Restaurant Credit Card Processing: The Ultimate Guide (2024)

Ever wondered why your restaurant's profit margins are squeezed tight at the end of each month?
The culprit often lies hidden in plain sight: credit card processing fees.

Payment processing companies typically charge restaurants three types of fees: flat, situational, and processing fees, each contributing significantly to your monthly expenses.
This article will guide you through the labyrinth of payment processing in restaurants, discussing everything from the basic fee structures to strategies for negotiating lower rates.

How Payment Processing Works for Restaurants

What is a Payment Processor

A payment processor is a service that allows your restaurant to accept credit and debit card payments. They provide the necessary hardware and software to facilitate transactions and handle the communication between your restaurant, the customer's bank, and the credit card network. Essentially, they ensure the money from the customer's account reaches your account securely and efficiently.

How the Payment of Your Customers Works

When a customer pays with a credit card at your restaurant, the process involves several steps:

  • Transaction Initiation: The customer presents their card, and your server swipes, dips, or taps it on a payment terminal.
  • Data Transmission: The payment terminal sends the transaction details to the payment processor.
  • Authorization: The payment processor forwards the transaction to the credit card network (e.g., Visa, Mastercard).
  • Approval: The credit card network contacts the issuing bank to check if funds are available. The bank approves or declines the transaction.
  • Response: The approval or decline message is sent back through the same channels to your terminal.
  • Settlement: If approved, the funds are transferred from the customer’s bank to your merchant account, minus processing fees.

For example, in a restaurant, a customer might order a meal, and when it's time to pay, they use their credit card. The server swipes the card through a payment terminal, which communicates with the payment processor. The processor contacts the card network (like Visa), which in turn checks with the customer’s bank to approve the transaction. If approved, the payment goes through, and the funds (minus fees) are deposited into your account.

All Credit Card Processing Fees You Have to Know

Payment Structure

When choosing a credit card processing provider, understanding the different payment structures is crucial. Here are the three primary pricing models:

  • Flat Rate Pricing: You pay the same rate for every transaction, regardless of the card type or transaction amount. This model is straightforward and predictable, making it ideal for businesses with low transaction volumes. For example, if a flat rate is 2.5%, a $100 transaction will always incur a $2.50 fee.
  • Interchange Plus Pricing: This model charges a fixed fee per transaction (the processor's cut) plus a percentage that matches the interchange fee set by the credit card company. It's typically more transparent and can be cost-effective for businesses with high transaction volumes. For example, if Visa’s interchange fee is 1.5% and the processor adds a 0.5% fee, your total cost would be 2%.
  • Tiered Pricing: Fees are categorized into tiers (qualified, mid-qualified, and non-qualified), each with different rates. This model can be confusing and less transparent, often leading to higher costs. Qualified transactions, which are standard card swipes, might incur a 1.5% fee, while non-qualified transactions, such as keyed-in entries, could be 3% or higher.

Additionally, credit card processing companies charge various rates depending on how customers pay. In-person payments typically incur lower fees compared to online or over-the-phone transactions due to the reduced risk of fraud.

Basic Fees

Understanding the primary fees associated with credit card processing is essential for managing costs effectively. Here are the main fees to consider:

  • Transaction Fees: Charged each time a customer makes a purchase. Examples include:
    • American Express: 2.5% to 3.5%
    • Mastercard: 1.55% to 2.6%
    • Visa: 1.43% to 2.4%
  • Authorization Fees: A small fee for each transaction authorization, typically ranging from 1 to 3 pence per transaction. This fee covers the cost of verifying the cardholder's details and available credit.
  • Merchant Service Charges: Ongoing fees for maintaining your merchant account, usually a percentage of each transaction. These charges cover the cost of services provided by the merchant account provider.
  • Equipment Setup: Costs associated with purchasing or leasing POS terminals and other necessary hardware. Depending on the provider, you might pay a one-time fee or a recurring rental fee for the equipment.
  • Incidental Fees: Additional fees for specific situations, such as chargebacks, insufficient funds, or special verification services. These fees can add up quickly and should be accounted for in your budgeting.

