Need A Credit Card Machine For Your Small Business? Don’t Lease!
Setting up a merchant account and credit card processing for your small business is no easy feat. Besides all the confusing terminology and financial variables that affect selecting a good merchant account provider, you’ll also have to deal with the misleading claims and high-pressure sales tactics of sales agents at the less-reputable providers. Of all the deceptive and unethical practices found in the credit card processing industry, perhaps none is as dishonest and unfair as the use of equipment leasing to provide small business owners with the credit card machines and POS systems they need to accept credit and debit cards from their customers.
Equipment leasing has been around for a long time, but it’s no longer practical or affordable to lease equipment rather than buying what you need. Hardware prices have dropped dramatically in recent years due to increased competition and the advent of eCommerce. Mobile payment systems such as Square (see our review), which allow you to use your phone as a credit card machine in conjunction with a free or very affordable card reader have put further downward pressure on prices for more traditional equipment. Also, a significant backlash from merchants who’ve been ripped off on terminal leases has led many providers to abandon leasing altogether. Instead, they’ll either sell you a pre-programmed terminal for a reasonable price or offer you a “free” credit card machine to use for as long as you maintain your merchant account with them.
Why do merchants still get fooled into signing up for a credit card machine lease? In many cases, it comes down to intense pressure and misleading promises from sales representatives. In others, it’s simply a failure to “do the math” and realize just how much a terminal lease will actually cost in the long run. In this article, we’ll do the math for you and explain every way in which terminal leases are a disastrously bad idea for your small business. We’ll also explain your alternatives, which mainly come down to buying your equipment outright and getting it programmed to work with your chosen processor’s payment network. It may be a little more work than just accepting a terminal lease, but you’ll save hundreds or even thousands of dollars in the long run.
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Table of Contents
Do You Need A Credit Card Machine?
Before you start researching how best to obtain processing equipment for your business, you’ll want to determine whether you really need it or not. Naturally, if you run a retail business where customers come into your store, you’ll need hardware to read your customers’ cards. eCommerce merchants who only accept sales online through a website, on the other hand, don’t need a card reader or terminal at all.
What if your business only accepts mail or telephone orders? You won’t be able to physically swipe or dip your customers’ cards, but you can manually enter transactions into a standard credit card terminal. However, in most cases, we recommend that you avoid the added expense of a countertop terminal and use a virtual terminal instead. This is a software application that turns your computer into a credit card terminal and allows you to manually enter credit card data and submit the transaction for processing. Almost all merchant services providers offer a proprietary virtual terminal, and many of them will give it to you for free as a standard feature of your account.
Card Data Entry Methods
For a credit or debit card transaction to be completed, you have to transmit your customer’s card data to your processor’s network for transaction approval and payment. Transactions are classified as either card-present or card-not-present. A transaction is labeled as card-present if the customer’s card is physically inserted into a card reader and the merchant can verify (to a reasonable certainty) the customer’s identity. Card-not-present transactions include all other transactions where the cardholder data is entered without the card (and the customer) being physically present. This includes mail order, telephone order, and online transactions. Another possibility is when the card is physically present, but your terminal is unable to read the card, and you have to enter the information from it manually. While this was a fairly common occurrence with magstripe cards, it’s far less likely with the new EMV cards. Because the merchant cannot reasonably verify the cardholder’s identity, card-not-present transactions involve a higher level of risk of fraud. Consequently, they almost always require a higher processing rate.
Card-present transactions can be entered in one of three ways. Traditionally, magnetic stripes on the cards were used to store cardholder data, and the magstripe would be read by swiping the card using a credit card machine. EMV (Eurocard, Mastercard, and Visa) technology replaces the magstripe with an embedded chip that can store additional data and offers more security against fraud. EMV cards require an EMV-compatible card reader. Most new card readers on the market today include both EMV and magstripe capability. Because the EMV liability shift that went into effect in 2015 transfers responsibility onto merchants for fraudulent transactions where an EMV card is read using a magstripe reader, we highly recommend that you obtain an EMV-compliant terminal and use it for all card-present transactions whenever possible. Finally, there are NFC-based payment methods such as Apple Pay and Google Pay. For these types of transactions, a smartphone or smartwatch with an NFC (near-field communications) transmitter sends the cardholder data to the terminal wirelessly. This payment method offers ease and convenience to your customers, but you’ll need an NFC-equipped terminal to use it. While customers have been somewhat slow to adopt NFC-based payments, their use is growing and will continue to do so as more people become aware of them. We recommend that you consider upgrading to an NFC-equipped terminal as a way to future-proof your processing equipment.
