Recently I was involved in a thread where the question was asked, "Does ABC POS System have hidden fees?" (While the question posed is real, the names have been changed to protect the innocent). The dialog quickly went from "ABC dealers not disclosing that they use a gateway for payment processing (and the associated fees)" to "payment gateways are unnecessary." My opinion may be biased on this subject but bias or not, there are definite advantages for a POS vendor to use a gateway as opposed to a direct interface to a payment bank/processor.
Let me start my argument by stating that all payment gateways are not created equal. All the advantages I list here are gained by using a reputable, reliable, secure and full-featured gateway provider (hereafter referred to as "good gateway"). Obviously, I believe that Shift's $$$ ON THE NET offering meets this criteria. There might be others but that is another topic that can be discussed on someone else's blog.
In no particular order, here are some of the advantages for a POS solution to use a good gateway provider as opposed to a direct interface:
- Security - a good gateway can increase to level of security in a POS application ten fold. One security "best practice" is to only store what is absolutely necessary. Not storing payment details, like actual card numbers, greatly lowers the merchant's exposure to compromising sensitive data. In the event the POS application data files are ever stolen, even if the files are encrypted (which is required), current regulations require the merchant to notify law enforcement AND the customers (via their merchant bank) because the encrypted data has the potential of being decrypted. If the POS application does not store this information, notification is not required – saving both legal costs and reputation (although, Shift4 would still recommend notification of law enforcement).
- Auditing - a good gateway will allow for pre-settlement or pre-capture auditing. Pre-settlement auditing allows the merchant to make corrections to transactions in a batch before they are sent off to the merchant's bank account. There are several reasons for this including: 1) system or communication failures that resulted in missing or double posted transactions, 2) a layer of protection against trusted employee fraud, 3) a layer of protection against simple data entry or posting errors by clerks. Many people assume that accidentally posting a $100 sale and later posting $100 credit is a wash – WRONG. There are fixed transaction fees associated with both sale and credit transactions as well as a discount rate applied to sale transactions that you do not get back when the credit is issued. This $100 example will cost the average merchant about $2 (not including labor of charge-back fees if it went that far). If post settlement corrections are common, these fees can add up fast.
- Archives - a good gateway will provide a minimum of 90 days of archives. These archives can be used for charge-back defense, fraud control and even sales analysis or sales forecasting.
- Batch Resubmittal - while not common, occasionally batches of transactions get lost, have data content issues or merchants experience bank/processor setup issues that prevent submittals. Without a good gateway in the middle the only resolution is to rekey the entire batch. With today's security regulations where full card information should not be printed on drafts and vouchers, rekeying may be impossible resulting in a loss of funds.
- Bank & Processor Neutrality - with a good gateway, merchants can shop around for their best rates and services whereas direct interfaces lock you into a particular merchant service provider OR add substantial fees if the merchant uses a non-preferred provider. A good gateway will make a merchant service provider switch transparent to the POS application and should not burden IT staff or operations.
- Support - a good gateway can offer a much greater level of support than a POS vendor (who most likely does not have a great expertise in payment processing) and a Bank/Processor (who most likely does not have ANY expertise in POS applications). Good gateways will provider 24x7 support which can compensate for a POS provider that does not offer 24x7 or a Bank/Processor that does not offer 24x7 support. A good gateway provider has expertise in dealing with both POS vendors and Banks/Processors. Most POS vendors do not know the differences between EIRF and CPS Retail nor should they have to; this is something a good gateway knows and/or can diagnose. Processors provide very limited help in diagnosing qualification vs. non-qualification rate issues. Believe it or not, I've personally worked with several banks that could not help with these types issues.
- Merchant Advocate - this could be lumped into Support but a good gateway will have the merchant's best interest in mind, not the POS vendor and not the Bank/Processor. This could be in diagnosing an occasional POS interface issue to being charged excessive non-qualification fees by the merchant bank.
All things being equal, a POS application using a good payment gateway has much more value to a merchant than the same POS application using a irect interface to a Bank/Processor. Smarter POS vendors will focus on their forte – POS - and incorporate their gateway provider's expertise and features into the overall POS solution.