By now, most retailers know the importance of using EMV-compliant payment terminals (aka PIN pads, Tetra devices, Chip card readers, etc.) to process credit and debit card payments in-store. It’s more secure for your customers because they have to enter a private PIN (Personal Identification Number); and it’s less costly for you, the merchant, because Visa and Mastercard offer lower transaction fees when you use EMV-compliant payment devices.

But there are many retailers who mistakenly believe that just using EMV compliant PIN pads will automatically make them compliant for PCI DSS (Payment Card Industry Data Security Standard), which is the retail industry’s rule book for minimizing the impact of card theft and payment fraud. A lot of retailers also think that if they integrate their PIN pad with their POS system, it will put their PCI DSS compliance at risk and will result in higher monthly fees from their merchant services provider – which couldn’t be further from the truth.

In this two-part Blog post, we’ll provide you with information about the two main types of payment devices (i.e. fully integrated and semi-integrated PIN pads) and explain how each type can affect your PCI DSS compliance status. We’ll also discuss the main benefits for retailers who use PIN pads that are integrated to their POS system. This week, we’ll start by reminding everyone about the key benefits of using integrated PIN pads.

To Integrate, or not to Integrate, that is the First Question.

These days it’s pretty common to see POS systems integrated to card payment terminals (PIN pads). If, however, you’re one of those retailers who still uses a separate, stand-alone payment terminal, here are some reasons you should consider switching to an integrated solution.

1. Eliminate human error. With non-integrated payment devices, the cashier has to type the sale amount into the pin pad, so the margin for error is increased. This can cause customer satisfaction issues if the amount is higher than it should be – or a loss of revenue, if the amount is lower. Additionally, a receipt is printed regardless of whether the transaction is approved or declined, so hopefully the cashier is paying attention. When your payment terminal is integrated to your POS system, the cashier doesn’t have to enter the total amount of the sale manually into the PIN pad before handing it to the customer. Furthermore, if the payment is declined, your POS system will request an alternate payment type before printing a receipt.
2. Maximize check-out speed. Since cashiers don’t need to manually enter the sale amount into the PIN pad, transaction processing is significantly accelerated.
3. Simplify end-of-day balancing procedures. Without an integrated PIN pad, if a cashier enters $19.59 into the PIN pad, instead of $19.95, it can result in hours of forensic research at the end of a long work day or week. With an integrated payment device, end-of-day balancing isn’t prone to these issues because the transaction values are digitally passed to the PIN pad by your POS system, which ensures that all authorized transactions are closed with accurate totals. The task of reconciling the bank’s receipts with your POS system’s sales are as simple as running a report.

So if you’re still using a stand-alone payment terminal, perhaps it’s a good time to contact your merchant services provider to discuss your options for integrated PIN pads. But before you do, make sure you understand the different types of PIN pads that are available. In next week’s Blog post, we’ll talk about the two main types of card payment devices: fully integrated and semi-integrated PIN pads.

With the advent of online sales digging into retailers’ pockets, it is more important than ever for independent retailers to eliminate lost sales that occur as a result of stockouts. According to a study in May 2018 by retail research organization IHL Group, customers of department stores and specialty retail shops experience a stockout of 1 in 4 shopping trips. They estimate that stockouts are costing North American retailers more than $47B a year in sales! And where are these sales going? To Amazon; where else? IHL states that nearly 24% of Amazon’s North American retail revenue can be attributed to consumers who first tried to buy the product at a local store but couldn’t find it on the shelves.

Another study by Stitch Labs estimates that the Worldwide retail industry loses over $634B each year to stock-outs; even though the average retailer overstocks their shelves by 50%! This emphasizes what is arguably the most significant “Catch-22” for retailers that want to expand; that is, you need inventory to ensure business growth but if your cash is tied up in keeping inventory on hand, it can’t be used to grow your business.

Related Post => Why Your Small Business Needs a Customer Loyalty Program

In a perfect world, you would sell out of every product in your store just as you’re replenishing your shelves with new stock. That way you would get the highest return from your inventory investment and you wouldn’t have excess stock. Unfortunately, that’s just not realistic. What I have observed after working with hundreds of specialty retailers over 25 years is that most retailers follow one of two strategies:

1. They worry so much about losing a sale from a stockout that they over-stock every popular product, thus tying up significant amounts of capital that could be better used elsewhere.
2. They use rigid purchasing budgets (or have limited funds available) so they don’t buy enough merchandise and frequently stock out of popular items.