Hardware and Software Options
While any card reader or terminal will perform the basic function of reading your customers’ credit and debit cards and then sending that information to your processor, there is a wide range of equipment (and software) options available to choose from. Which type of equipment is best for your needs will depend on your requirements, your budget, and whether you have a legitimate need for some of the fancier optional features on the higher-end machines. Consider the following options:
- Countertop terminal (wired): This is the most basic choice for processing credit card transactions, and it’s very popular with retail merchants due to its small size, affordable price, and ease of use. Traditional countertop terminals connect to your processor’s network via either Ethernet or a landline telephone connection. Many models support both connection methods, giving you a backup in case your internet connection goes down. At a minimum, you’ll want to purchase a terminal that supports both EMV and magstripe input methods. NFC capability, either built-in or available with an optional PIN pad reader, is also a good idea. Countertop terminals range in price from as low as $120.00 to a little over $300.00. Note that the least expensive options available online do not come with a software load, so you’ll have to have your processor re-program the machine to work with their network. There may be an additional reprogramming charge for this service, with pricing ranging from $0.00 to around $100.00 per machine. A popular, highly-rated countertop terminal is the Verifone Vx520.
- Wireless terminal: These machines are virtually identical in function to their wired brethren, except that they connect to your processing network via a cellular data connection, such as 4G or LTE. Wireless terminals are completely mobile and will work wherever you can get a cellular signal. As such, they’re popular with mobile businesses that need to be able to accept cards in the field. Unfortunately, they’re also bulkier and much more expensive than wired models. Prices start around $350 for a single terminal. They also require a separate cellular data plan, which usually runs around $20.00 per month. Wireless credit card machines are declining in popularity due to the availability of smartphone-based mobile processing systems such as Square (see our review), which perform the same credit cad processing function for a much lower price.
- Virtual terminal: As we’ve noted above, a virtual terminal can allow you to input credit card data through your computer, eliminating the need for a dedicated terminal. If you want to accept card-present transactions, you’ll need a compatible card reader to read the card data and send it to your virtual terminal software. Most card readers connect to your computer via USB, although Bluetooth-connected models are now becoming available. Unfortunately, most of these card readers only support magstripe as an input method. EMV-capable models are just now starting to reach the market. If you plan to use a virtual terminal and card reader instead of a traditional terminal, we recommend you find a newer model that supports both EMV and Bluetooth. You’ll want to check with your merchant services provider to ensure compatibility, as not all providers support these models yet.
- Mobile processing system: Almost all merchant services providers now offer some type of smartphone + card reader system similar to what Square offers. These systems usually include a free app and a magstripe-only card reader that connects via your device’s headphone jack to process credit card transactions. The primary advantage of this system is that you can have the benefits that come with a full-service merchant account and a completely mobile system for accepting transactions. Unfortunately, most of the mobile apps offered by traditional merchant account providers include only the most basic functions. Many of these apps also suffer from usability and connection problems. We haven’t yet found a mobile processing app from a traditional merchant account provider that’s as good as Square, although this could change in the future. Another obvious advantage of mobile processing systems is that they can potentially eliminate your need for a traditional credit card machine. Mobile processing apps are almost always free, and the magstripe-only card readers are either free or offered at a very low Upgrading to an EMV-compliant or Bluetooth-connected card reader will cost extra, but they’re still far less expensive than regular terminals. Note that most providers offer mobile processing as an optional add-on to a traditional merchant account and charge a monthly fee (usually $20.00 – $30.00) for this service. For a side-by-side comparison of some of our highest-rated mobile processors, see our Mobile Credit Card Processing Comparison Chart.
- Point-of-sale (POS) system: A POS system can connect your transaction processing with just about every other aspect of your business, including inventory management, employee scheduling, and data analytics. POS systems can be either a dedicated terminal like First Data’s popular Clover Station (see our review) or a tablet-based software offering that works on your existing equipment. While the latter option is generally less expensive, you’ll have to provide your own iPad or Android tablet. You’ll want to factor this expense into the total cost of ownership, especially if you need more than one machine. POS software usually comes with a monthly fee, which can range anywhere from $69.00 per month to as high as $299.00 per month, depending on the options you select. For more information on our top-rated POS software vendors, see our POS Software Comparison Chart.
