Major point-of-sale hardware providers, including industry leaders Toast and Block-owned Square, have resorted to aggressive discounting in recent months, according to payment industry analysts. This push toward steep price cuts is driven by intense market competition, merchants’ growing needs for advanced system upgrades, and the rising cost of physical equipment.
The widespread discounting trend was a primary talking point among analysts following conversations at the Western States Acquirers Association conference in California, as well as discussions with more than 20 merchant acquirers, independent sales organizations, software vendors, and POS providers. Toast and Block-owned Square have spearheaded this price-cutting movement as part of a broader strategic effort to expand their physical footprints and lock merchants into long-term software ecosystems.
According to Jacob Haggarty, an equity research associate with Baird Equity Research, Toast has adopted a notably proactive approach to pushing hardware directly into its core restaurant market. The company has increasingly utilized the lure of free or heavily discounted hardware coupled with software price breaks to capture market share.
For Toast, getting a business onto the platform via discounted hardware creates a sticky relationship. Once a merchant adopts the physical terminal, they become deeply ingrained in the software side of the operation. While Toast and Square generally rely on direct sales models, competitors such as Global Payments and Fiserv distribute their Genius and Clover POS systems primarily through independent sales organizations. The fiercely competitive POS landscape also features major players like Shift4 Payments, NCR Voyix, and Lightspeed Commerce, all vying for dominance across the merchant ecosystem.
Industry observers note that the current environment is exceptionally volatile. Cliff Gray, a Chicago-based payments consultant, describes the industry as very chaotic, particularly regarding pricing structures. While such competitive maneuvers are somewhat standard in a macro sense within the payments industry, the intensity and scale of the recent discounting have raised eyebrows among seasoned market participants.
Toast currently serves approximately 180,000 merchant locations using its specialized POS systems, while Square commands a vast network of about 4.5 million merchants. Although spokespeople for Toast and Square did not respond to requests for comment regarding their pricing strategies, Toast President Elena Gomez told analysts during an earnings call that the company intends to continue making strategic investments to propel continued share gains in its core business.
The hardware discounting strategy is a modern iteration of the classic "give away the razor and charge for the blade" business model, explained Ken Musante, president of Napa Payments and Consulting, a Napa, California-based payments and processing consulting firm. What makes the current environment unique, however, is the sheer extent and size of the giveaways.
Restaurants and other retail establishments are installing significantly more hardware than in previous years. Modern deployments frequently include multiple POS stations, kitchen printers, handheld ordering devices, and pay-at-the-table terminals. While none of these individual technological developments are entirely revolutionary on their own, each successive generation provides merchants with vastly greater functionality. Consequently, today’s comprehensive POS deployments have become considerably more expensive to manufacture and purchase.
At the same time, the underlying cost of the hardware itself has climbed due to rising expenses associated with memory chips and advanced processors. Executives at both Toast and Apple have previously highlighted these component costs as notable financial headwinds during their respective earnings calls.
To offset these hardware expenses, POS providers carefully evaluate the lifetime value of a merchant before offering substantial price breaks. Although a vendor may effectively hand over thousands of dollars worth of equipment for free or at a steep discount, the transaction remains highly profitable over time through the collection of recurring software subscription fees and payment processing revenues specified in the merchant contract. If a provider calculates that a merchant will reliably generate processing and software revenue over a span of several years, subsidizing expensive hardware makes sound economic sense.
Furthermore, merchants are upgrading their POS systems because they demand functionality that extends far beyond basic credit card processing. Today’s businesses rely on their POS infrastructure for everything from real-time inventory tracking and comprehensive financial reporting to managing complex employee schedules. This multifaceted utility makes the merchant more valuable to the provider over time, opening doors for the sale of additional software modules and value-added services.
To recoup the costs of hardware subsidies, POS sellers traditionally rely on payment processing margins, but they are also increasingly turning to dual pricing models. Under a dual-pricing structure, a merchant charges one price for cash transactions and a separate price for card payments that absorb the underlying processing fee. Haggarty notes that whoever is supplying the point-of-sale system ultimately captures that extra fee levied on the card transaction.
Beyond the dynamics of hardware costs and software integration, an additional factor influencing merchants’ purchasing decisions involves new data-reporting requirements mandated by major card networks like Visa and Mastercard. Gray, who founded Lakeland Scientific last year after previously establishing another payments consulting firm, points out that regulatory and network compliance is accelerating upgrade cycles across the board.
Visa implemented a new data collection program last year designed to gather more detailed transactional information from merchants, and rival network Mastercard is planning a similar compliance effort slated to take effect in 2027. These network programs are compelling many merchants to upgrade their POS hardware simply to remain compliant, just as many operators look to integrate modern, artificial intelligence-enabled capabilities into their daily operations. Because merchants that accept credit cards must comply with these network mandates, businesses that previously ignored minor hardware refreshes are now forced to update their systems.
While Toast remains fundamentally rooted in the restaurant sector, the Boston-based company is actively pursuing aggressive growth strategies in retail and international markets. As part of this expansion, Toast recently announced a specialized POS product tailored for gasoline retailers that seamlessly integrates payments at the pump with a fuel seller’s broader in-store systems.
Toast was initially motivated to move into fuel retailing because roughly 80 percent of convenience stores are directly attached to gas stations, and a significant portion of those operations are smaller, independent businesses. Toast CEO Aman Narang highlighted this strategic rationale at the Goldman Sachs Communacopia + Technology Conference, noting that the market opportunity aligns closely with the company’s core strengths in serving small and medium-sized businesses. Recognizing that a massive portion of the fuel retail market consists of independent operators rather than major corporate chains, Toast dedicated engineering resources to deeply integrate its software platform directly into industry fuel controllers.
