Integrated vs. Non-Integrated Credit Card Processing for Consignment Stores

Intro

Card payment processing is an aspect of running a modern business that often feels like a black box. It’s a crucial (and sometimes frustrating) component, but like indoor plumbing, smart phones, and bananas in February; you know it works, just not how.

But for consignment store owners, understanding the nuances of accepting card payments is critical: it can make a huge impact on both profit and customer experience. A few cents here and there in transaction fees can translate to tens of thousands of dollars over the course of a year, and when data entries affect not only your sales but also your consignor payouts, accuracy is make-or-break.

There are two primary options for business owners when it comes to accepting card payments: integrated and non-integrated systems. Integrated systems are those in which the POS (Point of Sale) is fully connected to the payment processor (the software/service that authorizes transactions and moves money). The cashier enters the item on the POS, which then automatically sends the total to the card reader. A non-integrated system requires two steps: the cashier rings up everything on the POS, and then takes the number the POS calculates (after taxes, discounts, etc.) and enters it on the card reader to charge the customer.

Which is better? We’re glad you asked.

Integrated Payment Processing

These days, integrated payment processing is by-far the most popular option. And for good reason. Having your POS and your processor fully connected has several advantages:

• Faster checkouts: employees need only scan (or enter) each item once on the POS. The card reader is automatically updated and seamlessly handles the payment. 

• Fewer errors: since there’s no separate entry into the payment terminal, there’s a far lower chance of inaccuracy. It’s much easier for a cashier to make a mistake when typing a number manually on a card reader.

• Automatic sales reconciliation: since the processor and POS are part of the same system, sales are automatically reconciled between the two, eliminating the need for business owners to manually reconcile transactions from the processor with sales on their own system.

• Cleaner reporting: with one set of sales data, it’s far easier for business owners to maintain clean reports. For consignment store owners who must track both sales and consignor payouts, this is doubly important. A discrepancy means not only lost time but also a potentially incorrect payout to a consignor.

Of course, as with any business decision, there are trade-offs. Although integrated systems offer a smoother experience and cleaner data, there are a few cons as well:

• Potentially higher fees: many integrated payment processing providers make money by charging higher transaction fees. These usually come in the form of a percentage (i.e. 2.9% of the sale total) and a per-transaction fee (anywhere from $0.05 to $0.50).

• Vendor lock-in: many integrated software systems require store owners to use their proprietary payment processor. Although this can simplify the experience, it can also make switching harder and eliminates the pressure of competition to keep transaction fees low. For example, Ricochet and SimpleConsign both require anyone using their POS software to also use their in-house payment processing.*

Let’s run a few numbers to see how this might play out in the real world. Let’s say a consignment store does $500,000 in revenue over the course of a year. And let’s say their average sale is $50, which means they run 10,000 transactions.

• Stripe (an industry standard used by ConsignCloud) charges a fee of 2.7% plus $0.05 per transaction. That adds up to $14,000 in fees over one year.

• Ricochet Pay (Ricochet’s in-house provider) charges a fee between 2.6% and 2.9% plus $0.30 per transaction. That adds up to between $16,000 and and $17,500 in fees over one year.

• That’s a $2,000-$3,500 yearly difference that someone has to pay.

Of course, some shop owners simply pass those fees on to their customers (a whole other can of worms sometimes involving state regulations). But when consignment shoppers are already looking for a deal, that increase in cost can have an outsized impact on their satisfaction and loyalty. We can already hear store owners scratching their heads and reaching feverishly for calculators. Which leads us to the second option…

* Ricochet offers users the ability to use non-integrated payments for an additional fee.

Non-Integrated Payment Processing

Although non-integrated payment systems are far less common now, they were once the de facto method for small businesses. In this way of doing things, the POS is run on software that’s entirely disconnected from the payment processing. A typical non-integrated transaction would look something like this:

1. The cashier enters an item on the POS.

2. The cashier verbally confirms the total amount to the customer (a good practice regardless, but especially important in a non-integrated setup).

3. The cashier manually enters the total on the card reader.

4. The customer pays.

And while this is certainly more involved than an integrated system, it does have its advantages:

• Processor flexibility: under this system, business owners have far more choice when it comes to what payment processor they use. This creates a much more competitive environment when it comes to features and benefits, giving business owners more say in what they prioritize.

• Lower fees: that same competitive environment means that payment processors are motivated to keep fees low or offer other benefits to using their system.

• (Potentially) Simpler setup: in a non-integrated system the POS and card-processing software don’t talk, which means (in one sense) fewer moving parts. Keeping each side of the equation separate may make it easier to get up and running.

• Stick-with-what-you-have: many store owners have legacy systems they’re familiar with; the flexibility to maintain an existing processor regardless of your other software means no new contracts, no rate changes, and no new hardware.

Of course, after having gone through the benefits of an integrated system, the downsides are obvious:

• Slower checkouts: non-integrated systems require two steps in the sales transaction.

• More room for error: along with that double entry comes the increased potential for a cashier to enter the wrong amount, which could hurt both revenue and consignor payout accuracy.

• Necessary reconciliation: with separate systems, business owners have to take extra time to reconcile their POS data with data from the payment processor.

How to Decide

While we can’t offer a right answer for everyone, we’ve compiled a helpful checklist for business owners considering their options. But before we get to that, we think it’s worth mentioning three points specific to the consignment industry that might influence your decision.

1. Consignment inventory: a big part of managing your business is maintaining a healthy and accurate inventory. In one sense, you’re running two businesses; one that sells to customers, and another that manages consignors. Every bit of additional book keeping you take on compounds.

2. Item payouts: every sale you make necessitates a payout to a consignor. For many businesses, an error in entering a sales price means either you lose money or your customer comes back irate that they were overcharged. In consignment, those stakes are doubled as you can also lose money (or trust) when paying your consignor. 

3. Consignment pricing: your clientele usually walk in hoping to find a great deal. Any time you raise the price on their find you’re potentially undermining your own mission and the satisfaction they find in shopping with you.

These are tricky issues to navigate, but hopefully walking through this list will bring some clarity. 

Conclusion

Running a small business (even a successful one) is hard enough: don’t let your payment processing be one more rock in your shoe. And while we can’t say definitively which move is right for your business, there is a silver lining here: ConsignCloud can handle both options. We’ve intentionally built our software to work for business owners who want integrated processing and owners who’d rather keep it separate. We wouldn’t want to have to choose between a preferred payment processor and great inventory tracking, an efficient POS, and insightful data—and we don’t want our customers to either.

For those who don’t want the hassle of two systems, we use Stripe or Gravity. Stripe charges a very competitive 2.7%/$0.05 transaction fee and Gravity uses a transparent cost-plus pricing model. 

At the end of the day our mission is still to see small businesses thrive and to make buying resale the norm for everyone. If you’re interested in learning more we’d love to chat.