How To Get A Credit Card Machine
Options for obtaining a credit card machine for your business generally come down to either buying one outright or paying for one on a monthly basis. Let’s consider the pros and cons of each possible option:
Buying: The easiest way to equip your business with a terminal is simply to buy one. You can purchase a terminal from either your merchant services provider or through a third party. Most merchant services providers – even the ones that aggressively push the leasing option – will sell you a terminal if you ask. Credit card machines purchased through your provider are generally more expensive than just buying one on Amazon, but they come preprogrammed to work with your provider’s processing network and may include a guarantee or insurance plan to protect your equipment. If you choose to purchase your credit card machine from a third party, you’ll usually pay a lower price for it. However, you’ll have to have the terminal reprogrammed to work with your provider. While some providers offer this service for free, others charge as much as $100 per terminal for it. You’ll also want to select a terminal that’s compatible with your provider’s network, as not all terminals are compatible with every provider.
Reusing your current terminal: If you already have a compatible terminal from your previous provider, the easiest (and least expensive) option is to keep it and have it re-programmed. Again, the potential for compatibility issues cannot be ignored, so check with your new provider to confirm that this option will be available to you. Reprogramming a credit card terminal is a simple procedure. The new firmware (called a “software load”) is installed onto your terminal, replacing any existing software already in place. Reprogramming can be accomplished in person by a sales representative or by shipping your equipment to your provider, who will install the software and mail it back to you.
Leasing: Of all possible options, this is invariably the worst one. Leasing requires no up-front costs, and this may make it very tempting if you’re trying to minimize expenses. However, the total cost of a lease over the life of the lease term will far exceed the cost of buying your equipment. Most providers who offer leased equipment will sign you up for a long-term contract (typically for four years) that is completely and utterly noncancelable. We cannot emphasize this last point enough: most providers (who often use independent leasing companies to provide the equipment) will not let you out of your lease early under any circumstances. Regardless of your reasons for deciding to break the lease, you will be held liable for all remaining payments due under the lease if you try to break it. Even returning your equipment will not get you out of your lease. If you’re ever remotely tempted to lease your equipment, multiply your monthly lease payment by the number of months in your contract. That’s how much your lease will actually cost you. We can virtually guarantee that amount will be several times more than the cost of buying the same equipment outright.
There’s no way around it: equipment leases are designed to generate easy, guaranteed profits for your provider (or their leasing company). They’re not intended to be a good deal for you, the merchant. Consider also that with most leasing contracts, you still won’t own your equipment even after you’ve made the final payment on your lease. By this point, you’ve overpaid for your machine by hundreds of dollars, but if you want to keep using it, you’ll either have to buy it outright (often at an inflated price) or continue making monthly lease payments indefinitely. Some leasing companies will even put you on another long-term leasing contract. Don’t do it!
We cannot emphasize enough just how bad of an idea equipment leasing is for your business. Equipment leasing is one of the most egregiously unethical practices in an industry that already has a bad reputation when it comes to honesty and fair dealing. Unfortunately, it’s just too easy for a leasing company to buy a large number of terminals at wholesale cost, reprogram them, and then lease them out to unsuspecting merchants. To make matters even worse, most leasing companies have a reputation for providing little, if any, customer service once you’ve signed your lease. The only good news we have is that leasing has become such a despised practice that most providers will now offer you the option of purchasing your equipment rather than leasing it. Some of the better providers don’t offer a lease option at all. If your sales representative tries to talk you into leasing your equipment, it’s a good sign that you need to hang up and find a more reputable provider. For an overview of some of the leasing companies you’ll want to avoid, check out our article The Worst Credit Card Terminal Leasing Companies.
Renting: In response to all the negative feedback that leasing has generated, some companies now offer the option of renting your equipment instead. You’ll still have to pay a monthly payment, but there’s no long-term contract and you can return your terminal at any time with no penalty. This is actually a reasonable alternative for some businesses, especially new startups that are looking to minimize costs. If you’re just launching your business and choose to rent, you’ll want to seriously consider dropping your rental agreement and purchasing your equipment once your cash flow can support doing so. Renting a credit card machine may also require that you purchase a suitable insurance/replacement plan, so consider the total cost involved if you’re thinking about this option. Also note that in Canada, EMV-equipped terminals cannot be easily transferred or resold, so renting is your only choice.
