This morning Toast published an 8K which will rescind their $0.99 ordering fee.
We were told Clover suspended its ordering fee indefinitely, but being a payments company they haven’t bothered to supply any definitive declaration.
While Toast merchants might be celebrating this in the short term, hear us clearly:
Toast lacks all vestiges of anything resembling morality, and Toast merchants will pay for this shortfall.
What transpired with the $0.99 fee was but a brief taste of what those of us in the industry already know: Toast is truly a monster.
Toast merchants by and large have no idea what the hell is going on and the pushback on Toast’s fee was from a very small percentage of Toast merchants who bothered to (probably accidentally) read an email from Toast.
The problem for Toast merchants now is that Toast is on track to lose $300M this year.
Precisely the amount of revenue the fee would close.
Toast cannot sustain this rate of losses for more than 3 more years before they have to shore up the balance sheet.
Frankly, we’re curious to see how Toast takes this learning to pummel merchants on payments.
We bet that within a year Toast will find a way to make the revenue through direct merchant fees, likely mandating the $0.99 fee but letting the merchants make the call on eating it.
Why did Toast drop the fee?
Not because merchants pushed back.
And probably not because President Biden has made comment on the frustration with unscrupulous fees, even though next year is an election year and this might mean that the FTC takes a closer look.
Sure, some state representatives are taking interest, but honestly only a very small number of Toast merchants will even notice, and even fewer of those can do math.
The legitimate concern, however, relates to taxation:
Toast restaurants are required to recognize the revenue of these fees and remit taxes against such revenue, but they’re not seeing any of the revenue to offset the taxes.
Let’s do the math to show you how bad this is.
A merchant doing $1M a year does $200,000 in digital native orders, or 20%, and that might be conservative.
At a $30 average check, that’s 6,600 checks, or $6,600 in revenue at a dollar fee per order.
Well, now the merchant now has to pay taxes on that $6,600.
What percent of the merchant’s margins were just eroded in additional taxes?
And what happens when a customer wants a refund?
Is Toast managing that?
Who reports changes to the tax authorities?
Does this complication give governments the impetus to directly integrate to POS software like they do in Europe (so that the authorities can audit the taxes due)?
This was going to be a real compliance headache and it puts a target right on the backs of Toast merchants.
We don’t think Toast wanted this exposure in this manner.
What should Toast merchants do (but they won’t because they don’t self-educate)?
Merchants should switch POS systems, but this is a pain in the ass, and Toast knows it.
Longer term, merchants need to read their damn agreements.
We went ahead and downloaded Toast’s terms of services (TOS) and marked them up here. We’ll provide commentary on the interesting things we read for the five Toast merchants reading this.
Disclaimer: we are not lawyers, so our interpretations aren’t legal fact.
We start with Toast’s Merchant Agreement, which you think of as the MSA that references additional schedules in an agreement. This is the master document and it points to Toast’s digital ordering TOS.
The first thing to call out is Class language, which is standard in many payments agreements.
This section says that the merchant cannot participate as part of a class action.
Why?
Because they’re going to get fucked. And not just one merchant: all the merchants.
Big red flag, but Toast is just the modern day payments bro:
THIS AGREEMENT CONTAINS AN ARBITRATION AGREEMENT, WHICH WILL, WITH LIMITED EXCEPTION, REQUIRE MERCHANT TO SUBMIT CLAIMS MERCHANT HAS AGAINST TOAST TO BINDING AND FINAL ARBITRATION. UNDER THE ARBITRATION AGREEMENT, (1) MERCHANT WILL ONLY BE PERMITTED TO PURSUE CLAIMS AGAINST TOAST ON AN INDIVIDUAL BASIS, NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION OR PROCEEDING, AND (2) MERCHANT WILL ONLY BE PERMITTED TO SEEK RELIEF (INCLUDING MONETARY, INJUNCTIVE, AND DECLARATORY RELIEF) ON AN INDIVIDUAL BASIS.
Toast Merchant Agreement
Under section 6, there’s language about Toast’s unilateral right to increase fees, provided they give the merchant 30 days’ notice.
If the merchant doesn’t provide written response – which virtually none will – then the merchant implicitly accepts the changes.
However, if the merchant desires to leave and puts it in writing, the merchant won’t have to pay any termination fees, or any fees left on their agreement minus the processing fee for Software financing.
We think this is reasonable so long as the fee for Software financing isn’t some gotcha term.
Toast reserves the right to change any other Fees and/or processing rates upon thirty (30) days’ prior written notice to Merchant. Such notice will include the effective date of the change(s). Merchant’s continued use of the Services subsequent to any change in Fees and/or processing rates, as applicable, will be deemed acceptance of such changes unless Merchant closes its Toast Account prior to the effective date of such change and ceases all access to and use of the Services. If Merchant does not accept such Fee and/or rate change under this sub-Section 6.2, then Merchant may terminate this Agreement by providing Toast written notice prior to the
Toast Merchant Agreement
effective date of such Fee and/or rate change, and in such event the Early Termination Fee under sub-Section 8.4 shall not apply (other than the processing fee for Software financing), and Merchant shall only be liable to Toast for the payment of Fees and/or rates for Services provided through the date of Merchant’s notice of termination.
