How A Large Manhattan Restaurateur Learned to Never Sign Multi-Year POS Agreements

You’ll notice that the name of the guilty POS company is not revealed in this article. Why? We strive to get both perspectives in our articles. The merchant in question couldn’t disclose their name to the POS company due to a non-disparagement clause with their current employer. Therefore the POS company was unable to confirm or deny the specifics of this account (we protect the confidentiality of our sources as any journalist would). In fairness to the POS company we are protecting their information. That said, the overarching learning is relevant regardless of the specific POS perpetrator.

There exists a multi-unit operator in Manhattan that was burned on his multi-year POS agreement. If this were a normal merchant we wouldn’t be surprised (since merchants don’t read contracts, don’t self-educate, and basically set themselves up for failure).

But what surprised us about this merchant was the success he’d had both before and after getting into the restaurant business. He’d worked in strategy and operations across finance and IT industries, and his Manhattan restaurants collectively do tens of millions in revenue.

He was not your typical dumb-dumb merchant.

In 2018 he opened a new location that had a blend of restaurant, bar, and catering. “I needed a broad spectrum of features to support the unique setup we had created,” he explains. “We were a Micros user at our other locations but our financial partners wanted us to choose a sleeker, sexier, more user-friendly POS to match the ambiance of our new location.”

He looked at the usual suspects: Square, Toast, Upserve, and a few mainstream providers that scored lower on sex appeal but would offer features requisite for their concept. After a month of examination they settled on [cloud POS] as the POS of choice.

We learned [cloud POS] bundled payments. None of our other locations had bundled credit cards in the past, but it seemed to make sense since processing was so commoditized. This would save steps and simplify billing so we could focus on the guest and top line sales.

Operator

[cloud POS] promised that they would match his current rates and he knew his rates would get better as his volume increased. “When we were just opening our rates were higher since we were doing less volume. We totally expected rates to come down as our volume went up because that’s how processing works.”

Because he had a 10-year lease on his new location, he wasn’t put off by the multi-year processing agreement the [cloud POS] sales rep pushed.

We knew we would be around for a while so we didn’t balk at multi-year agreement. What we failed to recognize was that we gave up all the leverage we had. It started with us knowing we needn’t worry for years and became an everyday disaster.

Operator

Things started going bad quickly. Analyzing his rates at monthly intervals he realized they were paying an effective rate of 4%, which was a whole 1% higher than his starting rate. “Based on our negotiated ‘matched’ rate [cloud POS] started processing with us at an effective rate of 2.9%.”

And this is where it gets disgusting.

We challenged [cloud POS]’s rates but they told us that given our restaurant’s volumes – which were in the millions, mind you – they were unable to change them downward. IF we wanted to see our initial rates of 2.9% we’d need to convert ALL of our other locations to [cloud POS] processing under mulit-year agreements.

Operator

As crazy as it sounds, the merchant considered doing it if [cloud POS] would guarantee a rate lock of 2.9% for all their locations over the term of the processing agreement. [cloud POS] said no.

We didn’t dislike the hardware or POS features but we were getting fucked on processing rates. If I wanted to cancel the agreement I still owed [cloud POS] the monthly fees for hardware and processing. We even asked if we could bring in new credit card provider and keep the hardware but [cloud POS] said no.

Operator

After experiencing this pain the operator revisited his other cloud POS proposals and realized they all required bundled, multi-year payments.

“Handshakes used to mean something but these newer age POS companies don’t seem to value that. They want to lock you in and then take advantage of loopholes they know we don’t know. As an industry we haven’t been trained on this vendor scam – payments is very new as a Trojan Horse.”

Restaurants believe that they only need to focus on top line numbers and that fixes all their problems. But with so much money leaking out the holes in the business on payments processing, you’ll wake up in the red one day – payments processing is a direct hit to your profits.

It looks lovely on the outside but now we’re waiting on the calendar to get out of our contract. POS has become a ruse to get the payments business.

Operator

Learn from this operator while you still can.