Credit Card Processing Options
If you’ve been reading this far, you’re probably starting to wonder if accepting credit card payments is really worth it. Maybe you’re considering just taking cash and checks. Fortunately, it doesn’t have to be this way. While the leasing practices of many merchant services providers are just as bad as we’ve made them out to be, there are also quite a few reputable providers on the market who will treat you fairly and get you the equipment you need for a reasonable price. Here’s a brief overview of several providers that are best suited to small and medium-sized businesses:
Square: One of the most popular payment services providers (PSPs), Square is a very affordable alternative to a traditional merchant account for small businesses and startups looking for a quick and easy credit card processing solution. Equipment options include the original, magstripe-only Square Reader (free!), Square EMV Chip Card Reader ($29.00), Square Chip + Contactless Reader ($49.00), and the Square Register POS system ($999 or $49 per month for 24 months). Square has no monthly fee and offers the lowest price on an EMV-compatible, Bluetooth-equipped card reader that we’ve seen anywhere. See our complete review for more details.
Fattmerchant: A newer company with an innovative subscription-based pricing model, Fattmerchant is a great choice for merchants who only need a virtual terminal. Their Fattmerchant Payments Online virtual terminal works with either a computer, smartphone, or tablet, and incorporates features such as invoicing and subscription-based billing. They also sell several different countertop terminals, all of which are EMV-compatible and NFC-capable. Like Helcim, they’ll reprogram your existing compatible terminal for free. See our complete review for further information on Fattmerchant’s credit card processing solutions.
Helcim: One of the most affordable options for a full-service merchant account, Helcim serves merchants in the US and Canada. They offer a variety of wired and wireless terminals for sale, all of which support EMV and NFC payment methods. If you have your own compatible terminal, they’ll reprogram it for free. They also have a Terminal Exchange Program where you can trade in your old terminal for a refurbished EMV-compatible model for only $79.00. For Canadian merchants, they offer EMV terminals for rent, but it’s month-to-month and reasonably priced. See our full review of Helcim for more information.
Obtaining processing equipment and software for your business doesn’t have to be difficult or overly expensive. Unless you’re operating in Canada, buying your terminal(s) outright will be your best option in most cases. If you’re switching processors and already have a terminal, check to confirm that it’s compatible before considering new equipment. Even if you have to pay a reprogramming fee, it will cost a lot less than buying new equipment. If your existing terminal isn’t EMV-compatible, now is definitely the time to upgrade to a newer model.
Whatever you do, don’t get talked into leasing your equipment! Unscrupulous sales agents have a number of misleading arguments in favor of leasing, but none of them hold up to the slightest scrutiny. Yes, you can get into a lease for no money down, but that’s hardly worth it when your total cost over the life of your lease will be so much more than what the equipment is worth. You’ll also hear that your lease payments are tax-deductible. While that’s true, you can just as easily write off the cost of buying your equipment, and you won’t be getting ripped off in the process. Sales agents also tout the benefits of equipment insurance and upgrades that come with a lease. However, the overwhelming feedback from merchants that we’ve seen indicates that you’ll receive little or no support from the leasing company after you’ve committed to a lease. If you want to upgrade to newer equipment, you’ll have to return your old terminal(s) and sign a new lease for the replacement model. This will inevitably cost you more per month and extend your obligation under the lease even further. Regardless of what any sales agent tries to tell you, a new credit card machine with EMV and NFC capabilities will probably be “future-proof” for at least the next 5-10 years.
In evaluating a potential merchant services provider and credit card processor, we also encourage you to look at complaints filed against them on consumer protection sites such as the BBB and Ripoff Report. While not all complaints are valid, you’ll usually find a pattern of charges against those providers who actively push equipment leases on their merchants. Misleading sales practices and failure to disclose the terms of the lease are common complaints from merchants who were tricked into agreeing to a lease. The noncancelable nature of these leases is also quite extreme. We’ve seen complaints where the business owner had died, and the leasing company still wouldn’t let the heirs out of the lease! Don’t let this happen to you – follow our advice and buy the equipment you need. You’ll be glad you did!
We've done in-depth research on each and confidently recommend them.