Things You Need to Know About Restaurant Credit Card Processing
Back in the day when the majority of payments were made in cash, all you needed to do was put the money into the register and provide the purchaser with change. But the world now runs on credit and debit cards, and this is where a payment processor comes in.
Learning the difference between processor and acquirer
People sometimes erroneously use the words ‘acquirer’ and ‘processor’ interchangeably, but they’re two completely different things.
- Acquirer is the bank or financial institution that will be processing the transaction, such as VISA.
- Processor is the company that communicates with the bank when a transaction is made.
They work together when a transaction is made. But a processor is the mediator that relays your request to financial institutions.
Its job is to:
- Authorize the transaction
- Facilitate the transfer of funds
- Ensure that you’re paid
How payment processing works
The processor, in fact, is a communicator between credit card and debit card issuers. They are tne ones that make sure the restaurant uses a payment system that’s best suited to its needs.
Acquirers will take all of the information from the processor and approve the transaction. Once approved, the acquirer will settle the account, and the interchange will ensure that the funds are deposited in the restaurant’s account.
Credit Card Processing Fees Explained
Every time a customer makes a non-cash purchase, there is a fee that the restaurant must pay to its processor. There are three main types of fees that are charged:
- Processor markup
- Service fee
- Interchange fee
All parties involved in the transaction will want to be paid a fee. Restaurants will pay the payment processor a flat fee and a percentage of the transaction. Fees vary greatly, and a restaurant should try negotiating the best fee for their clients.
Restaurant pay rates range from 2.87% to 4.35% on average when volumes are between $10,000 and $250,000 annually. The higher the sales volumes are, the more likely is the restaurant to negotiate the fee for processing the payment.
Every major brand will have their own processing fee, and the same rules apply: process more payments to receive a higher discount. The major credit card processing fees are:
- American Express: 2.5% to 3.5% fee
- Discover: 1.56% to 2.3% fee
- Mastercard: 1.55% to 2.6% fee
- Visa: 1.43% to 2.4% fee
What’s the best credit card processing for restaurants? Based off of the above fee ranges, Visa and Discover have the best fee ranges. You may be able to negotiate your fees with each major brand to have fees all in a similar range. If you choose to work with someone like Square, the fees have likely been negotiated to the same rate.
Why?
You never know what credit or debit card issuer your customers are going to use. When fees are all the same, it’s less of a burden as a business owner. The more predictable the rates, the better you’ll be able to account for menu prices and profit margins.
As your business grows, it’s important to discuss discounts and terms with processors. Even lowering fees by 0.5% per transaction can lead to massive savings and better profitability for your business. It’s ideal to have transaction values of $250,000 or higher before trying to negotiate for better fee percentages and discounts.
Source: https://mcdonaldpaper.com/blog/payment-processing-in-restaurants
