Selling Leases on Credit Card Terminals

Selling leases on credit card terminals often has a negative connotation because of the sales people who try and rip off the merchant by selling an overpriced lease, or promise savings to justify the lease payment that will never actually happen.  However, a lease can be a great way to increase your commissions while also providing a lower cost, long term investment for the merchant if you structure the lease and merchant services correctly.  I am a big fan of free terminal programs, but I also believe leasing has its place.  Let’s jump in and explore this important topic.

How does a lease work? A lease is a very interesting financing tool. Let’s say you as an agent go out and sell a lease. Perhaps the cost is $29.95 x 48 months. You have the merchant fill out the standard application and then a lease application must also be filled out. Once the terminal is installed, they will credit your bank account with a “lease factor rate” on the lease. (This is called “Funding the Lease.”) The factor rate is based on the merchant’s credit score which is rated from “E” (Lowest) to “A+” (Highest.) On this particular 48 month lease, the lease factor would probably range from: E = 0.0429 to A+ = 0.0296 Once the lease has been “Verbalized” (the merchant confirms that the terminal is installed and operational and agrees to the terms of the lease), you would receive $29.95 divided by the factor rate, less the cost of the terminal and any cut the ISO or Processor takes into your bank account. The merchant would pay $29.95 to the leasing company for 48 months, at the end of which he or she would own the terminal after a final payment of some kind.

Example:  $29.95 / 0.0296 = $1,011 – $300 Terminal Cost = $711 * 85% split (15% to ISO) = $605 Lease Funding to You

So, What is a “Good Lease?”  I define a good lease as any lease where the customer is made aware of the minimum pricing constraints in order to offer a free terminal. Then the customers choose the lease option because it is a lower investment for them in the short run and a much better investment over the long run.  In the merchant services industry, most processors have minimum pricing requirements in order to offer a free terminal.  Let’s say you have a merchant processing $30,000 per month in credit card volume with an average ticket of $50.  This means the merchant is processing 600 transactions per month.  Let’s say your processor has a program that requires you to price this merchant at 25 basis points + $0.08 per transaction to offer a free terminal, plus a required $95 annual fee.  This means the annual mark-up would be $1,571 in order to get a free terminal.

After explaining this to them, you let them know that you do have a leasing program.  This program pays out a higher commission to you initially, which is good for you, but it allows you to price them at 10 basis points and $0.05 per transaction while also waiving the annual fee of $95.  The cost for this lease is $39.95 per month for 48 months.  Now, even with the lease cost, their total mark-up the first 4 years would be $1,199.40 which is an annual savings of over $350 and they don’t have to return the terminal when they cancel.  After 48 months, they save another $479 per year because the lease is over and if you give them a good terminal like the Dejavoo Z11, they will get good use out of it for a long time.

Two other benefits of the lease example above.  You now have a merchant priced at 10 basis points and 5 cents which is going to be nearly impossible for your competitors to beat!  You have been completely up front and honest with the customer.  You didn’t try and trick him/her into a lease by promising that the “Terminal is worth it!”  Instead, you said, “This is a financial transaction.  Yes, they will end up paying more for the terminal than what it is worth.  But this isn’t about the terminal, this is about locking in the lowest annual investment.  When you compare apples to apples, the lease program may be better for everyone.