Last week Vantiv’s Jim Roddy published a survey discussing recent feedback from POS resellers. In that survey Jim asked how the channel felt about the consolidation between POS and payments, and if those changes were positive or negative for the channel.
We’re no strangers to controversy so we thought to ask POS companies for their feedback on the survey. If you’ve read any of our previous writings you’ll note that we’re firm believers that the POS dealer channel is slowly dying, as it should. A good few will remain (as merchants are happy to exchange money for real value), but the overwhelming majority simply don’t provide enough utility and represent increased costs (and increasingly, liability) for POS manufacturers.
The most common comment POS manufacturers shared was regarding the scope of Vantiv’s survey. We copied a good soundbite that we felt captured this ethos:
It’s a little disingenuous that the industry’s most acquisitive company [Vantiv] commissioned a targeted article on the pitfalls of consolidation. It would have been more impartial if Vantiv expanded the survey to include questions on the channel’s satisfaction of relationships pre and post Vantiv acquisitions of Mercury, Element and others.
For the uninitiated, Vantiv is now the largest processor in the restaurant vertical with no ties to POS. First Data owns Clover POS; Global (Heartland) has the Heartland Commerce POS offerings; and Lighthouse (previously Harbortouch) now owns a number of POS solutions.
Many POS companies pointed to the irony in Vantiv’s implied suggestion that payments companies are causing channel disruption through acquisition of POS companies. For starters, many recognized that Mercury, a company Vantiv purchased but a few years ago, introduced the POS industry to the lucrative payments business. Here’s a snippet from a POS company that further explains this history.
Mercury was the parasite that consumed the host. When they claimed to be paying 75% of the payments profit [to their POS and POS dealer partners] it turns out it was really only 25%. That put the industry in a crippling position. Good luck [as a POS company] trying to compete with an acquirer who was getting 100% of that money and had that in their war chest… Imagine if that $1.6B had been reinvested in the POS industry!
Many respondents also identified Vantiv’s cozy relationship with RSPA, a trade association that was originally founded to “protect” the dealer channel from overbearing POS companies. It would seem that this rapport only further primed the POS industry its inevitable collision with payments.
Tom Reichert [a Vantiv employee] sat at the helm of RSPA’s board of directors. It seemed to me that RSPA became more interested in payments when payments companies showed up and starting writing big sponsorship checks. ‘It’s hard to get a man to see something when his paycheck depends on him not seeing it.’
In considering all this feedback it seems fair to summarize that respondents want the industry to be aware that Mercury introduced the payments business to POS and Vantiv has not suddenly washed their hands of those practices. All payments companies have been complicit in using POS vendors and their channels to earn more payment residuals. Therefore any channel disruption cannot be solely fingered to payments companies whose names are not Vantiv.
Respondents also had observations on the channel’s seeming disconnect with reality.
One respondent observed that the channel disruption is unavoidable via the economics of the distribution model. We’ve also said the same thing due to the nature of merchant distribution, but they considered things under a loss-leader framework.
When companies combine POS and payments, they can make money up on the back end with payments. If you’re only running a POS or software company, you need to turn a profit or you go bye-bye. Payments companies are more interested in winning market share than they are with upfront revenue, which changes the entire sales dynamic.
Still others pointed to the models of Amazon as evidence for the channel experiencing what they are.
We live in a world where premium pricing for POS hardware, software, and support is harder to justify. Next-gen ISVs with newer, better software and lower cost delivery models have an advantage over legacy ISVs.
The dealer is a huge component of that increased cost and unless they can justify their value merchants will go direct to save as much money as possible.
Amazon allows end-consumers to get what they want without paying for a middle man distributor. As POS becomes as commoditized as payments a merchant will point and click on whatever POS they want and it will run as expected in 99.9% of businesses.
Some asked what value a dealer really adds and why they’re even upset.
POS resellers thrive on complexity—the ‘black box’ experience where merchants are dependent on their reseller indefinitely. As we and our peers reduce the complexity of POS software and train merchants to self-serve, what role do resellers play?
One POS company mentioned a great analogy to help dealers put their aggravation into perspective.
Imagine I pay for my lifestyle by filing false disability claims. Now imagine the government stumbles upon my scheme and cuts me off. I think I’d be rather upset since I would need to find work. But I couldn’t look a taxpayer in the eye and tell them I deserved that money. Merchants are a lot like the taxpayer and dealers are mad the taxpayer is asking questions.
Across the board POS companies believed POS dealers needed to adapt with the market conditions if they are to be successful. The old days of making money on hardware are gone, and we can see the trajectory software is headed now that payments are involved.
Disruption is inevitable. You won’t find me one example of something that hasn’t changed over a generation. Change is good. It’s how you adapt to change that defines you. If you can’t figure that out, maybe you shouldn’t be here. And if you think a trade association will control the market for you, you’re really in trouble.