If you viewed Toast’s $0.99 fee as a breach of this agreement, which we don’t, then merchants would have the right to a pro rata refund of their Software fees.
If a merchant wants to leave at any time, it would have to pay an early termination fee equal to the software fees due under the current term, or $150 * the number of months remaining in the term.
Toast again references that the merchant must pay any applicable processing fee related to Software financing.
8.4 Merchant acknowledges and agrees that it may terminate this Agreement and any applicable Order(s) at any time during the Term, provided that Merchant shall remain responsible for payment of all Fees for Services provided by Toast through the date of Termination. Additionally, Merchant shall incur and pay 1) an early termination fee equal to either i) the remaining Software Subscription Fees that would have otherwise been due for the remainder of the then-current Term, or ii) for a Pay-as-you-go subscription, one-hundred and fifty dollars ($150.00) multiplied by the number of months remaining in the then-applicable Term, as applicable (“Early Termination Fee”), and 2) any applicable processing fee related to Software financing.
Toast Merchant Agreement
Toast caps the damages a merchant can claim to the total fees paid by the merchant in the preceding 12 months to any such claim.
10.2. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND RULES, TOAST’S AGGREGATE LIABILITY FOR ALL CLAIMS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL FEES ACTUALLY PAID BY MERCHANT TO TOAST IN THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE DATE OF THE APPLICABLE CLAIM.
Toast Merchant Agreement
Toast once again references in section 14 that merchants waive their right to class actions.
Toast really knows they’re going to be doing a lot of raping. Can’t have any victims crying about it.
Merchant agrees that, by agreeing to this Agreement, Merchant and Toast are each waiving the right to a trial by jury or to participate in a class action.
Toast Merchant Agreement
Now we need to inspect the digital ordering TOS, as that’s where Toast is adding their fee.
Under Section 2 there’s an interesting piece of language that flies in the face of Toast’s fee: it reads like merchants are responsible for pricing.
2.1. Merchant is solely responsible and liable for marketing, selling, pricing, packaging and provision of any products or services offered to Guests through the Digital Ordering Channels, all in compliance with Applicable Law and Rules.
Toast Take Out Terms
Toast gives themselves full control over adding and removing Toast merchants from digital ordering channels. Undoubtedly, this is so Toast can turn on digital ordering for merchants to extract more order fees.
Toast is the pimp and all of Toast’s merchants are the whores.
Toast, in its sole discretion, may retain control of the ability to add any of the Toast Digital Ordering Channels to a Merchant’s Toast Account or to cause Merchant’s business to appear on the TakeOut App.
Toast Take Out Terms
Next is a piece of language that makes us wonder if Toast’s fee can be considered a “standard labeling and design element” of the Toast digital ordering channels.
While Merchant may change most of the information Merchant provides, Toast maintains control over certain standard labeling and design elements of the Toast Digital Ordering Channels, including but not limited to the TakeOut App user interface for all listings on the App, which can only be changed or modified by Toast at the request of Merchant.
Toast Take Out Terms
There’s a peculiar piece of language that would again seem to counter the digital ordering fee
Toast is not responsible for and does not control any aspect of the products or services sold by Merchant or the description of the products or services offered through the Digital Ordering Channels.
Toast Take Out Terms
Is the fee literally not a product or service charge?
But Toast legal probably read through this agreement and said “fuck, we really need to just give ourselves all the rights to do anything.”
So they did.
Section 8 and 9 are all Toast, baby.
Toast reserves the right to modify any portion of these Digital Ordering Terms at any time in its sole discretion by notifying Merchant of any changes by electronic mail, posting of the updated Terms on its website or on the TakeOut App, or delivering an alert within the Toast Platform. The changes will become effective, and shall be deemed accepted by Merchant, upon the effective date stated or initial posting/delivery date (if none is stated) and shall be effective on a going-forward basis. If Merchant does not agree to these Digital Ordering Terms or any updated version of these Terms, its sole and exclusive remedy is to terminate Merchant’s use of the Toast Digital Ordering Channels.
Toast Take Out Terms
The irony, of course, is that even if the merchant decides to terminate their digital ordering channels on Toast…
Toast can put the merchant RIGHT BACK ON DIGITAL ORDERING
Go read section 3.
It’s a circular loop.
If a merchant doesn’t like Toast raping their customers they can… deactivate Toast’s digital ordering channels but then, and we’re literally quoting Toast’s own agreement, “Toast, in its sole discretion, may retain control of the ability to add any of the Toast Digital Ordering Channels to a Merchant’s Toast Account or to cause Merchant’s business to appear on the TakeOut App.”
Have to tip your hat to this level of malfeasance.
Can’t wait to see what the financial chefs at Toast cook up next!
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