Shift4 Looks to Be Killing Their Channel Partners with Fee Increases

Statement Simple gave us notice that many Shift4 resellers received a letter delivered via certified mail.

Hmm, okay?

The letter explains the fee increases these resellers will be seeing in their Schedule A (their effective buy rates) that were going into effect in 30 days. By reading the letter – certified with delivery confirmation – the reseller agrees to the pricing changes.

Jeez, kinda makes you think processors like Shift4 should at least extend the same courtesy to their customers instead of burying fees in their statements :/

But no matter: let’s dissect the Schedule A changes, seen below.

Frankly, this rate sheet is wholly unworkable, particularly for restaurant or low ticket verticals.

For starters, it’s a $0.05 buy rate on transactions.

That means for a merchant doing $50,000 in monthly volume with a $25 average check the buy rate starts at $100/mo.

But that’s if we don’t separate out auth, cap, and settle. It’s really hard to discern from how this is written, but it’s possible the fee is $0.05 for each, or $0.15 per transaction. If that’s the case then the buy rate triples for $300/mo out of the gate.

Then Shift4 is marking up every PIN debit transaction by $0.15. Assume 10% volume is PIN debit, that’s another $30/mo.

Before each chargeback there’s a retrieval: looks like Shift4 grabbing $15 there too (the real cost is about $1.)

Daily batch fee of $0.35 -> another $10.50 per month.

All in, there’s 39 basis points (bps) before the reseller can even make a profit.

For reference, Toast’s average margin is 55 bps.

Anything above 39 bps?

Well, Shift4 gets half.

So even if a Shift4 reseller wanted to match Toast’s margins of 55 bps, they would only earn 8 bps while Shift4 would earn the balance of the 47.

But hey, at least you don’t have to own any of the risk, amiright?

But if the auth, cap, settle is $0.05 per?

Well, then the reseller buy rate is 71 bps, and Shift4 resellers are hosed.

Here’s a table to show you what we mean. Let’s take three sample merchants with different annual gross processing volumes (GPV) and calculate the Shift4 reseller annual buy rate at 39 bps and 71 bps.

But we all know buy rates are usually expressed in cents per transaction.

So we’ll convert those 39 bps and 71 bps into effect per transaction buy rates to make buy rate comparisons easier.

The way to read the table above is like this.

If you’re a Shift4 reseller with a merchant doing $600,000 in annual processing volume and a $20 average check (so like a limited service restaurant), your effective buy rate is somewhere between 7.8 – 14.2 cents.

Average check goes up, your buy rate goes up pretty drastically, too.

Anything in margin over 7.8 – 14.2 cents?

Well, you need to give Shift4 half of that.

Soooo how the hell are Shift4 resellers supposed to be competitive on payments?

Maybe they’re not . Maybe Shift is just hoping that they can’t do the math.

Becuase you have to ask yourself: if resellers can’t be competitive on payments rates, can they be competitive on product?

You think Shift4’s paltry R&D spend is going to produce a product anywhere close to what Square, Toast, and Spoton are putting out there? Companies that are individually spending 5-15x as much as Shift4?

Of course not.

A pretty standard reseller buy rate would be about 4 cents per transaction (which includes most of the bullshit fees) and 65% revenue share above this.

It looks to us like Shift4 is desperate, and that they’re hoping their resellers can’t run the numbers.

We honestly have no idea why a Shift4 reseller would stay a reseller.

What are they getting?

They’re not getting good economics.

They’re not getting relevant product.

Maybe they’re getting “free POS” as a consequence of their ridiculously high buy rates?

Even then, how much longer will the “free POS” ruse last?

Honestly, Shift4 resellers would receive better economics by referring all their customers to Toast and taking half the savings.

Hate to tell you we said so, but when you don’t invest in R&D and by consequence your products are feeble, this is what you do to make numbers. Anyone want to guess how sustainable this will be?