If you purchase a hardware and/or software that requires you to use a specific merchant services provider, you may find yourself stuck down the road after investing quite a bit to get up and running. Always make sure you can take your solution with you if you leave your payment processor.


Ladies and gentlemen, boys and girls, welcome back for another episode of whatever this is. Still trying to figure it out. I am Jaron Rice, founder and CEO of Magothy Payments, Maryland’s highest-rated merchant services provider here to give you more information and insight into the merchant services industry.

Today I want to talk about why you as a business owner should not use a hardware or software platform that has an exclusive provider for payment processing services. This might be a point-of-sale system. There are some point-of-sale systems that have exclusive providers for the payment processing. This is extremely dangerous because once you have invested five, 10, 15, $20,000 dollars in getting the hardware, there is absolutely nothing stopping that company from raising your rates once you are acclimated to the software. It’s like a golden handcuffs type of situation.

If you’re a restaurant owner and you’ve invested thousands of dollars into a point-of-sale system, you’ve spent countless hours training your staff, and your waiters, and the cooks and everybody to use that platform, your entire business runs through that point-of-sale system. Imagine six, 12, 18 months in, the payment processing rates begin to go up and up and up and up, and you’re essentially stuck because you invested in this hardware and you’re using a software that you cannot integrate with another payment processor.

This happens quite a bit. So you always want to find out in the beginning – not just from the sales who is talking to you because, unfortunately, a lot of them will say anything to get a sale. You want to find out if you’re not happy with the payment processing side of the service, can you switch that to a different provider and still keep the hardware and software that you’re using? If the answer is no, you should strongly consider using another provider.

A famous example of this is the Clover system that was developed and manufactured by First Data. The sinister genius of Clover in and of itself was that it’s good hardware. It’s sleek. It’s sexy, has a lot of software options, but the merchant services provider that issues that Clover has complete and total control of it. Using this as an example, say you were with Bank of America merchant services and they issue that Clover to you. You spent a couple thousand dollars on Clover stations and things like that, and you switch banks from Bank of America to PNC. PNC merchant services also uses Clover, but the Clover that was issued by Bank of American cannot be reprogrammed to work with PNC.

In the payment processing industry, whenever you have a top-level processor like First Data or Elavon or Worldpay, typically the merchant services providers underneath it, if you switch, you could reprogram your equipment because you’re still under the same umbrella. With Clover, First Data changed that so only Bank of America can reprogram that equipment to other Bank of America customers. It’s another set of golden handcuffs where if you have invested in this hardware by either buying it outright or heaven forbid you leased it for three or four years, if you were to leave that merchant services provider, that hardware becomes absolutely useless.

There have been many situations that we’ve encountered in the field where it was like, “OK. We can save you a considerable amount of money on the payment processing, but you’re starting from square one as it relates to the hardware because this hardware cannot come with you.” For some business owners, we can show them savings over a long enough timeline the know they’re going to make their money back and they’ll pull the trigger. For others, cashflow might be more tight, and so it’s like, “I don’t have four, five, six months to break even on the loss that I’m taking off of this hardware and so I’m stuck in this situation.”

If you are a business owner who is looking to invest in a hardware or a software solution, please, please, please make sure that if you’re not happy with the payment processing, you can take that with you. If you can’t, again, we would strongly advise that you consider other options.

Now, a lot of people in the payment processing industry don’t like me sharing that information. They want an additional layer of what we call “stickiness” to keep the merchant in their portfolio. But myself and us as a company, our philosophy is we want you to stay with us because you want to, not because we’re twisting your arm. We will stay away from those types of solutions that force you to stay because there’s a financial repercussion on your end for going somewhere else.

Just something to keep in mind. I hope that was good information. Again, always consider liking and subscribing to the channel, and let us know if you have any additional questions. I hope you’re having a great day and have a good weekend.

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