In many cases, these retailers have adequate computer systems in place; they just aren’t using them – or they don’t know how to use them to get the most bang for their inventory buck. According to Harvard Business Review, 72% of stock-outs are due to faulty in-store ordering and replenishing practices: ordering too little or too late, generating inaccurate demand forecasts, or otherwise mismanaging inventory. Only 28% of stock-outs can be attributed to replenishment and planning problems in the supply chain, which are out of the retailer’s control.

So how do you walk that fine line between eliminating stockouts and not having too much inventory? Well, it all starts with having dependable inventory information and then using that information to replenish your stock in a timely fashion. The objective is to understand what your optimal on-hand inventory quantities are and then issue purchase orders with enough products to ensure you don’t run out before the next shipment arrives – but don’t order too much either. The process of analyzing your requirements and determining when to place supplier orders and for how much is called “Inventory Planning’. In its most basic form, Inventory Planning leverages two key calculations for each product you order: Reorder Point and Economic Order Quantity. Having accurate Reorder Points for each inventory item will help eliminate stockouts; Economic Order Quantities will further optimize inventory levels by minimizing over-stock situations. By calculating these values and incorporating them into your replenishment procedures and systems, you stand the best chance of walking the thin line between having enough merchandise to meet demand and tying up too much money in unnecessary stock. For the purpose of today’s article, let’s focus on Reorder Points. We’ll handle Economic Order Quantity in a future post.

You’ll go a long way to maximizing the impact of every dollar invested in inventory if you have realistic Reorder Points for each product you sell. Here’s how to calculate them to ensure you always have enough (but not too much extra) available stock. First, you need to multiply the average daily usage of an inventory item (in unit sales) by the lead time (in days) to replenish it. However, it’s entirely possible that a spike in demand could occur, causing a stockout situation before the product is replenished. This is why you should also add a component for Safety Stock. The longer the lead time to get a product from your supplier, the more important it is to have adequate Safety Stock values. Safety Stock is the difference between a product’s maximum daily sales multiplied by the maximum lead time in days, minus the average daily sales multiplied by the average lead time. The calculation takes into consideration the worst-case scenario and adjusts it so that it provides a more reasonable number. Make sure you also rely on your own industry knowledge and market insight and adjust your Safety Stock requirements to reflect realistic values.

So let’s review the formulas:

Reorder Point = (Average Daily Usage X Lead Time) + Safety Stock

Safety Stock = (Maximum Daily Sales X Maximum Lead Time) – (Average Daily Sales X Average Lead Time)

If you have never calculated Reorder Points before, it might seem like an insurmountable job. So start by focusing on your most popular products with the longest lead times and then work your way through your Product list as you accumulate the required data for each item. You should be able to get sales and order history from your POS system; and if you don’t already know your lead times, you can easily get them from your suppliers or by reviewing purchase orders and invoices. Once you enter the data into a spreadsheet, it will do the hard work of actually calculating Reorder Points for all your products. Make sure you use at least 10 – 12 weeks of sales history – more is better. If you’re using MyPOS Connect, it’s easy to export product sales and order history to Excel, then import the calculated Reorder Points back into MyPOS Connect’s Product File. If your POS system doesn’t have this capability, then it will take longer to manually enter the raw data into your spreadsheet and the calculated Reorder Points back into your purchasing system; but it’s still worthwhile and you’ll still save a ton of money as a result of your efforts.

A couple of additional points to consider. Begin by focusing on products that take more than a week or two to get in. If you can place orders for a product and take delivery within a couple of days, you can ignore calculating Safety Stock; just set a reasonable Reorder Point for that item. Also, since there are so many factors that affect your customers’ buying behaviour, you should consider revisiting your Reorder Point and Safety Stock values at least Quarterly. This will enable you to adjust your requirements for seasonal fluctuations or for one-off events that you didn’t previously take into consideration.

In the 2016 US Consumer Payment Study, TSYS found that more than 75% of people surveyed preferred either credit cards or debit cards as a means of paying for purchases. This number was exceeded by Canadian respondents who preferred using credit/debit cards for more than 80% of purchases.

