NCR acquired JetPay in late 2018 to take advantage of the POS and payments bundling gripping (or maybe strangling?) brick and mortar. In classic NCR fashion they overpaid on the deal and when we checked on some of their first implementations things were not as they appeared.
For exhibit A we have a merchant services (and NCR Silver) agreement for a 5-unit restaurant group. Each location averages $500,000 in revenue with an average check of $5, so that’s 100,000 transactions annually.
First we’ll show NCR’s pricing and then we’ll go through the agreement point-by-point where we have commentary. Ready?
As this agreement stipulates, NCR is “passing through” interchange and adding a few fees, none of which are relatively material. Their revenue generator seems to be a $0.02 per transaction fee, which on 100,00 annual transactions would yield NCR $2,000 in annual processing revenues per location. Granted it’s free money since payments has no COGS – and it’s more than NCR is going to get on their Silver POS SaaS since these stores only require one terminal per store – but it’s not horribly high. One of NCR’s own resellers, who’s being asked to resell NCR Payments (i.e. JetPay), shared that this agreement appears lower than the buy rate he can get from processors.
At first blush this doesn’t look horrible.
Now we get to the specifics.
We’ve heard from numerous merchants who have signed contracts with Toast and decided against the purchase before the system has even been implemented. In all of these cases Toast considers the contract iron clad and the merchant is stuck with the system for whatever term their contract stipulates. Traditionally, POS companies have been much more flexible. NCR gives this merchant a reprieve as well.
Within 30 days of the Effective Date (the “Test Period”), you will evaluate the Services on the Silver Pro Restaurant solution within your test environment to determine if it meets the acceptance criteria set forth on Schedule B (the “Acceptance Criteria”), and will notify NCR of your acceptance or rejection of the Services. If during the Test Period reveal that the Services do not meet the Acceptance Criteria, you may reject the Services by providing NCR with written notice, which must include details of which Acceptance Criteria are not met. NCR will attempt to resolve the non-conformance within 30 days of such notice, after which you may terminate this agreement if the non-conformance is not remedied. If you do not reject the Services in writing within the Test Period, they will be deemed accepted. Within 60 days of acceptance of the Services, you agree to implement the Services within all Customer owned Customer locations subject to the terms of this Agreement (including the Merchant Agreement and the NCR Silver Agreement). For each Customer location that implements the NCR Services, NCR will also provide the deliverables set forth on Schedule B.
NCR agreement
Unfortunately NCR’s agreement comes with a 3-year term, which is totally absurd when you think about how easy it is to switch processors.
The term of this Agreement shall be three years (“Term”) from the Effective Date and shall automatically renew for successive one-year periods unless either party provides notice of termination to the other party no less than 90 days prior to the end of the initial term or any renewal term thereof. Either party may terminate this Agreement upon material default by the other that is not cured within 30 days after receipt of written notice.
NCR agreement
NCR also demands that this customer, which has franchisees, force its franchisees to use NCR processing. Since processing is massively commoditized it’s not a bad idea for any company to co-op with their franchisees to get better, bulk pricing out of a processor. Processing all your locations – franchise or otherwise – through one entity is also useful when the payments provider can provide intelligence across the transaction data it sees, though we’ve not heard of NCR providing anything like Womply.
Customer represents and warrants that it has the authority to require all Franchisees to convert their existing processing services to NCR. During the Term of this Agreement and any renewals, hereof, Customer agrees that it will not enter into a pricing arrangement with other providers of debit and credit card processing services which offer services that are competitive with NCR Services.
NCR agreement
So if this pricing is so low, why doesn’t everyone pick it up? Well, as always, the devil is in the details. NCR refers merchants to a separate “Merchant Agreement” that discusses what prices can change. This is where any reasonable reader would get confused: if NCR is truly doing an interchange pass through, then any pricing changes could only come from the networks and banks (i.e. the parties that make up interchange), and NCR would never need to discuss pricing changes since they’d be out of NCR’s hands, right?
Not quite. Let’s read the next bit closely.
NCR will offer the pricing detailed in Schedule A, attached hereto and incorporated herein by reference, to Customer and its Franchisees, provided each: (a) is accepted by NCR for Services (in NCR’s sole discretion); (b) executes NCR’s then current form of Merchant Agreement; and (c) is a Customer in good standing under the NCR Silver Agreement. Customer acknowledges that pricing is subject to change pursuant to the terms set forth in the applicable Merchant Agreement and NCR Silver Agreement.
NCR agreement
Ah ha; NCR is giving themselves the ability to change pricing according to this nebulous “Merchant Agreement” they reference. Well, we need to find the definition of “Merchant Agreement” elsewhere in the document…
“Merchant Agreement” means a written agreement entered into between a merchant, NCR’s sponsor bank(s) and NCR, which sets forth the terms pursuant to which a merchant may use certain Services. The form of Merchant Agreement may be modified by NCR from time-to-time, in its sole discretion.
NCR agreement
And here it is in all its glory: NCR, in its sole discretion, may modify the Merchant Agreement at any time.
In other words, NCR can change its processing margin whenever the hell it wants.
So while this $.02 per transaction rate might look enticing and relatively cheap, it’s highly likely a “meet or beat” gimmick that every processor uses to win the business. Coupled with a 3-year term, signing this agreement could really prove problematic for the merchant. We simply don’t know what recourse a merchant has if, let’s say, 6 months into this agreement, NCR, in its infinitely wise “sole discretion”, decides that the merchant should be paying, we don’t know, maybe $0.10 per transaction?
Here’s a quote we grabbed from Merchant Maverick that would seem to sum up this behavior:
Here at Merchant Maverick we have reviewed enough payment processors and merchant account providers to have nurtured a healthy suspicion of the whole “meet or beat” gimmick, which is easily manipulated with added fees.
We also have pause on NCR’s definition of interchange since Worldpay has been known to pad interchange, and Worldpay has been NCR’s payment partner until the recent JetPay acquisition. Is NCR truly passing through interchange or is it being marked up? Is this running through Worldpay or JetPay? This requires line item investigation to suss out – something that takes masterful command of payments processing, and why most merchants punt the overview to a tool like FeeSentry (which is free) or a professional firm like Payment Authorities (no, we don’t get kick backs).
Lastly, this merchant needs to be sure that it can process EMV transactions lest they be at risk for chargebacks. NCR’s hardware doesn’t mention EMV capabilities, and every NCR merchant we’ve spoken with, regardless of size, is still using a third party to process EMV transactions on NCR POS products. Don’t worry NCR: it’s only the 4-year anniversary of the liability shift in two weeks.
Unfortunately this agreement has a number of provisions we don’t like: a years-long, locked-in processing contract, one-sided terms where NCR can raise processing rates at their discretion, and no stated EMV capabilities. So the $0.02 per transaction should be very quickly overlooked for these very real underlying concerns, which can become problematic soon after the contract is signed.
The bitterness of poor quality remains long after the sweetness of low price is forgotten.
Benjamin Franklin, maybe
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