More than 50% of consumers prefer to make payments with debit or credit cards. While restaurants operate on thin margins, it’s still essential to accommodate consumers by offering the option to pay by credit or debit, and to do this, you’ll need a restaurant POS system to process card payments.
But that doesn’t mean that you should be overpaying for your restaurant credit card processing. Whether you’re opening a new restaurant or are looking to add credit card processing to your existing restaurant, it’s important to understand your options for restaurant point of sale systems, merchant account types and the fees you’ll be expected to pay.
Why Restaurant Credit Card Processing is a Must-Have in 2021
When guests walk into your restaurant, there’s a good chance that they’ll use a debit or credit card to pay for their meal. Restaurant point of sale systems (POS) come with options to accept an array of payment options, including:
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- Cash
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- Credit
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- Debit
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- Gift cards
Unless in exceptional circumstances, your establishment will benefit from working with a merchant service provider.
The stats speak for themselves:
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- 80% of people prefer paying with a card
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- 67% of all card payments are debit
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- 88% of high-ticket meals are paid using a card
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- Consumers will spend 100% more using credit
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- Cash purchases fell 7% in 2020
Consumers are paying less in cash than in previous years. Contactless payments rose dramatically in 2020 and 2021. Offering your diners the option of paying with their preferred payment method will increase customer satisfaction and may even increase your average ticket value.
The number of card payments are on the rise, so offer your patrons the option to pay for their order using their preferred payment method.
Understanding Credit Card Processing Rates
When restaurant point of sale systems are used for credit or debit purchases, you’ll be charged a fee. This is because you don’t have direct contact with a credit card company like Visa or Mastercard. Instead, you’ll go through a merchant service provider (MSP).
An MSP is a third-party company that handles the transactions for you using software and hardware.
You’ll need to pay fees on all transactions made using a card, and there are different fees for the credit card company and the MSP. The MSP needs to charge fees because they have overhead for each transaction made.
The fees that must be paid include:
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- Authorization fees. When a card is swiped, even if it’s declined, the authorization fee is charged.
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- Transaction fees. The fee that the MSP receives for the transaction.
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- Assessment fees. These are fees that the cardmember association members charge for transactions.
Each member can set their own fee, which is a percentage of the sale price, and the fee can change twice per year. Your MSP cannot alter or lower the authorization or assessment fees, but they can change their own fees to provide you with a better rate.
Often, when you reach a certain monthly transaction amount, the MSP will offer a better rate.
However, there’s no standard for how merchants must charge their customers.
You’ll want to ask your MSP, or any potential MSPs that you may work with in the future, how they handle pricing. Transparency is key. It’s important to know the three main types of pricing and which ones are the best.
Restaurant Merchant Account Types
Flat Rate
A flat rate may seem like the best option, but it’s both good and bad. As you’ll see, with tiered pricing, there are qualified and non-qualified purchases. Both of these purchase types have different fees due to higher or lower risks.
A flat pricing model adjusts the rate higher so that you always pay one fee.
The flat fee model may be a good option for you in the following circumstances:
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- There is only a flat percentage fee paid and your sales average less than $10 per transaction.
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- You only process a few thousand dollars in credit card sales a month.
Otherwise, other account types may be a better choice.
Tiered
Tiered pricing uses both qualified and non-qualified transactions when determining pricing. You’ll also find mid-qualified added into the tiers. One issue is that there’s no clear and concise definition of a qualified purchase.
You can never honestly tell what you’ll be paying with each transaction.
For this reason, tiered pricing is often the least desirable option for an account type because you’ll end up overpaying – in most cases.
Interchange Plus
Interchange plus looks like the most intimidating option, but it’s often the one that you’ll benefit from the most. You’ll be charged an interchange fee (set by the credit company) and a small fee by the merchant.
Since some credit companies charge higher and lower fees, paying just the interchange fee and the small fee by the processor can save you money.
The processor will often charge a small percentage of the transaction plus a set amount, such as 10 cents.
On top of these fees, you may also have to pay scheduled fees for each merchant account type.
Scheduled Fees
Certain fees may also be scheduled, which may include:
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- Payment gateway fees, which are paid for the gateway used to connect to their services.
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- Processing commitment fees, which are assessed if you don’t meet a certain number of transactions per month.
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- Statement fees are also possible, although they’re less popular thanks to digital statement options.
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- Monthly or annual fees may be charged based on the transaction value of the month.
