Toast Puts Gun – And Grenade Launcher – to Their Merchants’ Heads in Latest Rate Increase

You know things are going well when you’ve got a rate increase with options.

It’s just that those options are:

Swallow this razor wire or put it up your urethra.

Amazing.

In Toast’s latest move they’re giving merchants the choice of eating a 15 basis point rate increase, or surcharging customers $0.99.

Let’s break this down.

First, the card networks did increase interchange.

A lot of Toast merchants were on flat rate pricing, meaning that they were paying 2.4% and 15 cents per transaction or similar; when the networks increase interchange Toast legitimately experiences an increase in processing COGS that they can’t readily pass through given the flat rate structure (but don’t cry for Toast: they’re making 55 bps on their average merchant).

In this case we can see Toast wanting to recoup some of that margin by increasing flat rates to their merchants. This will be a constant game of whack a mole for Toast (thought not in a bad way if you’re a Toast investor) and don’t ever expect Toast to decrease rates even if the card networks do (as they’ve been legislated to do so in like 37 countries now).

Second, Toast is really careful not to call the $0.99 customer fee a surcharge. Instead, Toast is using a euphemism to escape any of the legal ramifications that come with surcharging legislation… but is there a euphemism for rape? Like, really?

We don’t think Toast is fooling anyone here.

Third, we’re shocked that Toast didn’t find a way to push more merchants into surcharging. Because the math works great for Toast.

On a $10 transaction today, Toast is pulling in roughly 55 basis points, or $0.055.

But if the merchant surcharges $0.99 on $10 check, Toast goes from $0.055 in payments margin to about $0.75.

Not a typo:

Toast makes literally 1,270%+ more money by doing absolutely fuck all.

Even better, that merchant who’s struggling to sack away $0.30 on that $10 check can sleep soundly at night knowing that they’re toiling 90-hour weeks so Toast can make 2.5x as much as they are by working 0 hours.

We ran all that math in a previous article if you’re curious how this plays out for varying check sizes.

At least previous Toast communications offered Toast merchants some of that surcharging gravy back to their bank accounts. But apparently that was too much for Toast, who saw this year’s Nobel Peace Price go to someone not named after a piece of crusted bread.

So Toast merchants can either instantly lose more money working with Toast, or roll the dice in pissing off their customers, which lose them money over the long run.

Talk about a partnership.

Looks like Toast merchants are in for a rough 2023: if Toast can triple payments rates on their customers during a pandemic, ratchet their payments margins on their customers by 1,270% at the beginning of a recession, we’d hate to be a Toast merchant when stagflation is obvious.