Friday, July 14, 2023
New online ordering fees by leading POS providers Toast and Clover are sparking lively debates in public and private sectors. Initially reported June 19, 2023, by Boston Globe journalist Aaron Pressman in "Now on the Menu at Toast: a new 99 cent fee," the article disclosed that Toast is "tacking a new 99-cent fee on to orders over $10 at a small portion of the restaurants it serves starting on Tuesday, with plans to add the fee nationwide on July 10."
The Green Sheet published a breaking news story, "Toast makes fee grab with new surcharge," on June 29, a day before Clover reportedly disclosed it would upcharge online orders exceeding $30. At issue, for restaurateurs who use Toast and Clover, is the fact that these fees are assessed directly to customers, leaving merchants no recourse for deflecting or absorbing the additional charges.
Restaurateurs across the United States have shared their views in news outlets, social media and online forums, asserting the new fees are harming their customers and bottom lines.
A Toast review on the Better Business Bureau's website, posted by Christine S. on June 27, stated, "Toast has decided to implement a $0.99 order processing fee to all of our online ordering customers. Toast retains 100% of this fee. It can't be removed or disabled."
A June 30 post by @gtownguy123 on Reddit, titled "Clover online ordering flat fee on orders over $30 starts July 1," advised restaurant owners that Clover and Toast users have "no way to cover that fee [by ourselves] and not charge customers."
The POS marketplace was quick to react to new fee disclosures as competitors and payments industry experts debated the pros and cons of partnering with enterprise-scale POS platforms.
POS provider SpotOn promoted its fee-free policies on Twitter and in a July 11 blog post, titled "SpotOn vs Toast Comparison," stating that unlike its competitor, SpotOn "offers commission-free online ordering, with no additional fees added on to the end consumer…" The company doubled down on its fee waiver promise in a July 5 tweet: "Not only are we NOT charging your guests online order fees… now we won't even charge YOU."
Lori Pagnozzi, founder and chief disruptor at HipFinity, suggested the current pricing debacle may present a silver lining to small and midsize acquirers that can use this opportunity to educate merchants on the advantages of working with boutique merchant service providers.
"There are many ways merchants benefit by working with a smaller service provider, who can better understand, identify and resolve the merchant's pain points with tailored solutions and recommendations," she said. "Working with enterprise solutions does not always provide the flexibility and agility to personalize the customer journey."
She additionally noted that the payments industry's "feet on the street" have lower overhead and have been known to pass these cost savings to their merchant customers.
"In my many years working alongside the small and midsize ISO agents, I can vouch for their diligence in identifying their merchant clients' specific needs through a combination of market research and direct communication," she said. "A key differentiation is their ability to provide comprehensive and relevant training, informative resources and support materials to help merchants maximize the value they receive from their services."
As news of new online ordering fees reached the greater business community, Rep. Mark Alford, R-Mo., who serves on the U.S. House Committee on Small Business, resolved to investigate further, according to Fox Business journalist Kerry Byrne. Alford characterized the issue as impacting all Americans in Byrne's July 13 story. "Sudden new fees charged to millions of Americans by Big Tech vendor Toast spark congressional query: House Committee on Small Business responds after FOX Business exclusive report highlighting restaurant owners' outrage," he stated.
Alford brought his concerns to colleagues, including Small Business Committee Chair Roger Williams, R-Texas, after speaking with both constituent restaurateur Matt Wilhelmson and Byrne this past Monday. "Toast is a cloud-based third-party point-of-sale vendor used by more than 85,000 restaurants," he said.
Meanwhile, payments analysts have noted that the Credit Card Competition Act of 2023, which would enable merchants to route transactions through alternative credit card networks, would do little to mitigate rising processing costs.
Supported by merchant advocates and criticized by news media, the proposed legislation, sponsored by Sens. Dick Durbin, D-Ill.; Roger Marshall, R-Kan.; Peter Welch, D-Vt.; J. D. Vance, R-Ohio; and Reps. Zoe Lofgren, D-Calif., and Lance Gooden, R-Texas, was introduced to the Senate in June 2023 and is currently under review by the Committee on Banking, Housing and Urban Affairs.
In his July 10, 2023, Forbes post titled "New Credit Card Regulations Will Hurt Consumers and Small Business," Ron Shevlin pointed out that the bill, also known as "Durbin 2.0," would stifle rather than stimulate competition.
"The proposed bill—as described by its sponsors—would increase competition by enabling merchants to select payment networks other than Visa and Mastercard. The real impact, however, would be just the opposite," he wrote. "The government is creating a game of whack-a-mole: Increased competition in one sector will lead to diminished competition in another."
A Sept. 6, 2022, blog post by Heather Reinblatt titled "How Much Do Americans Spend on Excessive Delivery Fees?" and published by Circuit, a provider of synchronized software for dispatchers and drivers, listed Postmates, Instacart, UberEats, DoorDash and Grubhub as favorite delivery apps among 1,021 consumers surveyed.
"In fact, people value convenience so much that 62% have paid for a premium subscription to their favorite app," Reinblatt wrote, adding that some apps "let you chip in a little extra to get your food faster, and 41% of respondents said they choose this 'priority' option when ordering. Gen Zers were the most likely to do so, and 52% of them said they do it regularly."
