In an Ironic Twist, Free Terminals Could Hike Payment Software Sales

The trend among independent sales organizations and other distributors to offer point-of-sale terminals to merchants at no nominal cost to them?the so-called free terminal trend–is building the case for POS software as an alternative to dedicated, standalone terminals, says the top executive at one company that specializes in PC-based transaction software. For the first time, argues Bill Pittman, president of TPI Software LLC, it is now cheaper for ISOs to sell software rather than hardware. That's because offering free terminals requires ISOs to tie up capital in terminal inventories that no longer produce sales or leasing income, making hardware for the first time a net expense item for distributors. Software, on the other hand, is cheaper to produce and bring to market. “If you're an ISO you can now offer software that's a lower cost to you and still get that service [contract],” argues Pittman. “That should increase software sales.” ISOs began advertising free terminals to merchants in the fall of 2004, following a tactic successfully pursued for many years by cellular telecommunications carriers. The carriers give away mobile phones or offer them at deep discounts to lock subscribers into service contracts. In the same way, many ISOs now hope to get merchant commitments for credit and debit card processing by offering them terminals at no charge that normally retail for hundreds of dollars. But Pittman, whose Redmond, Wash.-based company sells software that processes cards and electronic checks, says ISOs could lock in the same contracts at much less capital expense by selling software instead. Software also offers smaller ISOs, which are struggling to match the free terminal offers coming from larger competitors, a way to compete, he says. Merchants, he says, like the idea of equipping PCs they have already installed?and which are already IP-connected?to run payments. Pittman concedes that barriers still stand in the way to higher software shipments. For one thing, many ISOs are accustomed by long years of experience to selling hardware, not software. Payment-processing software and its capabilities have become more intuitive and easer to explain?and thus to sell?he says, but overcoming hardened sales habits will take time. “I've tried to get ISOs to think outside the box?literally,” Pittman says. “We've gotten better at writing software and the average person has gotten more accustomed to using software. That has taken away the fear factor.”