Accepting credit and debit cards as a primary form of payment is a necessary requirement in today’s retail world. But what are the real costs to you, the merchant, for processing payment cards? For years we have been told that the cost of processing cards is based on the “discount date”. We’ve also have been conditioned to think that we need to sign a multi-year agreement with the payment processors to get those rates. But that’s not necessarily the case anymore. First of all, discount rates only apply to credit cards, so if you’re focusing on discount rate as an indicator of cost, you’re ignoring the cost of processing debit cards which represents more than 35% of all payment transactions and can fluctuate significantly. In addition, there are a number of other monthly fees that your Merchant Services Provider is charging you.

You’re getting charged more than you think

According to Ryan O’Leary, President of SonaPay, a leading merchant services agent for First Data Canada, the monthly cost of accepting card payments is based on four main fee categories: processing fees (the discount rate for credit cards and transaction fees for debit cards), the Interchange Rate (the fee the credit card companies charge your acquiring bank), your monthly account fees and equipment rental fees for devices like PIN pads, signature capture tablets, etc. So if a Merchant Services Provider claims they can give you the lowest discount rates in the industry, they’re only telling you a part of the story.

I frequently speak with customers who tell me that they are getting the lowest card transaction processing fees. I hear comments like “my provider gives me the lowest fees in the industry” or “I’m only paying a discount rate of 1.58%.” But when they conduct an analysis of the true monthly cost of accepting card payments, they often discover that their costs are much higher than they expected. Not only that, but many of them learn that their monthly costs have increased steadily year over year. In fact, many of my clients who have done a thorough analysis have found that the actual rate they are paying to process card transactions is closer to 3% or 4%!

And don’t be fooled by the slick salesperson who says they value your loyalty so much that they are willing to buy your business, just to beat out their competition. Some Merchant Services Providers might be willing to take a profit hit for a while if they think that they’ll be able to sign you to a multi-year contract. However, eventually, they will need to see a profit, so it’s just a matter of time before other fees begin to creep onto your monthly statement or your processing fees slowly rise – or both.

 

Know what you’re paying for. Ask the hard questions.

So how do you know if you can expect to see your rates increase when you are negotiating a contract with a merchant services provider? According to O’Leary, it starts with the initial contact with their sales rep. They will likely offer to perform a cost comparison, based on your current monthly statements. “Always compare the resulting comparison document that the salesperson provides with the sales contract they want you to sign. If you see fees like ‘PCI Compliance’, ‘Annual Fees’ or other fees that were not on the initial comparison, this should provide a good indicator of whether this company can be trusted. Always remember, most merchant services companies are banking on not working with an ‘educated’ customer” says O’Leary.

“It goes without saying that you should seek a merchant services provider that offers competitive rates,” says Josh Lieberman, Senior Sales Executive for Cardknox/Fidelity Payments, a leading US-based Merchant Services Provider. “That’s why it’s important to look for a Merchant Services Provider that is transparent about rates and fees, so you don’t encounter any surprises along the way.”

Poor customer service can also impact your costs for processing card payments. If you call your merchant services provider for technical assistance and they immediately send you to your POS solution vendor without doing any diagnostics on their hardware device, you could end up with a bill for technical support to fix something that should have been handled by the Merchant Services Provider’s Help Desk. Lieberman agrees: “it’s important to find a merchant services provider that can provide outstanding customer service and tech support. Whether you’re experiencing a technical issue, or are looking for ways to maximize your existing setup, your merchant services provider should be on-hand 24/7 to answer your questions quickly and easily.”

So how can you tell if a Merchant Services Provider can give you the level of service you need so that you can minimize ongoing support costs? Try reading online review sites like Google reviews and the Better Business Bureau. Get personal references from existing customers and ask them what kind of service they experience when they have a problem. Most importantly, talk to your POS solution vendor; they will know which Merchant Services Providers have well-trained Help Desk personnel – and which Providers continually deflect support calls, even when the problem is on their end.

The next time you are thinking about switching Merchant Services Providers, contact us before you make any changes. We can recommend the best providers for your specific business and for the POS solution you are using. We can’t negotiate processing fees for you but we can certainly give you a sense of how reliable their card reading devices are and how responsive the service is from their Help Desk.