Revel has decided the opportunity in payments is too large to ignore any longer. Accordingly, Revel launched Revel Advantage, a bundled POS and payments service for businesses. Quoting from their new site,
Revel Advantage is the payment processing solution that seamlessly integrates into your Revel Point of Sale and platform to create a complete system, tailored to your business needs. Revel manages both your POS and payments with integrated software, hardware, and credit card processing to save you time and money so you can focus on your business.
Drafting on the business model Harbortouch pioneered, Revel joins a growing list of POS companies like Upserve (Breadcrumb) and Toast to offer bundled payments.
Revel, if you recall, is losing between $20MM and $25MM annually. We’ve all been waiting to hear about massive layoffs under their private equity ownership, but they have yet to materialize. Financial firms that we talk to are just as confused with Welsh Carson’s inexplicable desire to continue the enormous spending.
Maybe the firm felt a 50% cut in personnel – which is what would be needed to reach EBITDA – would result in too much account churn, especially since their new initiative appears to be one that generates new profits on payments processing. Under this scenario the larger the merchant footprint, the better.
We are not against coupling payments with the POS. In fact, it makes logical sense: why have two distribution channels, thus inflating costs, when you can have one? Don’t be shocked if the future sales model of POS looks like this:
- Merchant finds & buys POS online directly, or is referred by a payments representative
- POS is installed by the merchant or an on-demand service provider (think uberization like that provided by Boomtown) if the merchant doesn’t want to spend time setting the system up
- POS is much more stable and requires less support. Remote diagnostics, installs and fixes limit emergency service situations. But if some support is needed, an on-demand service provider can service the account without the traditional dealer overhead. (The payments provider will only provide POS service themselves if they make less money on payments than they do today, so it will be a while)
The problem of conjoining POS and payments occurs when the POS provider gets greedy. The POS companies know the hassles of replacing a POS system. Not only is a merchant spending material sums of money on a new hardware/software, but all the merchant’s items have to be reprogrammed into the system. Inventory has to be loaded back in. Staff have to spend time training on the new system. Orders slow down as staff get comfortable with a new system. Historical transaction data (which should be used to run a better business) is lost. Integrations need to happen so your third party systems work. And there are bound to be some operational hiccups that were overlooked.
It’s just a mess.
And the greedy POS companies love this. They’ve almost assuredly devised a clever equation that tells them how much avarice their merchants will bear before they buckle. It’s an equation we call SMOPP: Screwing Merchants On Paired Payments.
SMOPP is calculated like this:
If: pain of switching > SMOPP,
then: merchant won’t switch POS systems.
SMOPP, in other words, means that the POS company can let it be known how badly the merchant is being screwed, but the merchant still won’t change POS. It’s the ultimate F-U to the merchant; so long as the amount is less than the cost of swapping POS systems, the merchant can do nothing but say,
Let’s try to tally this up to arrive at a reasonable dollar value of the SMOPP pain.
Hardware change: $3,000 per location
Software change: N/A – it’s a wash
System programming: $2,000 per location
Inventory sync: $500 per location
Installation: $2,000 per location
Staff training: $1,000 per location
Loss of revenue: $3,000 per location
Recovery of transaction data: $2,000 per location
3rd party integration: $500 per location
Unexpected difficulties: $2,000 per location
All-in there’s a cost of $16,000 per location to switch systems. And that’s probably being conservative. A SMOPP POS provider can probably charge a merchant $16,000 more in effective processing rates and get away with it.
Will Revel be a SMOPP offender? It depends how much of their old culture has been purged. But since there haven’t been massive layoffs, and people who are responsible for poor behavior have only been promoted, this looks very much like the answer is yes.
Note: we reached out to Scott Betts, Revel’s new (maybe interim?) CEO, who never responded.