You’ll also need to read through your agreement to ensure that you’re not subject to a cancellation or termination fee.
When you’re shopping around for an MSP, it’s crucial to have a complete understanding of all the fees you’ll pay. If the MSP wants to see past statements, this may be a red flag that they’re basing their fee only on the past processor’s fees, which means you might not receive the best rates.
Restaurant Types and How They Affect Merchant Account Decisions
The restaurant industry is incredibly diverse, and there’s no one-size-fits-all solution for merchant accounts. The type of restaurant you run will play an essential role in your decision when choosing a provider.
Fast Casual
Finding the right type of merchant account can be tricky for quick-serve restaurants. For some, a flat rate account is the best option. For others, interchange plus makes more sense.
To determine the best option for your restaurant, look at your average check size.
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- If your average check is under $10, a flat rate will likely be the most economical choice. However, it’s essential to keep in mind that your equipment options will be more limited if you go with a flat rate account.
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- If your average check size is over $10 and you process more than $5,000 worth of credit card payments each month, interchange plus may make more sense. Otherwise, it may be best to stick with flat rate pricing.
Sit-Down and Fine Dining
Sit-down and fine dining restaurants generally have higher checks than other types of restaurants. Guests are more likely to order appetizers, desserts and alcohol at these types of establishments, which means a higher overall check size.
Higher check sizes give sit-down restaurants an advantage over other restaurant types. As a result, it’s much easier to secure favorable pricing without sacrificing customer service or other features.
Interchange plus pricing is the ideal choice for sit-down and fine dining restaurants. Along with providing more negotiating power, you’ll also have a wider selection of point-of-sale systems.
Bars or Pubs
Bars and pubs may also have higher check sizes due to the higher price of alcoholic drinks. Tabs can quickly add up, so interchange plus often makes the most sense for these establishments.
Many bar owners also find that the equipment is just as important as their merchant account type. For example, if you’re running a busy bar, you want a point-of-sale system that makes it easy to manage tabs, provide drink recipes right on the screen and adjust pricing automatically. Interchange plus offers the widest selection of point-of-sale systems, making it a great option for most bars.
Rarely do bar tabs fall below the $10 mark, so a flat rate may not be the most cost-effective option anyway.
Franchises
If you run a franchise restaurant, you may not have an option for your payment processing. You may be required to use the franchisor’s selected point-of-sale system or processing company.
Not all franchisors have these requirements, so you may have flexibility in the payment processing department. In this case, you’ll need to consider your average check size to determine which type of account will work best for your establishment.
If your ticket prices are generally on the low end and you process less than $5,000 per month in credit card payments, a flat rate may be the best option for you. Otherwise, interchange plus may make the most sense.
Cafes and Bakeries
Cafes and bakeries face the same dilemma as fast casual restaurants. A flat rate or interchange plus can work for these types of establishments, but it ultimately comes down to the average check size.
If you specialize in cakes or sell pastries by the dozen, interchange plus may work for you because your average transaction is likely higher than $10. However, you’ll still need to consider how much you process in credit card payments every month. If your credit card payments are less than $5,000, then flat rate may be a better choice.
But if you generally sell individual baked goods or small bites and coffee, your average sale may be just a few dollars. Flat rate, in this case, would likely be the better option.
What are Restaurant Point-of-Sale Systems?
A point-of-sale system, or POS, helps streamline and automate business operations while improving the customer experience.
A restaurant POS system can help you better manage your:
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- Inventory
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- Cash flow
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- Bookkeeping
Additionally, a restaurant POS system can connect to your payment gateway and handle things like order management, table reservations and analytics.
Some systems may also include other restaurant-specific features, like:
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- Custom table layouts
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- Bar tabs
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- Check splitting
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- Menu modifiers
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- Delivery modules
Most modern restaurant POS systems have touchscreen functionality that makes it easy to enter orders using pictures of menu items or color-coded buttons. In addition, most systems can connect to kitchen displays, printers, weight scales, cash drawers and other compatible accessories.
Restaurant Credit Card Processing Options
Restaurant point of sale systems are evolving to offer restaurants and consumers new, exciting ways to accept payments. A few of the many options include:
Restaurant POS Systems
A restaurant POS system is what you typically think of when accepting payments for orders. However, these systems are advancing, with many now offering cloud connectivity, reports, easy ways to access deposits and provide refunds, and even touchscreen options.
