SMEs Prefer Low-Cost, No-Frills POS Terminals

After graduating from college in 1996, Henry Helegeson moved forward to build a company that would take advantage of the ever-increasing volume of business transactions taking place through electronic funds transfer. Upon entering the market, Helegeson noticed a niche for low-cost point of sale (POS) terminals, which at the time were excessively marked-up. With this realization came a plan to move to the Internet and sell these POS terminals cheap. In 1997, MerchantWarehouse.com was born and Helegeson formally became President of the company.

MerchantWarehouse.com has experienced considerable growth since its birth in 1997 making it one of the top twenty ISOs that sells credit card processing terminals in the United States. With 27 full-time employees, and expected annual revenues of approximately $7 million for 2002, with an anticipated $350 million in credit card transactions, the company’s success is founded on the principle that business owners should be able to purchase credit card processing equipment and terminals at the best price.

While always in the merchant account area, in addition to the terminal business, MerchantWarehouse.com began to shift its focus to merchant accounts in 1999 to take advantage of substantial growth in Internet-based businesses. Now, a few years later, the company focuses equally on both areas, which has enabled it to continue to offer low cost solutions to customers.

Helegeson explains that they can afford to offer low cost equipment for two reasons. “One is based a lot on volume. We’ll probably move $4 million in credit card terminals alone this year,” says Helegeson. “Second, we subsidize with the income we get from our merchant accounts and servicing our merchants.” With approximately 5000 merchants, moving quickly towards 6000, MerchantWarehouse.com gains recurring revenue from every customer they sign up on merchant accounts. It attracts these customers by offering low cost POS equipment.

MerchantWarehouse.com’s low cost strategy is based largely on the belief that “the customer is not ready for a sophisticated terminal.” Helegeson says, “There are two camps of where terminals are going these days.” He explains, “The first camp thinks we need to add more value to our terminals - we need to have Internet access, e-mail, loyalty programs, marketing on the back of receipts – all that. They’re looking to build a bigger, better, more expensive terminal. That school of thought was pretty much leading the pack until the dot.com crash. Some people are starting to realize that value-added is not where we should be going."

The other camp, Helegeson explains, “is to build a cheaper, smaller terminal that is more available for the smaller merchants.”

MerchantWarehouse.com focuses on small and medium-sized businesses that have annual credit card revenues under $50 million – although the company “does service smaller merchants that do from $30,000 to $50,000 per year.”

Helegeson explains that when you’re dealing with credit card machines, they don’t need to do a lot - particularly when it comes to smaller merchants “who are not going to see a lot of value in checking their e-mail through their credit card terminal.” Helegeson says, “smaller merchants are more focused on the general features of the terminal and the cost benefits of it.”

In addition to offering low cost terminals, Helegeson also recognized the need for quality service.

Since the terminal is usually a one-time purchase and because there is so much choice in the market, small and medium-sized merchants require assistance during the decision-making process.

MerchantWarehouse.com is able to meet this need by providing educated advice through its sales representatives, all of who go through a three-week training period that Helegeson says “enables them to know the products better than anyone else out there.” As a result, they can usually narrow down the choice to two or three different products at different price ranges that are based on the merchants’ transaction volume per year, their budget and the type of business they are in. This service also affords the company opportunity to acquire additional merchant account customers.

Meanwhile, should the market quickly change and move towards greater demand for value-added features on terminals, MerchantWarehouse.com is well prepared. The company has products in the pipeline; ready to be released when the market demands them. Helegeson says that in the US, the next big thing to come is smart cards and chip cards, which will necessitate a need for peripherals to accept these cards and chips, or new terminals. “We’re ready to do it today”, Helegeson explains. “We have some products - peripheral devices and terminals that are ready - just waiting for the industry to catch up to us.”

Another significant growth area is wireless. Helegeson states, “A lot of it is cost driven and a lot of it is going to be with smaller wireless terminals. As these terminals get cheaper – we’ll start to see bigger growth in the wireless area.” MerchantWarehouse.com is prepared to enter the wireless market with new products, one of which will be released mid-June 2002.

It is this foresight into the market, in combination with low costs and valuable service that has solidly positioned MerchantWarehouse.com in the highly competitive credit card processing industry.