s selling large POS systems along with payment processing services a huge, untapped opportunity or a massive sinkhole? It depends on whom you ask, as illustrated in several recent GS Online MLS Forum discussions.

In an industry with free terminals, increasing competition and shrinking margins, expanding offerings of value-added products and services makes sense.

But while most ISOs and merchant level salespeople (MLSs) limit their value-adds to check imaging, prepaid cards, gift and loyalty programs, and terminal leasing, some are starting to explore packaging their offerings with an entire POS system.

The POS systems to which we're referring are products from such providers as Radiant Systems Inc., Micros Systems Inc. and Microsoft Corp.

Usually on the pricier side, these systems are purchased by restaurants, quick service restaurants, hotels and large retailers.

Traditionally, ISOs and MLSs have not been involved with this market other than through referrals. But some new players in the space are changing things.

Pros and cons

Proponents say: As ISOs and MLSs, you're selling the same merchants kindred products, sales can lead to increased stickiness, there is up-sell potential, and another revenue stream is created.

Skeptics warn not to go down this road. They say you shouldn't underestimate the complexities of installing and maintaining a POS system, let alone training merchants to use it.

They point out that those hassles can distract salespeople from doing what they do best, which is selling. POS systems tend to be high-maintenance, and software updates can be regular and expensive.

And most companies that are considering venturing into large POS system sales hope to farm out to others the customer support, training and even installation.

"The only way this will work for any of us is to find a POS product [from a company] that will do the programming and customer support," wrote Steve Norell, President of U.S. Merchant Services, on the MLS Forum. "All we need to do is the selling."

The products are out there, and more are coming. People see a future in MLSs' selling POS systems, and they want to get a market share, he added.

'There is opportunity'

The ISO United Bank Card Inc. is branching out into this market. "We are pursuing POS systems as a big initiative for 2007," said Jared Isaacman, United Bank Card's Chief Executive Officer.

"I believe ... such a successful penetration of low-end and free equipment in the market over the last two years leaves a lot of opportunity for up-selling a high-end POS system for the right merchant types."

Isaacman plans to outsource installation and training merchants on higher-end, more complex POS systems to a variety of companies that specialize in those services. "I don't believe there is a lot of money to be made in the installation and support," he said.

"However, the hardware and the processing should be quite lucrative. You simply look at the types of merchants who would require and be able to afford a POS system, and then you can imagine the processing volume potential."

Linda Hetzel, Marketing Specialist for U.S. Merchant Systems, is a certified dealer for eDirex, a company specializing in POS and surveillance solutions for all types of businesses.

"I absolutely think there is opportunity in POS systems, or I wouldn't sell them," she said. "Things have gotten much more complex, and merchants need help keeping track of a lot of information.

"There is a bigger upfront cost to the merchant, to be sure, but in most cases a good system will prove to be a savings over time. And if they have a system that does everything they need, it's going to serve them well in the long haul."

Hetzel is not interested in providing customer support or training for the system itself. "That's not what I'm good at," she said, adding that is one reason she chose to represent eDirex. "I really like not only the product, but the people behind it - they really excel in customer service."

She said for her first sale, representatives from eDirex drove two hours each way for an all-day system installation. They also returned a couple times to provide training. "They can also fix a lot of problems remotely, from their own computer ... quickly, that other companies would charge for," she said. "I don't have to worry that my merchants aren't being taken care of."

Bill Pittman of payment solution provider TPI Software LLC said, "I think MLSs have an excellent opportunity to partner with Microsoft Corp. dealers. You sell the merchant account, the dealer supports the system. Integrated point-of-sale systems are typically high-volume merchants with low churn. You may need to revenue share with the dealer - just think of them as your sales force. We have a number of ISOs doing this with our products today."

TPI Software offers a plug-in for Microsoft's Retail Management System (RMS) that can route transactions directly to all the major U.S. payment processors, as well as drive customer-facing PIN pads with signature capture (e.g., Hypercom Corp.'s Optimum L4100, Ingenico's eN-Touch 1000 and VeriFone's Everest Plus products).

The ISO "Mercury Payment Systems has a great model," Isaacman said. "They have partnered with numerous POS vendors as a referral source for merchant accounts. They have further developed an IP [Internet protocol] gateway, years ago ... that has helped speed up transaction times for many merchants using a variety of different POS systems."

Some POS system manufacturers have reseller or referral programs in place in which ISOs or MLSs can take part, while others have not discovered the potential of this sales channel. Some ISOs and MLSs stick with one POS supplier; others work deals with as many as possible. And some have found opportunities with the product's resellers - not with the POS manufacturer itself.

Big players, big merchants, big steps

Sharing referrals with POS system providers is not new. But taking the next step and actually building POS system sales into your business plan requires finding a POS system manufacturer that can provide the product (and support) that meets your merchants' needs. The company also should take your merchants to your processor and not compete directly with you.

