Leasing Isn’t Evil. Why I Changed My Mind.

If you’ve been my follower for a few years, you know I was probably the most vocal opponent of leasing in the industry a few years ago!  I do still firmly believe in free terminal placement.  I would never sell for a processor who didn’t offer that option.  However, I’ve had a big perspective change from outspoken opponent of leasing to fully supportive.  Both options are beneficial.  Follow my discovery journey in this episode about the benefits of leasing for merchants AND reps.

Allow me to use a hypothetical example to explain my logic and reasons for a change of perspective.  Imagine receiving a recruiting email from a processor outlining their program of sales in the field.  This unique program has no pricing requirements at all – no minimum pricing.  There might be five or ten dollars a month in monthly fees but no other extra fees which are usually on statements.  This gives you a ton of pricing flexibility.  There is, however, a $49 monthly statement fee, all of which goes to the processor.  On every single deal the processor gives you a $1,000 bonus.  There is no leasing involved.  It’s just a normal program from a processor.  You get $1,000 and can price them wherever you want.  I’m sure no one would think of that as wrong.  The merchant gets nothing more than the ability to process for that $49 per month.  It is a part of the pricing model.  There is nothing wrong with that.  Now, further imagine that the $49 charge goes away after 36 or 48 months.  Most sales reps in the industry would sell that like crazy, right?  You would get $1,000 per sale and your residual cut, too.  But the residual is on the basis points and transaction fees.  You’d probably sell clients at fifteen basis points and $0.06.  You would still have some margin there for residuals, but the merchants would be saving even after the $49 charge.  This hypothetical example is a description of leasing!

My original perspective of leasing was focused on the dishonesty.  I saw sales people tricking merchants into believing a three or four-hundred-dollar terminal was worth two thousand.  It can be that way if you are lying to people.  That is wrong!  The terminal isn’t worth that much.  But there is a larger picture of leasing in the industry.

This is the way I describe leasing to merchants.  I’m 100% honest; I tell them the truth!

“Look, I can put you with a processor who is going to offer a ‘free terminal’ or ‘loaner terminal.’  But I’ve run into many problems with that.  Those processors require me to price it a lot higher.  That might add $60 or $70 additional mark-up.  You don’t want to pay it, and I don’t want to charge it!  But for you to have a ‘free terminal,’ the processor includes various mark-ups to pay for the terminal.  If you lease the terminal, you’ll pay a bit more for the terminal.  That’s where I make my profit.  But the great thing is I have the flexibility to price you a lot lower when I don’t have pricing requirements of the loaner terminal companies.  And the lease payment will also end after 48 months.  You have a very good program.  Another downside of ‘free terminals’ occurs if you ever cancel or try to move on.  As happened with many of my clients, they were stuck with an $800 ACH from their bank account for a $200 terminal.”

I know companies right now considered the subscription model, true pioneers of honesty and integrity in the industry, because they do interchange plus $99 a month.  So, what if you do interchange plus fifteen basis points and $49 a month lease?  Charging the merchant for the ability to process is not wrong as long as you are honest.

There is one other issue which affected my change of mind.  Processors stopped pushing leasing.  I naively assumed processors felt it was bad for the merchant.  However, I later understood that many (not all) processors were playing a game which helped bring a stigma in the industry towards leasing.

The most obvious reason for the stigma was dishonesty.  There were ridiculous scams going on, such as charging the merchant $100 per month for sixty months on a VX-510.  Merchants were assured theirs was a one-of-a-kind terminal.  In reality, the processor had only put a unique sticker on it.

A broader reason the processors stopped pushing leasing is the realization that merchants are willing to pay a monthly fee just for processing.  Processors get very little money for a lease.  And a lease is not worth anything in a buy-out.  Processors don’t benefit from a lease; that money goes to the rep.  So, they began to require reps to charge certain basis points, per item fee, and a monthly fee rather than leasing.  The charge to merchants was the same $39 or $49 a month, but there are two particular advantages for processors.

#1.  The fees are forever, not a lease with a term.

#2.  They are sharing in the profits with the rep.  

This increases their bottom line and their sale ability of the company or portfolio for the future.  So, these things have helped me come full circle in my perspective of leasing.

My change of perspective has not caused me to eliminate the use of free terminals.  I give them away all the time and wouldn’t sell for a company which didn’t offer that option.  I also would never sell for a company without the lease option.  There are many merchants who are glad to have the transparency of paying a lease and being on low pricing.

This episode explains my journey of discovery about the benefits of leasing for merchants AND reps.  I now believe leasing is a very viable option, especially with programs such as cash discounting and EMV compliance.  Just realize business owners are not stupid.  They will understand your honest explanation of the two options of leasing versus a free terminal.

Read the previous article here:  http://www.ccsalespro.com/go-flow-hear-no/  Go with the Flow When You Hear No

Read the next article here:  http://www.ccsalespro.com/competing-square-price/  Competing with Square on Price