Restaurant POS systems include a mix of hardware and software and are often considered stationary, although mobile units are rising in popularity.
Mobile
Mobile terminals are similar to virtual terminals in that they can be used anywhere you go, but these terminals are comprised of their own hardware. The hardware makes it easy to take payments and doesn’t require you to use your own device.
Mobile terminals are a good addition to every restaurant.
If you want to allow patrons to eat at outdoor tables or on patios, they never have to enter your restaurant to make a payment.
Online
Online ordering is a great way to increase restaurant sales. When you accept orders online, you offer customers the option for both delivery and curbside pick-up for their orders. In addition, many merchant service providers provide options to connect credit card processing directly to your restaurant’s current e-commerce solution.
Virtual Terminals
A virtual terminal allows you to take orders wherever you go. Simply use an Internet-connected device to log into your dashboard and begin accepting orders. If you’re selling food at a baseball game or sign a catering contract with a client, you can accept payment right on your device.
Convenient and flexible, virtual terminals are great for businesses that take orders outside of their brick-and-mortar store.
Your merchant service provider should work with you to determine the type of credit processing that’s best for your restaurant. Discuss your options with your provider to see what they offer for your restaurant type.
In fact, many of the providers will help you connect your system to your current terminals or even online solutions. Professional setup is invaluable and will save your restaurant time and money.
Choosing your credit card processing company is a decision that you want to put a lot of time and effort into.
Let’s take a look at what we recommend you consider when choosing the right processing company.
What to Consider When Choosing a Restaurant Credit Card Processing Company
Choosing a credit processing company isn’t a decision to be taken lightly. Many payment processors require an annual commitment, so it’s important to make your decision carefully. The company you choose will have a significant impact on your business.
When choosing a payment processor for your restaurant, here are some things to consider:
Fees
One of the first and most important things to consider is pricing. Get a breakdown of each processor’s fees and compare your options to see who offers the best pricing.
Restaurants typically have small margins to begin with, so it’s important to keep the processing fees as low as possible without sacrificing on reliability and support.
Transparency
The processor’s contract should be transparent and clearly outline all of the fees you’ll be paying in writing. When reviewing the contract, make sure that you understand which services will and won’t be provided.
If you’re unsure about something, contact the processor directly and ask questions. It’s important to make an informed decision, so leave no questions unanswered.
Before signing a merchant agreement, make sure that you understand:
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- All of the fees, including monthly statements, chargeback fees, payment processing fees and refund fees.
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- The contract term. Is this an annual contract, month-to-month or longer? Longer contract terms are generally reserved for high-risk merchants. When the contract is up, will it renew automatically?
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- Volume limits. Merchant agreements typically include a monthly volume limit based on
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- your average number of transactions. What happens if you exceed that limit? Does the volume limit make sense for your restaurant?
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- Early termination fees. If you decide that the payment processor isn’t the right choice for you, is there an early termination fee? If so, what is the cost?
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- The SIC/MCC code, which is a four-digit industry code. Is this code correct for your business? If your restaurant is misclassified, your merchant account may be canceled, and your business may be blacklisted.
Reviewing the merchant agreement is an important step in the comparison process. Make sure that you’re 100% clear on the terms of the agreement and that these terms are practical for your business.
Responsive Customer Support
If a problem arises with your restaurant credit card processing, how long will it take the provider to respond? If you have a question, can you get a hold of someone to answer it?
Responsive customer support is crucial. In a restaurant, you don’t have time to wait for your payment processor’s system to get back up and running. If you have an issue, you need a quick response, or you risk losing customers.
Check the processor’s track record. Do they have a history of offering helpful and responsive customer support? If not, you may want to move on to the next provider on your list.
Integration
If you already have a restaurant POS system, can the provider integrate it with your existing equipment? If not, can your equipment be reprogrammed?
Depending on the circumstances, it may be more cost-effective to replace your equipment. Talk to the provider about your options before making a commitment.
Final Thoughts on Restaurant Credit Card Processing
A restaurant POS system is the lifeline of your business if you accept anything other than cash. Consumers are paying with cards, either debit or credit cards, more often, especially for smaller ticket items. Coffee, for example, is one of the items that consumers purchase with their cards most often.
Your restaurant credit card processing setup needs to meet the needs of both your business and your patrons. Building a strong relationship with your merchant services provider, one that has great customer service, will allow you to accept numerous forms of payment, while also allowing you to spend more time doing what you love: making food.
