Free-Equipment Pioneer United Bank Card Hints at Enhancements to Come

Despite criticism that free point-of-sale terminals for card-accepting merchants undercut independent sales organizations’ profitability, the company that started the trend back in 2004 remains staunchly committed to the strategy. The investment in hardware is more than returned in reduced attrition, says Jared Isaacman, chief executive of United Bank Card Inc.

“We know the retention benefits we have, the quality of the merchants,” Isaacman tells Digital Transactions News.

While widely decrying it, UBC’s competitors widely copied the processor’s free-terminal program. But no one has taken the free-hardware concept as far as UBC. The company first offered free countertop terminals in 2004, followed by wireless terminals in 2005. Then came free Casio electronic cash registers in 2009. Early in 2011, UBC began offering its Harbortouch POS business-management hardware and software systems free of charge to restaurants and retailers. On Jan. 1, UBC plans to announce what Isaacman calls “some cool stuff” that will enhance the program, but he refuses to divulge details beforehand.

About 7,000 UBC merchants use or have signed up to use Harbortouch POS systems, three-quarters of which are restaurants, according to Isaacman. Hampton, N.J.-based UBC has 100,000-plus merchants, not all of which are suitable for Harbortouch systems. The target Harbortouch merchant typically does $500,000 to $2 million in annual credit card sales, he says.

The Harbortouch restaurant POS system aims to give users the same functionality in managing menus, orders, inventory, and other aspects of their business in addition to payments that they would get only by spending thousands of dollars on equipment from Micros Systems Inc., NCR Corp.’s Radiant Systems unit, or other specialty POS suppliers for eateries. Restaurant owners are more cognizant of the benefits of multifunction POS systems than retailers are, according to Isaacman. “While I believe the bigger market is retail, the easier sell is hospitality,” he says. “It’s very simple for a restaurant owner to grasp.”

POS terminal sales traditionally provided a major source of revenue for ISOs. If that stream is reduced or gone, the primary ways to maintain margins are to increase discount rates, reduce expenses, or sell value-added services that can command fees.

Isaacman says UBC’s agents aren’t jacking up discount rates in order to recover the costs of hardware systems. “The rates that our sales reps charge are not high, but they’re not the lowest; they’re reasonable,” he says.

UBC itself has only a very small internal sales force; most of its accounts are generated by more than 3,000 contract representatives who have authority to set pricing. If in landing a new merchant account an agent submits “ridiculously low rates, we call them,” says Isaacman. Such calls are more to “educate them” than to overrule the agent’s decision, he adds.

For UBC, an important profit driver is reduced cost through low attrition. The loss of merchants, with the attendant expenses for replacing their transaction volume, is the bane of ISOs. In addition to high exposure to the closure of small businesses, the ISO industry also is rife with processors competing on price in order to generate new accounts. Merchant churn can easily exceed 20% annually. Isaacman wouldn’t reveal his attrition rates, but says the free-equipment program has increased merchant loyalty and brought attrition down to about a quarter of levels in comparable portfolios. “All the numbers we have are extremely low,” he says.

About 900 UBC agents have completed an online training program called “Harbortouch University” that requires learning the material in about 300 slides. About 150 received further training and certification through a hands-on program at UBC’s weeklong company conference this year. “They can do a sophisticated presentation to the merchant,” says Isaacman. Agents get sales leads online from UBC.

UBC developed part of the Harbortouch software itself and uses a contract manufacturer to assemble the POS systems using components UBC gets from other manufacturers. Isaacman wouldn’t say where the assembler is located.