thing with the POS market. They see POS acquisitions as an opportunity to provide additional benefit to their client base while helping to keep stickiness high. A good example of this playing out in the real world is with Clover POS.
Clover came about early in 2012 and quickly became a merchant favorite. By December of that same year the company was already acquired by the payment industry juggernaut known as First Data Corporation (now Fiserv). Not too long after the acquisition, Clover started to take off, and added Bank of America and PNC bank as its first and second resellers of the Clover POS system. Those are two strong first clients! So now - we have a single POS that's being offered semi-exclusively through two of the country's largest processing banks. Additional large banks and Fiserv resellers began reselling Clover, and the POS system quickly became ubiquitous in small and mid-sized retailers/restaurants.
Interestingly, though - Clover serves as a perfect example of a merchant being "locked in". No matter where you purchase Clover POS, the merchant is required to purchase their processing services through the same entity. This is how Fiserv has set the relationship up - no reseller is immune. What this means for a merchant is that even though two companies sell the exact same hardware, it's not interchangeable. You can't take your Clover POS from one processor to another. And this is common in the industry. Many POS systems are "processor specific" - a clear obstacle for merchants to navigate when choosing providers. This is a perfect example of how the industry isn't serving the end-user. Businesses have less choice and fewer options for selecting the best processor for their needs, based on internal profitability decisions of a select few firms. But alas, this is the system in which we all operate.
Applying your new knowledge
Let’s get back to it and answer a few of those early questions. Will I need to buy a new POS system if I change providers? Well, it’s up to you. With some of what’s been mentioned in mind the answer could be "Yes" depending on what POS solution you are looking to optimize. But, it’s definitely not a requirement to work with us, at least! Ultimately, you’ll want your potential merchant service provider to gain an understanding of your business and offer their professional opinion. Your business’ industry will play a major roll in what point of sale solutions could meet your needs, but a good salesperson will want to know your ideal setup and how you’d like to run operations in a perfect world. Maybe, it’s found a system’s full feature set are required to meet your needs, but oftentimes the full capability of a system isn’t a need. Essentially, there are always options!
Will I lose information from my current setup? Sadly, this is another question that has many layers. The answer could be "Yes", but we can at least say this is another time your potential merchant service provider would know. With a Point of Sale update, it's common to have a few hiccups during an integration, which can theoretically change settings or cause you to lose data. A way to visualize what’s happening in the background of an integration is to think about a car going to the shop for a new set of tires. When that car is picked up after the new tires are installed, everything inside the car is just as it was left when being dropped off. You’re just driving out on new tires. It’s mostly the same thing with an integration. We're just updating the connection point that tells your POS where to "send" the information, and your Point of Sale will maintain the current settings. Again, though, a proper salesperson will connect with your POS provider to confirm what to expect well before you choose to move forward. If you have a salesperson that doesn’t ask for your point of sale representative’s contact information it may be a sign of potential headaches!
Will there be any downtime where I’m not able to accept sales while the update is underway? Chances are the answer is "Yes" but it's usually minimal. There will be some kind of downtime where sales are not able to be accepted. However, it could be the ideal length of just a matter of seconds or less, but that’s not always the case. With a Gateway or virtual terminal more often than not once the credentials are input for the new integration the merchant is all set to begin accepting payments. No downtime at all.
For many businesses, card payments make up much of their incoming revenue, so it should go without say that updating how payments are accepted is a big deal. Downtime is a big deal. Headaches are a big deal. In my experience, not until the clear need for a new point of sale solution presents itself should a business start shopping around, since there is a lot of work, time, and money that goes into a new setup. That being said: when you do decide to make the leap to a new POS, I recommend going all-in and really doing your research. This is a decision that will have multi-year ramifications, so it's wise to invest a modest amount of time in research now to save yourself a lot of time in frustration down the line.