Dive Brief:

• Boston-based software company Toast quietly raised its processing fees for its small and mid-sized restaurant clients by between .05% and .23% in September, according to a research note last week from the investment firm William Blair. That would mean less than a penny increase on a $1 purchase.
• Separately, Toast plans to offer a surcharge feature for its point-of-sale software to more restaurant clients,  for those who want to add surcharges on customer bills to offset credit card fees. The move lets restaurants pass some, or all, of the cost of processing credit card transactions to consumers, according to the William Blair analyst note.
• The rate increase only applies to a limited number of clients, a spokesperson for Toast said in an emailed statement. “For the past 12 years, we’ve never increased card processing rates for customers, even though the cost of maintaining a processing platform has risen,” the statement said. “This is no longer sustainable in this environment, and for the first time, we need to make some modest adjustments.”

Dive Insight:

The spokesperson for Toast said the price increase was tailored to restaurant clients, based on unspecified factors, and emphasized they weren’t imposed across the board. “Only a small portion of our U.S. [small and mid-sized] customers are impacted by this adjustment,” the spokesperson for Toast said by email.

One of the William Blair analysts, Stephen Sheldon, said he didn’t expect Toast’s price increase to drive away its restaurant clients in any major way. “I do not think there is significant risk of churn from this change with current customers,” the William Blair analyst said by email, in response to a request for comment. He called the pricing increase “long overdue.”

The surcharge feature is intended to help Toast’s 120,000 restaurant clients make up for rising industry costs, including potentially its own price increase. Some of its clients are already using a surcharge tool.

“We know how hard our customers work to protect their bottom line, so we are sharing resources other customers are already using to help offset rising industry costs – including automated, industry-compliant credit card surcharging in eligible U.S. states,” the company statement said.

The analysts downplayed the potential fallout with consumers. Even if some consumers stop patronizing restaurants that add the surcharge to their bills, the extra money Toast earns through the fee increase should be more than enough to offset any consumer pushback, the William Blair analysts wrote.

The analysts expect the fee increase and the surcharge feature to be better received than a 99-cent fee that Toast added for the restaurants’ consumers in June of last year on orders of $10 or more made through its online ordering channels.

"We believe the biggest mistake Toast made before was directly increasing consumer fees, instead of increasing fees at the restaurant level (like it is doing here), and letting restaurants ultimately decide how that ultimately impacts consumer pricing," the William Blair analysts wrote.

Some Toast clients were upset by the 99-cent increase, and rivals like Block-owned Square and SpotOn mocked the price hike. It was quickly reversed just weeks later in July. By August, it was also branded a "mistake" by then Toast CEO Chris Comparato during an earnings call with analysts.

In September of that year, the company said Comparato would resign, leaving the company on Jan. 1.