Poynt, a startup hardware manufacturer that has mostly target SMB merchants, has recently updated their website to announce the launch of a new payments product. The payments product was initially titled “Payfac Onboarding” but that has changed over the past few weeks and now the site just says “Payments”.
A few things are going through our heads as we process this.
First, is Poynt now a payfac?
Second, 2% is an incredibly low payments processing rate. That’s practically interchange. Which means Poynt wouldn’t make much money, if any, on payments processing. This requires further investigation.
Lastly, how are Poynt’s channel partners feeling about Poynt now offering payments? The majority of Poynt’s distribution partners are payments providers so this would seemingly create massive channel conflict.
Osama Bedier, Poynt’s CEO and founder, tell us that they are launching an omni-channel PayFac (SaaS) platform.
ISVs tell us there’s a gap in the market for a frictionless, branded, all-in-one (hardware, payments, cloud backup, payment processing) merchant solution that matches the best experience in the market – instant on-boarding, transparent pricing, api-based 24-hour fulfillment, device management and out of the box pre-loaded app-integration.
Osama Bedier, Poynt CEO
What Osama is getting at is the ease of merchant onboarding and maintenance that comes with the flexibility engendered by a payfac model. Poynt has been beta testing their payfac solution since Q4 of 2019 with a more public launch expected sometime in Q1 this year.
On our second point we need to closely examine the 2% payment fee that Poynt is representing. Their terms of service is available on their website, so we’re combing through their language to pull out the relevant parts to readers. For background, Square had to raise their processing rates – which were previously a flat 2.75% – in order to make a profit on their merchants. Square’s new rate is 2.6% and $0.10 per swipe. Other people have done the math on what this rate change means for the average Square merchant and it generally means Square will make more money off its smaller merchants, who still represent 46% of Square’s user base.
We’d bet that Poynt’s average merchant is not too dissimilar from Square’s average merchant. So doesn’t 2% seem too good to be true?
Poynt has broken down their fees as follows:
Now onto Poynt’s terms of service. According to section 5, merchants would sign up for Poynt’s processing in a 12-month agreement (Initial Term). If the merchant wants to cancel after the initial term, they must provide a 30-day notice.
5.1. This Agreement goes into effect for a one (1) year term (the “Initial Term”) commencing on the date this Agreement is accepted by Acquirer, whether by signature or by the processing of presented Transactions. This Agreement automatically renews for successive one year periods (each a “Renewal Term”) unless we provide you or you provide us written notice at least thirty (30) days prior to the end of applicable term. If you present, and we elect to process, Transactions beyond the conclusion of the Initial Term or any Renewal Term, then this Agreement will continue to govern such processing activity.
Much like Square, Poynt also reserves the right to terminate your merchant account if they deem your business isn’t profitable.
5.4. In addition to any other termination rights, Acquirer may terminate this Agreement (or, under clause (i) of this Section 5.4, may terminate this Agreement as to any Payment Network) and/or any Addendum, and/or may suspend Payment Services and/or decline to process particular Transactions, immediately and with or without notice, if … Acquirer deems you to be financially insecure; (e) you materially alter your business; (f) there is a material change in your processing activity, either from historical processing activity or the activity projected in the Sponsored Merchant Application, or you processes a greater concentration of Cards (e.g., American Express, corporate Cards, and/or international cards) than anticipated; (g) Acquirer receives direction from any Payment Network to terminate this Agreement; (h) Acquirer, in its reasonable discretion, determines that circumstances otherwise warrant immediate termination or suspension;
This makes us wonder what happens when or if the merchant wants to get out of their contract early. Poynt clearly stipulates that there are no early termination fees in 13.1, but how is that not possible if the merchant can’t cancel within a 12-month period?
Now we get to the specifics around this 2%. From a practical business standpoint, we don’t see how Poynt can make any money at a flat 2%. Square was losing money at 2.75% on the same type of merchants. In reading the language from sections 13.2 – 13.5, it’s apparent to us that Poynt is giving themselves some “outs” if the economics don’t work. That’s understandable given that nobody we can think of has ever made money at a flat 2%, especially as more consumers use rewards cards which come with higher interchange costs.