And that is sometimes harder than it sounds.

Micros is best known for its hospitality POS systems, but it builds retail systems as well. "When it comes to processors, Micros remains agnostic," said the company's Vice President of Marketing, Louise J. Casamento. Meaning, its system does not direct to any particular card processor. It can be programmed to any that are compatible.

Microsoft offers two POS systems: Point of Sale, for single-store retailers, and RMS, which is more robust and will work for a single location or across a chain. Point of Sale is designed for small businesses, and RMS is designed for small to mid-sized businesses, according to a Microsoft Dynamics sales associate. The company handles merchants' support needs by phone for $75 a call.

Point of Sale has only two certified resellers: Best Buy for Business, a division of Best Buy Enterprise Services Inc., and POSitive Technology, but RMS could have hundreds of certified resellers.

Point of Sale also has some processor limitations. According to the Microsoft sales associate, Point of Sale works only with Citi Merchant Services, Chase Paymentech Solutions LLC and First Data Corp.

RMS has a bit more flexibility and works with at least 22 processors.

The Aloha POS system from Radiant is marketed to the hospitality and food industries. Radiant also offers a POS system for petroleum, convenience store and retail merchants.

Radiant sells primarily through approximately 75 certified resellers, according to Leslie Miller, Marketing Director of Radiant's hospitality division. While an ISO or MLS could certainly become one of those resellers, she doesn't know any that currently are.

"We're a mature channel," she said, "and have most metro areas pretty well covered. We do have two marketing programs with the food industry that offer a referral fee of sorts, but that is pretty rare.

"We have a strategic partner in RBS Lynk, and we do try to drive most processing toward them through recommendations, but merchants can link to quite a few different processors."

Miller said Radiant's certified resellers sell to restaurants and food service businesses with 50 locations or fewer, but sales to larger chains are done in-house.

Solutions for mom and pop

The product FreePOS may be an option if you work with small, budget-conscious merchants in the bar and nightclub or restaurant industries.

"We try to differentiate our product from other products by price," said Todd Norvell, President of Positive Feedback Software LLC, the provider of FreePOS.

"Our motto is, 'We do 98% of what the big packages do for $99.' Micros and Radiant are exceptional products with exceptional prices. For the small restaurant, these products are not cost effective. Our market is the mom-and-pop owner/operator."

Norvell said one advantage his company has over other products is that FreePOS is 100% processor-independent. "Many large POS systems require that their users process on closed networks.

"We make the choice of credit card processor a configuration parameter, allowing our customers the ability to negotiate the absolute lowest rate," he said.

Positive Feedback Software works with referral partners, license partners and resellers to distribute its products. "Referral partners find sales leads and usually work with an alliance partner," Norvell said.

"They generally do the initial meet and greet and then hand off the quotation process" to that partner. In return, referral partners earn a fee, usually $25 to $500 per deal.

Alliance partners are marketing companies that have agents working for them, according to Norvell. They qualify clients, generate quotations and handle contract negotiations. Alliance partners buy preconfigured systems and are free to negotiate their best price above it. They also earn referral fees and bonuses for selling add-on services.

Resellers are the brain power for an installation and are primarily brought in after a sales contract is signed, though they are free to write their own business too. They earn the most: often $100,000-plus per year.

"I have already hired a tech person from a POS company as well as someone to do nothing but sell the system," Steve Norell wrote on the MLS Forum.

"We call on merchants every day, and some of them say they want to purchase a POS system. We used to refer someone. Now, that someone will be me. ... As I see it, it is just a much larger VeriFone, Hypercom [or] Nurit terminal with more bells and whistles."

'A 24/7 job'

While some may see an unfolding opportunity, others - many with considerable POS industry experience - warn that the pay-off from selling POS systems usually comes with a price.

Rob Reardon, the West Coast Regional Sales Manager for Acacia Funding, suggested the opportunity may not be as rosy as some hope. "The POS business is a death sentence these days," he said.

"I spent 15 years in the industry and worked for almost all of the major players at one time or another. I even owned my own POS dealership for three years."

Why is Reardon skeptical? "POS is now a commodity," he said. "Hardware continues to improve in quality and come down in price.

"The margins are gone. No matter how well you build it, install it, program it and support it, the customer is never happy and looks for every opportunity to let you know that.

"POS is a 24/7 job, and the more customers you have, the more investment must be made on your part to properly support them. If you are a very large, well-capitalized VAR, there is still some money to be made, sure. But the money is in service and repair, and that's the part no ISO is going to want to deal with," Reardon said.

Selling large POS systems may prove to be a bumpy road to nowhere, or a steep path to success. The jury is still out. But it is just one route savvy ISOs and MLSs are exploring in the new payments frontier.