Are ‘cash back’ POS deals really that good?

I met a man who was excited about the deal he got on his Merchant Services for his store. He was proud to say that he’d been given cash back, $500 for each machine installed. So he was given $1500 for getting 3 POS machines. It sure sounded like a good deal. However, let’s ask ourselves a question.

If you were buying lobster for $15 a pound and selling it for $10 a pound, would you be making money?

Obviously not, and the horrible truth about POS equipment deals with large ‘cash back’ incentives is that the Merchant Services Provider has to be getting that money from you somewhere, or they’d be out of business pretty quickly. Sure, these happy customers will swear up and down that they’re not getting any extra fees and that their rates are great, but usually this means that they haven’t read their statements, or that they don’t know how to read their statements.

I’ve yet to see a deal like this where the statement didn’t have something fishy in the fine print, or where the stated rate on the front page and the actual rates on the back of the first page were different. For one client, his MSP had listed 1.4% as his rate. With VISA charging 1.54% as their true cost, for example, there’s no way the Merchant Services Provider could afford to do this. Upon close inspection, his account was on an “interchange” plan with his true rate being closer to 1.8% after accounting for fees and markups on card company assessments.

What does this mean for his store? Versus what his cost would be with Zomaron, the company I use for Merchant Services, he’s paying about an extra $150 per month, or $1800 per year. Locked into a 5 year contract, this means his MSP will be taking about an extra $9000 from him. Now, does that $1500 cash back still look good?

If you’re doing business in Toronto, and would like to find out whether you’ve really got a great deal on your card processing, just shoot me an email, or call me at (289) 839-1905.