News broke that restaurant POS company Upserve was seemingly charging consumers an additional 5% fee on every online restaurant order. This comes at a time when literally every order is some version of an online order with many restaurants facing significant in-store dining restrictions – if consumers want to dine-in at all.
According to the article, merchants were unaware of Upserve’s practice and were only hearing about it from their customers. But not so fast…
On April 30th, Upserve sent an email to all their merchants explaining that consumers would be seeing this fee. But per usual, brick and mortar merchants can’t be expected to read emails. Seriously, who uses email as a means of communication, right? Pigeons should be carrying stone tablets chiseled with the scrawlings of formative language to get anything done. Everybody knows this, duh.
I haz no time for email, but here it is if you want to see it:
Notice: Guest Service Fees for Online Orders Upserve continues to invest in increasing the performance of the Online Ordering platform to drive more traffic and revenue for our customers. These investments include an expanded library of high-quality images, ad spend to increase guest traffic to OLO pages, expanded hosting capabilities and platform optimization to increase order size, capacity for greater volumes of SMS messaging, and expansion of technology integrations to support even more partners that enable order delivery. To deliver these enhancements without increasing price to customers, Upserve has decided to assess a small, variable fee directly to the end consumer for credit card orders only. This will allow us to continue to innovate and grow your online ordering revenues while keeping your costs low. As an added benefit to our customers, Upserve will now waive all “card not present” fees for orders placed through Upserve Online Ordering. Learn more
So Upserve’s CEO had to issue another letter walking back some changes.
I am writing to address recent questions regarding our new online ordering fees. You and your business are very important to me, and to our entire Upserve team, and I wanted to take this opportunity to share our objectives and goals with you directly. On April 30th we notified customers using our online ordering platform of our intention to start assessing consumer fees to guests placing online orders using credit cards through Upserve Online Ordering. This fee, assessed at 5% of order value with a minimum amount of 99 cents, was rolled out over the next 10 days to every consumer using Upserve Online Ordering. While we notified all our customers about this change through our weekly OLO newsletter email, it is clear to us now that we could have been more explicit in sharing this change and explaining the reasons behind it. Why we made this update The market has changed dramatically and like you, we too must change with it. As I’m sure you are aware, we have been pivoting quickly to enhance our services for our customers. To that end, we made significant investments in our online ordering platform, and we've seen a massive increase in its use. We are confident that our investment in the online ordering platform is the right path forward, but these investments and associated high platform usage come with a corresponding increase in costs. Increased volume of online orders directly increase technology and infrastructure costs including “card not present” fees and text messaging fees, all of which have grown by multiples. We have always maintained that we want to drive innovation and success for our customers without increasing prices wherever possible. So, we started by cutting our own resources back dramatically. When it was clear to us that those measures would not be enough, we considered many pricing options and ultimately settled on a structure that placed the least burden on our customers. Our research showed us that consumers today are familiar with and accepting of fees charged for the convenience of digital orders. It is a structure that is common to other online ordering solutions. To be equitable to customers across our base that have different order volumes and ticket values we settled on a variable fee structure with a fixed minimum amount. Consumers agree to pay service charges directly from Upserve when they agree to our Terms and Conditions. After successfully testing it with some restaurants and soliciting their feedback, we made the decision to roll out this new consumer fee. What we heard from you Since rolling out the fee we heard from our customers that the structure of the fee places too high a burden on their guests. Most importantly, when explained, our customers understood the reasons behind this fee and wanted to help us craft a better structure for all parties involved. With that in mind, we have been meeting with customers like you over the last few days to get their input and guidance on alternative pricing options. What is changing now Based on the rich feedback and alternatives shared by many of you, we have decided to make the following changes. We feel that these changes support our desire to balance our collective business needs while ensuring a good experience for your guests: The consumer fee will be immediately reduced to 2.99% for every credit card transaction placed with Upserve Online Ordering. The 99 cent minimum amount is being removed and there will not be a minimum amount for this fee. We will change the information in the checkout experience to clearly show that the fee is being charged by the Online Ordering Platform for the convenience of placing a digital order. The same information will be repeated in the text message sent to the guest upon placing the order. We hope this gives you a clearer picture of the new fee structure and our decision-making process. If you have further questions about this change or you would like to share additional feedback, please contact upservesuccess@upserve.com. It is our honor to serve you and the restaurant industry, and I hope you will continue to place your trust in us as your preferred partner. Sheryl Hoskins CEO Upserve
Now there are some other issues.
First, passing credit card processing costs to the consumer is called surcharging. The legality is nebulous at best, with different states having different rules. Of course we’re all for the right to pass along any and all costs to consumers and the consumer can vote with their feet if they don’t like it. However, even if it were illegal, we suspect Upserve could name the surcharging fee something else – just like acquirers do in Europe to get around the legislated caps on interchange fees. And technically Upserve is only passing some of the card costs to consumers, so it’s not a full-on surcharge.
Second, we should examine if the extra fee is fair. Upserve openly shared some of their processing statements with us and it’s clear that their merchants are on flat rate pricing – let’s call it 2.4% for easy math. Card not present fees can get higher than this, but not by much. Let’s look at Visa’s highest interchange tables for card not present transactions.
We’ll assume an Upserve merchant does $50,000 in monthly online ordering with an average check of $50 and that every transaction is processed at the highest interchange rate of 2.95% and $0.20 per swipe.
$50,000 * 2.95% = $1,475
$50,000/$50 avg check = 1,000 checks * $0.20 = $200
Total processing costs = $1,675 per month
Now we can calculate the revenue Upserve makes with their 2.99% fee that’s passed to consumers in addition to their 2.4% fee.
$50,000 * 2.4% = $1,200
$50,000 * 2.99% = $1,495
Total processing revenues = $2,695 per month
So even if the consumer uses THE MOST EXPENSIVE Visa card, Upserve is netting $1,020 per month in this scenario.
Now here’s the thing: Upserve says that they’re using these fees to invest in online ordering systems. But what online ordering system costs $1,000 per month? Most cost $100/mo. So why such the disparity?
There are two learnings here, and they are very, very related, which will become apparent momentarily.
The first is that SMBs are horrible business practitioners. That it’s 2020 are there are people who literally don’t know how email works is alarming. Seriously: if you don’t know how to clear your inbox and ignore emails from your most critical supplier you have no business operating a company of any size. Zero. Just get out of the game.
The second is that Upserve is making a killing on processing fees almost assuredly because merchants would have balked at a $100/mo SaaS fee for online ordering. So because payments processing is incredibly cryptic to people who have no idea how “the interwebs” works, companies like Upserve use the payment stream to charge for services, and they usually charge a hefty premium (though 10x as seems to be the case here is really excessive). But consumers are bearing the brunt of it, and if you do the math merchants are probably paying less than they would if Upserve were to just pass through interchange costs on card not present charges without a margin baked in.
Feel pity for a minute, but at some point you are legally considered an adult. Act like it.
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