GoPago's sales pitch is meant to make terminal manufacturers and independent sales organizations cringe: it is offering free hardware to support a cloud-based mobile payments system to small merchants, with no wiggle room on transaction fee pricing.

San Francisco-based GoPago, with the backing of JPMorgan Chase & Co., will provide interested merchants with a GoPago Live system featuring a Google Inc. Android tablet and a GoPago card reader attachment, the company announced Aug. 7.

In addition, GoPago offers a free tablet stand, cash drawer and receipt printer, as well as free software, support services and Verizon Wireless 4G connectivity, says GoPago CEO Leo Rocco.

"The days of merchants paying thousands of dollars for terminals are over and the days of ISOs coming in and finagling with the rates are over," Rocco claims.

GoPago Live merchants pay a 2.85% rate on each payment card transaction. This rate remains fixed regardless of transaction amounts or volume. The rate also stays in place "for as long as the merchant is using GoPago," Rocco says.

GoPago, Chase and Verizon will split the transaction rate revenue, Rocco says. Cash transactions carry no charge, he adds.

The GoPago Live system came about from merchant feedback, Rocco says. Mostly, merchants expressed concerns about the number of fees they had to deal with and the costs of upgrading or replacing their current POS systems, he adds.

"The merchants were basically saying 'help us,' and all of their thoughts were brought into this cloud-based product," Rocco says.

GoPago may not be the only company listening to these concerns. This year, Groupon reportedly began testing a mobile card reader similar to Square's, which is an add-on for mobile phones and tablets. One of the selling points behind this system would be a free iPod Touch

SCVNGR's LevelUp is taking a different approach to the free-payment model. Instead of charging for transactions, its pricing is linked to the marketing side of its system — payments are free.

Earlier in the year, GoPago's mobile payments technology received a significant boost from Chase as a supporting bank. Chase Paymentech POS software featuring data encryption supports the GoPago mobile payment software in the GoPago Live terminals.

"Being backed by Chase shows a great commitment for the benefit of brick-and-mortar merchants," Rocco says.

The prospect of a free POS system definitely addresses the problem of aging equipment, says Brian Riley, senior research director and analyst with Needham, Mass.-based CEB TowerGroup.

"Most POS systems are not state-of-the-art, so this helps," Riley says.

Chase has always been "very aggressive in protecting small businesses," so the bank's support of GoPago's initiative makes sense for them, Riley adds.

In addition, GoPago's mobile storefront concept is proactive in recognizing that the evolution of Square Inc. and other competitors has resulted in "a very unsettled merchant revenue model," Riley notes.

A key for GoPago will be the ability to adapt the system to EMV smart card acceptance or other technologies as they unfold in the U.S., Riley suggests.

Rocco says the terminals and cloud-based, payment-as-a-service system software will adapt to EMV when necessary, while also pointing out the system extends to different interfaces in working on an Apple Inc. iPod or smartphone in addition to the Android tablet.

"This system replaces the merchant's existing POS system, enabling all method[s] of payments, including GoPago mobile and all credit cards," he adds.

GoPago offers its system online, and the vendor has a sales force working through various marketing channels and Chase's 5,500 branches to promote its system.

Even as many merchants test new, smartphone-based payment systems, "cash and credit cards are not going away any time soon," Rocco says.

"We are bringing the power of what's available today to a brick-and-mortar business without any crazy up-front costs," he says. "And the merchant doesn't have to be a technical wizard."

While ISOs may not get a piece of the GoPago action, some have sweetened the pot for merchants with free POS systems in the past year through various arrangements with terminal manufacturers. 

In January, ISOs working with United Bank Card Inc. tried to entice merchants to sign up for card services by offering a new, upgraded Harbortouch POS system as part of the deal. 

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