As restaurants turn to these popular apps and other third-party service providers to meet growing demand for takeout, pickup and delivery orders, payments analysts have urged business owners to review terms of service to ensure they receive fair, transparent pricing.
Dinesh Saparamadu, CEO at Applova, noted that on-demand apps enable restaurants to provide delivery services with built-in payments, without having to establish a direct relationship with an acquiring bank or payment gateway. These third-party service providers may charge high rates to manage mobile and online ordering, he noted, and in many cases, will not share customer profiles, data and ordering histories with the restaurants they support.
"Why outsource valuable customer data to a third-party service provider, when restaurants can capture and analyze the data to build brand value and customer loyalty?" he asked, noting that Applova supports leading POS and acquiring brands that share its commitment to helping merchants control and enhance the online and mobile customer experience.
A company's payment processing model is another consideration when vetting prospective technology providers, experts have noted, advising companies to review the benefits and risks of contracting with traditional acquirers and payment facilitators (payfacs). These partnerships, they noted, may also involve independent software vendors, value-added resellers and subscription service models that can be tailored to merchants' unique requirements.
Restaurants that process with traditional acquirers receive a unique merchant identification number (MID) and are responsible for their own compliance and risk. Alternatively, merchants that process with payfacs are part of a pool of sub-merchants and are not assigned MIDS. The payfac, as merchant of record, carries the restaurant's risk and can offer other benefits, such as fast customer onboarding and cost-effective technology. As a merchant, a payfac can set its own customer pricing, which would be standardized across its sub-merchants population.
In "Payment Facilitator: A Common Usage Terms Guide, Version 3," the Electronic Transactions Association wrote, "Traditional payfac solutions require significant time and financial investment and limit platforms' revenue opportunities to online card payments. The [modern, tech-driven] payfac solution is technology driven and designed to help platforms fully embed payments and additional financial services into their software. It helps platforms quickly enter the market, keep setup costs low, and grow their monetization potential."
In an online review in The Hypothesis, "Toast Inc. – Pivot, Growth and Beyond," tech journalist Rohit Kaul described Toast as a payment company that thinks like a software company. "Unlike its cloud-based POS competitors, Toast made upfront investments to become a payfac and sold its POS integrated with payment processing to restaurants," he wrote. "This allowed Toast to monetize the transactions more profitably than its competitors and provided a competitive advantage."
As POS providers have acknowledged, high rankings come with high visibility, and maintaining a leadership position can be as challenging as achieving it. Experts are betting that Toast and Clover have sufficient followers and scale to navigate this summer storm.
Software review platform G2 ranked Toast number 1 in the 2023 restaurant POS category, with 4.5 out of 5 stars and a TrustRadius score of 8.4 out of 10. "On Capterra, there are 300+ Toast reviews with an average rating of 4.1/5 stars, and GetApp also has over 300 reviews with the same average," G2 wrote. "On the whole, restaurant reviews for the Toast POS are positive, citing the benefits of using Toast's reporting and analytics tools, online ordering, integrations and built-in features like email marketing, as well as the hands-on customer support."
Similarly, Clover earned 4 out of 5 stars on G2 and 8 out of 10 stars on TrustRadius, both of which cited numerous positive reviews from restaurant owners and managers on the company's modular POS suite, which TrustRadius noted includes "fixed [POS] stations, a customer loyalty program and gift card, an analytics module, as well as a mobile point of sale that plugs into the users smartphone and tablet to accept secure credit card swipes, as well as dips and taps like Apple Pay, Samsung Pay and Android Pay."
Despite merchant backlash against Toast and Clover, analysts have noted that consumers became accustomed to paying additional fees for speed and convenience during the pandemic and continue to do so, especially when ordering from food service providers.
Circuit's Reinblatt observed that service fees, delivery fees and tips equate to nearly $13 per order or $650 annually. Undeterred, Americans spend, on average, $33.89 per order for food delivered to them, she noted, which translates to $37.28 per week, $152.51 per month, and $1,843.72 a year.
"People are also shelling out quite a bit more for the convenience of having food delivered to their door, even when the fees make up nearly half the total cost of their order," she wrote. "With the younger generations being the most accepting of these costs, there's no denying that food delivery apps are the future of food service."
Pagnozzi advised merchant acquirers to approach merchant concerns about escalating fees with transparency, tact and flexibility by clearly communicating the value of their services and explaining the reason for cost increases.
"Offering alternatives such as customizable fee structures or tiered pricing based on transaction volume may also build trust and loyalty, leading to longer-term partnerships," she said. "Finally, offering top-notch customer service and tech support will help alleviate concerns over fees and assure merchants of the benefits of working with you."
In a July 19, 2023, statement, Toast CEO Chris Comparato disclosed the company will remove the $0.99 processing fee by the end of the week, following extensive discussions with the company’s customer community.
“While we had the best of intentions — to keep costs low for our customers — that is not how the change was perceived by some of you,” he said in the statement. “We made the wrong decision and following a careful review, including the additional feedback we received, the fee will be removed from our Toast digital ordering channels.”
A full copy of the statement is available at pos.toasttab.com/news/update-on-toast-digital-ordering-for-our-customer-community
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
