We were scratching our heads at Shift4’s last partner change: a fee increase so large no partner could realistically afford to stay a Shift4 partner.
How many partners this affected was anyone’s guess, but it doesn’t make the company look financially strong when they’re dictating such terms.
Of latest concern is an email that went out to Shift4 partners.
How many were affected?
Their CEO says 5%, but we’ll get to that later.
None of these communications feel fair to their partners and should have people questioning company health. How many Stripe and Adyen partners have received similar messages?
We’d bet zero.
It would seem that Shift4 is working to consolidate their portfolio and eliminate third party processing tools. We understand that constantly remitting these fees to partners is annoying, but that’s also part of the job.
In fairness, other processors have done similar things in the past, but we’ve seen none so teethy.
Here’s Shift4’s message:
Dear Valued Partner,
As part of our effort to update and standardize our partner residual program, Shift4 Payments, LLC (“Shift4”) will be discontinuing certain legacy residual programs effective April 1, 2022.
In consideration of discontinuing this ancillary fee program, Shift4 will remit to you a one-time payment to buy-out your existing residual stream which you currently receive for the following items: Authorize.net, Crosscheck, Tableside, TabbedOut, Association Rate, Assessments, UBC Gateway, Monthly Service, NABU, Non-Acquiring Gateway, HT Online Ordering (“Ancillary Fees”). This payment represents a substantial premium over your typical monthly Ancillary Fee residual payments.
Upon receipt and acceptance of this payment, you agree to transfer, assign, convey, and sell any and all rights, title and interest of any kind or nature in and any payments due under your Independent Sales Office Agreement (or other agreement by which you refer merchants to Shift4 (its subsidiaries and predecessors in interest) and receive commissions) for Ancillary Fees attributable to customers referred to Shift4 and designated under the office code(s) assigned to you (“ISO Agreement”) including but not limited to the right to receive residuals, fees, bonuses, and all other compensation derived from or related to the Ancillary Fees as of the date the payment is received by you.
By accepting this payment, you agree that the price offered is adequate consideration for Shift4’s purchase of any recurring Ancillary Fee compensation due under your ISO Agreement.
Upon acceptance of this payment, Partner agrees that Shift4 owns all right, title and interest to the payment processing relationship between merchants under Partner’s portfolio that have entered into an agreement with Shift4 (“Program Merchant(s)”). During the period of ten (10) years following the date Partner accepts this payment, Partner and its successors in interest, affiliates, and permitted assigns, shall not, without Shift4’s prior written consent: (i) directly or indirectly solicit any Program Merchant, for purposes of providing merchant services that compete with the merchant services offered by Shift4, wherever located; (ii) intentionally, knowingly or otherwise interfere with, disrupt or attempt to disrupt any current business relationship, contractual or otherwise, between Shift4 and any Program Merchant, as well as any of Shift4’s affiliates, sponsoring banks, vendors, agents, or employees; (iii) advise any Program Merchant that the merchant’s contract with Shift4 is expiring; (iv) induce any Program Merchant to terminate the merchant’s contract with Shift4; (v) refer any Program Merchant to a third party merchant services provider; or (vi) refer any Program Merchant that has cancelled or terminated its agreement with Shift4 to a third party merchant services provider.
If you have any further inquiries, we encourage you to reach out directly to your Relationship Manager.
For starters, the fees affected are third party fees, not direct processing residuals (though the way it’s written isn’t entirely clear).
“…Authorize.net, Crosscheck, Tableside, TabbedOut, Association Rate, Assessments, UBC Gateway, Monthly Service, NABU, Non-Acquiring Gateway, HT Online Ordering (“Ancillary Fees”)”
It makes sense that Shift4 would want to kick out as many of these vendors as possible and move in with their own gateway technologies to drive ARPU.
But what do those ISO agreements look like? Many ISO agreements that we’ve seen require that the merchant account be notified when a changeover of this magnitude is considered, especially if banks are moving.
Do Shift4’s ISO agreements preclude them from having to legally do this, or are they taking legal risk in hopes that nobody reads their ISO agreement?
We’re also really curious about this line:
“Upon receipt and acceptance of this payment…”
What does that mean? If Shift4 pays an ISO a lump sum and the money isn’t rejected by the ISO’s bank (why would it be?) then the ISO has agreed to this letter?
Or does the ISO have to both receive the funds AND acknowledge, in writing, that they agree with these terms?
The word acceptance here seems rife for misinterpretation and thus legal dilemma.
Lastly, but most importantly, the terms of the letter are so bad we can’t imagine anyone with a modicum of payments experience ever signing it.
The 10-year non-compete is the longest we’ve literally ever heard of.
Some heuristics:
- Non-competes for active merchants with ISOs on stand-alone terminals: 16-21 months
- Non-competes for active merchants with ISOs on POS systems: 38-42 months
You’ll probably die before you can ever talk to the merchant account again, and even then it’s really loosely written in Shift4’s favor.
How is Shift4 defining merchant services? They could (and should) have been specific around payments processing, but just about anything can be considered a” merchant service” that Shift4 offers (however poorly), including POS, analytics, marketing, etc, etc, etc.
Also not great that the ISO couldn’t remind the merchant that their Shift4 contract was expiring; with all the value in rate increases, why would a merchant leave?
It turns out we weren’t the only ones confused by the vague email; in fact, Shift4’s CEO had to step in and clarify this in further communication.
It’s clear that Shift4 is working to consolidate their base to drive more pricing economics. Their CEO can offer product platitudes, but until R&D spend becomes material, we’re having a hard time buying into any cause-effect between this message and Shift4 partners getting better products anytime soon.
I am not surprised by any of this. How do you think Jared keeps launching himself into space? The whole market has become very anti-partner and anti-dealer. They like to get the business and customers, then turn around and screw the dealer or partner….