We’ve not been able to verify this with Toast (who doesn’t bother responding to any of our inquiries), but we have had multiple third party Toast “partners” tell us that Toast is mandating that they use Toast for any and all payments processing on overlapping Toast merchants. If this sounds a bit confusing we’ll see if we can’t clarify it for you.
Toast has an app store. In that app store are third party solutions. Toast calls these third party apps “partners” as they need Toast API approval to integrate. Now, we’ve been on the record saying that we strongly believe Toast will cannibalize these third party “partners” eventually; we envision Toast cloning what innovations these third party partners deliver and offering it themselves as a Toast-branded tool. If that weren’t enough we could easily see Toast imposing such punitive integration fees that these third party apps couldn’t afford to do business with Toast merchants, and Toast merchants similarly couldn’t afford third party applications.
Winner: Toast.
As it relates to the complaints we’re hearing, it’s these third party app “partners” that we’re talking about: the non-Toast companies offering things like loyalty, analytics, online ordering, etc. Many of these third party companies process their own payments, even for Toast merchants. Let us give you an example.
Online ordering Company A signs up a Toast Merchant X. Every time a consumer uses Company A’s app to order from Merchant X, an online payment is made. This payment goes through Company A’s payments rails and Company A probably makes a piece of the transaction, just like a conventional acquirer. But according to what we’ve heard, Toast doesn’t like this. Instead, what Toast believes should happen is that Company A should pass that payment through Toast so Toast can make the money on the transaction. Even though Toast is already the processor on record for what is likely > 90% of that merchant’s card volume (the online ordering is but a small piece of the payments processing pie).
Making more sense now?
To us we’re reading the tea leaves two ways.
First, it’s clearly a sign of Toast’s desperation. Is growth that hard to come by that you need to force your “partners” to use your payments rails for their own processing on your overlapping merchants? We know you’re raising more capital, and have clearly been buying market share at a steep loss to make it up on processing later, but are you stalling out on your growth numbers? Merchants are really, really, really dumb (we cannot emphasize this enough, sadly) and you will surely convince many more to lock themselves into your multi-year agreement without too much hassle, so this just feels petty in the scheme of things. In fact it takes this industry 5-7 years to learn any lessons (if they learn them at all), and “free POS” is only a few years old. There’s plenty of time left on the game clock.
Second, this allegedly strong-arm tactic only furthers our conviction that Toast will fuck over their third party “partners” at the earliest convenience. This is such a ludicrous demand for such a small upside it really helps us frame the dynamic between Toast and their third parties, the latter of whom are usually working really hard to keep merchants solvent and aren’t locking merchants into multi-year processing contracts with obscenely high payments margins (from what we’ve personally witnessed).
We’ve been told that Toast has not pursued these tactics with Olo and LevelUp, who are, according to the third parties being told that they must comply, “too big to force this change.” It would seem all partners are not made equal at Toast. Which is totally fine, just be honest about it. And by honest we mean a different kind than the type associated with the “meet or beat your rates” gimmick you sell to merchants.
Payments companies are pretty much all utter rubbish that way, and you can’t hang that on Toast alone. “Don’t hate the player: hate the game.”
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