The downside of DIY processing

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Alison Burns feels like a broken record every time she has to give the same spiel to prospective merchant clients: Before you invest tens of thousands of dollars in a new point of sale system, know what you’re getting into first.

Is the processor going to charge an upgrade fee to switch over? Or does the system offer enough product codes for your inventory? These are questions Burns knows to ask. Yet the temptation remains for merchants to DIY their own processing and cut out the so-called middleman, and it’s a trend Burns is seeing more of.

They figure they can save a few bucks by going directly to a processor and skip the ISO altogether. But almost every time, Burns says, they end up with a POS system that doesn’t meet their needs and results in exorbitant costs, so they end up doing major damage as a result.

“It’s chasing that bright, shiny ball,” Burns says. “A lot of times, business owners don’t realize that if you’re proposing a system that doesn’t cost a lot and has low rates – well there’s a reason.”

Burns recently consulted a friend who owns a startup boutique and was on the market for new credit card processing. The shop owner attempted the DIY approach and went directly to a processor. Now the owner has a system that cost her thousands of dollars and that she doesn’t like. She finally got to a place where she couldn’t do anything else with her POS system and went looking for help.

“There are certain things that business owners either aren’t aware of and don’t think of, or they’re just so bogged down that it doesn’t occur to them,” Burns says.

Burns offered another example of a dancewear store she worked with recently. Given that pointe shoes come in every possible color, the store needed to have the capability to process a high volume of SKUs. But it hadn’t occurred to the shop owner that not all systems have the same SKU capability. Not having that capacity could make or break a business, Burns says.

“I don’t think it would dawn on many business owners to ask,’ How many SKUs are in there?” Burns says. “Those are just questions that won’t occur to a business owner unless you’re consulting with someone.”

Industry consultant Mark Dunn says merchants don’t often understand the components that go into pricing. Because of that, they assume that buying direct from a third-party processor means they’re getting wholesale pricing.

“I think generally in our business today, people are trying to hack pricing,” says Dunn, who is president of Field Guide Enterprises LLC. “But it’s not as easy as it might appear. Just because you read a few articles about how pricing works doesn’t mean you really understand the bill that you’re getting.”

As someone who regularly analyzes statements, Dunn says there’s very little uniformity in how pricing is presented. Things that are labeled simply as interchange might actually be interchange that has been marked up. “It takes some pretty detailed analysis to get down to what the actual fee structure is and how it works,” he says.

Dunn has come across merchants who encountered hidden landmines in their merchant agreements because they did not fully understand the deal they signed.

“For example, if you have a very high cancellation fee and you don’t understand how it’s calculated, that could be a pretty nasty surprise if you decided you wanted to change to another processor,” he says.

That’s why Dunn says merchants need to focus on more than just the pricing.

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