So much schadenfreude to watch Toast dunk on the restaurant industry.
The “smartest people in the world” are getting taking for a ride.
Dunning and Kruger just look like absolute savants at this point.
Have to love it.
Most recently we’ve seen Toast payment contracts refer to Toast’s “cost” of payments, and not interchange.
Some history.
A long time ago (i.e. 2017), there was class litigation levied against Mercury Payments and Global payments.
The litigation asserted that the aforementioned defendants misled merchants, as well as their sales partners, about the definition of interchange.
Interchange is a well-codified term promulgated by the card schemes.
It’s not up for debate, although it can be optimized (i.e. reduced) with level 2 and level 3 data for the benefit of the acquirer, who usually never passes these savings downstream to the merchant (or even their sales partners).
In their contracts, Mercury and Global payments represented that merchants would be paying interchange and some additional mark up, when in reality these processors were (“allegedly”, but we all know they do it in practicality) additionally padding interchange.
Double-dipping, baby.
Hard enough to make George Castanza envious.
Mercury and Global similarly sought to optimize their earnings at the expense of their sales channels: contracts with sales partners referred to “cost” as the basis for the channel’s revenue share.
Well, turned out that cost is a very subjective term, and anything can be included.
So naturally, the processors categorized all sorts of margin as “cost” so they would pay out less to their sales “partners”.
Give them an inch and they take a mile.
The scorpion cannot help its nature.
Are we seeing the parallels with Toast’s contract language yet?
Although retailers have pushed back on the joke of a settlement from the card duopolies, Toast stands to realize all the settlement’s benefits at the expense of their merchants, depending how they define “costs” (i.e. any kickback in lower interchange fees from V/MA as part of this settlement might not be passed to Toast merchants).
Similarly, if Toast pursues lower interchange costs by virtue of being the 4th largest US retailer by payments volume, Toast’s merchants would stand to see none of the benefits depending how “costs” were defined.
Large retailers receiving favorable pricing from the card schemes (and perhaps even the issuing banks) due to their scale.
Now that Toast is moving hundreds of billions of dollars in annual card volume, they stand to receive lower costs of processing.
This means their interchange will be lower than that of competitors.
How much lower?
Mizuho thinks it’s 25-75 bps.
That’s a lot of free money.
How much will get passed back to the merchants?
If precedents tell us anything, it’s that a payments bro can’t help itself.
And now that Toast is public – especially looking at their diabolical surcharging strategy – Toast might become the king of the payment bros.
Add comment