Cheaper POS hardware is here: read the contract before you take the free terminal

A sales rep walks into your store with a new countertop terminal and a handheld for the floor. No charge for the hardware. Sign here and they’ll swap it in on Monday.

The offer is real. The question is what you’re signing.

Hardware got cheaper. Check where the cost went.

Payments Dive reported on October 5 that parts of the point-of-sale hardware market are seeing price cuts, including free hardware paired with software discounts. A vendor can make that money back through processing and software fees written into the merchant’s contract, and in some cases through “dual pricing,” where cash and card customers pay different prices.

Jacob Haggarty, an equity research associate at Baird Equity Research, told Payments Dive what the discount buys the seller: “if you get someone on the platform through a discounted hardware, now you’ve got them ingrained in your software.”

None of that makes a free terminal a bad deal. It means the price of the terminal can live in the contract, so the contract is where you shop.

What these contracts have cost merchants before

Long equipment and processing contracts aren’t new, and neither are the complaints about them.

In 2022 the FTC took action against a payment processor that, it said, told small businesses they could cancel any time, while its standard agreement locked them into a three-year term with a $495 cancellation fee. The settlement required $4.9 million for refunds to affected businesses.

In Vermont, credit card equipment leases drew more complaints to the attorney general’s office than any other kind of business complaint. One example a state senator cited: a terminal that cost $300 to buy cost $6,000 to lease, on a contract of up to four years. A 2018 Vermont law now gives merchants 45 days to cancel a terminal lease and requires the lessor to say whether the terminal can be bought, and for how much. Where there’s no rule like that, the contract is your only protection.

Five questions before you sign

Ask these about any new terminal, free or not, and get the answers in writing:

1. 01Who owns the hardware? Is it yours, a lease, or on loan as long as you process with them? If it’s a lease, ask what it would cost to buy outright.
2. 02How long is the term, and does it renew on its own? Look for the renewal clause and how much notice you have to give to leave.
3. 03What does it cost to leave early? A flat fee is one thing. A fee based on what they expected to earn for the rest of the term can be much larger.
4. 04What happens to the terminal if you leave? Find out whether you can keep using it with another processor, or whether you have to send it back.
5. 05What will you pay per sale, and can it change? Ask for the full rate and every monthly fee, and whether the contract lets them raise either one.

If a rep offers dual pricing or a card fee to cover your costs, check it against your state’s rules first. We wrote about how those rules now vary state by state.

The cheapest terminal is the one you can leave

A free terminal on a fair contract is a good deal. A free terminal on a four-year lease you can’t get out of is the most expensive one in the store.

Before you sign for new hardware, get the contract’s term, exit cost and rates on one page. If you want a second set of eyes on a contract you’ve been handed, talk to an expert at 770-766-1060.