Here were the relevant pieces of language to us:
13.3. The Processing Fees appearing on the Sponsored Merchant Application are based upon assumptions (a) regarding your anticipated volume, average transaction size, card acceptance, and method of doing business and (b) that the rates and amounts of Third-Party Charges remain the same. If any of these assumptions prove inaccurate, we may adjust your Processing Fees without prior notice.
13.4. Processing Fees may be amended at any time by Acquirer, with or without notice, as a result of amendments or changes made by the Payment Networks or parties other than us. In addition, Acquirer may amend or otherwise change the Processing Fees by giving you thirty (30) days’ notice of any such amendment and/or change (including notice via your processing statement); provided, however, that you may terminate this Agreement, without penalty, in response to such amendment and/or change (not attributable to the Payment Networks and/or other third parties) by providing us with written notice between the date of receiving notice of such amendment and/or change and the date on which it is effective.
What we did like was the lack of ETF, or early termination fee. This means merchants can get out of Poynt’s processing agreement, but it would appear only if they catch the processing change within 30-days of the change going into effect. We would amend this to be perpetual, meaning a merchant should be able to get out of a Poynt processing agreement at any time.
There’s also some language that may give the merchant an out should processing increases occur:
17.1. You shall be solely responsible for reviewing your statements from Acquirer (including statements provided online) and for reporting to us in writing, within thirty (30) days of your receipt of any statement, any problems and/or irregularities with your statements—including, without limitation, underpayments, overpayments, and/or other discrepancies of any items, fees, charges, and/or liability assessments reflected on such statements and/or related to the period covered by such statement, including, without limitation, discrepancies between the volume and/or value of Transactions that you actually processed during the period indicated by the statement. Statements provided online shall be deemed received the first day they are available online.
17.2. YOU ACKNOWLEDGE AND AGREE THAT NEITHER WE, PROCESSOR, NOR BANK SHALL BE LIABLE AND/OR OTHERWISE RESPONSIBLE TO YOU, AND SHALL HAVE NO OBLIGATION TO REIMBURSE YOU, FOR ANY UNDERPAYMENT TO YOU OR OTHER DISCREPANCY THAT IS NOT REPORTED TO US IN WRITING WITHIN THIRTY (30) DAYS OF YOUR RECEIPT OF THE APPLICABLE STATEMENT.
Osama tells us that they’re still iterating on the payment model specifics.
Pricing is not set yet – we have a low introductory price during the beta period designed to vet the solution and collect a healthy amount of feedback from merchants. We’ve been experimenting with variations of monthly, freemium software and processing fees to see what resonates best for the whole package while verifying our pricing engine. We plan to provide a fixed price model competitive to those seen in the market today while helping our partners remove friction and maximize their opportunity with software. Interchange is included in the fixed price.
Osama Bedier, Poynt CEO
We’re going to have to watch this really closely because we don’t think Poynt can make money processig at a flat 2% with the headwind of rewards cards.
The last discussion point is around channel conflict. Poynt scaled through a network of large ISOs and big banks who offered their own processing. Poynt’s business pitch was to update your merchant’s hardware to a sexy, “future proof” device and you, as the channel partner, would make some revenue on the hardware, some on the app store, and you’d still get to push your bread-and-butter payments. Now that Poynt is promoting a 2% flat processing fee with instant deposits via their upcoming Poynt Card, it’s hard for the channel to feel great about this. Going forward it feels like a non-starter, and existing channel partners have already expressed their concerns. Think about it: how many channel partners will be eager to sell a device knowing that their merchants might be solicited for 2% processing fees by Poynt’s marketing team? And at 2% we don’t see how there’s much money to go around.
Osama shares that they’ve actively engaged their channel partners to help develop this business strategy and that many of them are excited about the product opportunity. “Our channel partners are a core part of our business and this solution is intended to help them bundle software and compete with sole solution players that we see taking much of the growth in acquiring/processing. I’m sure once the rest of the market understands it, they will feel the same.”
We’re hearing conflicting feedback on this one.
There’s an overarching theme within the payments landscape whereby the payments companies prey on the ignorance of merchants: merchants who don’t or won’t read a contract, merchants who won’t check their processing statements monthly to hold their processors accountable, and merchants who are probably the victims of outright fraud but are too dumb or lazy to know it. We’re not saying any of this applies to Poynt – and in fact there are some favorable terms in Poynt’s agreement, especially relative to other processors – but we’re also having a hard time figuring out how Poynt makes money at a 2% flat rate.
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