Hidden Charges

Be aware of potential hidden charges that can increase your processing costs:

  • Set-up Fee: An initial fee for setting up your account and terminal. This can range from a few pounds to several hundred, depending on the provider.
  • Monthly Fee: Charged if you fail to process the agreed amount of transactions. Some providers set a minimum monthly transaction requirement, and failing to meet it incurs this fee.
  • Minimum Monthly Transaction Fee: The lowest amount you’ll be charged on transaction fees each month, ensuring the provider earns a baseline amount regardless of your transaction volume.
  • Terminal Rental: Recurring fee for renting card terminals. While some providers offer terminals for free, others charge a monthly rental fee.
  • Early Termination Fee: Charged for ending a contract early, which can be substantial, especially if your contract term is long. This fee can be a fixed amount or based on the remaining contract period.
  • Chargeback Fee: A fixed fee for each reversed transaction. Chargebacks occur when a customer disputes a transaction, and the amount can vary significantly.
  • Refunds: Fees for processing refunds. These fees can range from 30p to £1 per refund and can add up if you process many returns.
  • Authorization Charge: Fee for each transaction authorization. Similar to authorization fees but may be charged separately in certain pricing models.
  • Non-Secure Transaction Charge: Higher fees for high-risk transactions, such as those without chip and PIN, non-pay-by-link online payments, and telephone orders.
  • PCI Non-Compliance: Fines for not complying with PCI DSS standards. These can be substantial and are imposed monthly until compliance is achieved.

5 Steps to Find the Right Restaurant Payment Processor with Tuza

There is no “one size fits all” solution when it comes to selecting a merchant service provider, as each business has unique needs and priorities. However, with Tuza, you can easily compare instant quotes from a variety of providers to find the best fit for your restaurant.

Step 1: Enter Your Annual Card Turnover

Navigate to the Tuza Price Comparison tool, enter your annual card turnover, and answer a few basic questions about your restaurant.

a screenshot of a page that asks if you want to unlock your credit card

Step 2: Let Us Do the Heavy Lifting

Lay back, relax, and let us sift through hundreds of offerings to find the cheapest option for your restaurant.

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Step 3: Filter Through the Offerings Easily

Use our filters to narrow down the options based on your specific needs and preferences.

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Step 4: Compare All Fitting Solutions

Review and compare the tailored quotes to find the best solution for your restaurant.

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Step 5: Choose & Finish

Select the provider that fits your needs best and complete the process. If you ever need help, don't hesitate to call 0330 818 7510.

Find the Right Credit Card Processor by Restaurant Type

Fine Dining and Sit-Down Restaurants

Fine dining establishments typically have higher average transaction sizes. Interchange Plus pricing is often the most cost-effective for these types of restaurants due to their higher transaction volumes.

Bars and Pubs

Bars and pubs also benefit from Interchange Plus pricing. Features like managing customer tabs and setting happy hour pricing are crucial and should be supported by the chosen processor.

Quick Serve

Quick-serve restaurants with lower average transaction sizes might find Flat Rate pricing beneficial, especially if their average transaction is under $10.

Other Considerations

Common Pitfalls

Long-term contracts with high early termination fees.

Hidden fees not disclosed upfront.

Equipment leasing agreements that end up being more expensive in the long run.

Aggregators vs. Merchant Account Providers

Aggregators, like Square, are ideal for small businesses due to their simplicity and predictable pricing. Merchant account providers offer more customization and potentially lower rates for higher-volume businesses.

Integrated vs. Non-Integrated Payment Terminals

Integrated terminals streamline operations by syncing transactions with your POS system, reducing errors and speeding up the process. Non-integrated terminals require manual entry, which can be prone to mistakes.

Summary - Expected Rates for Restaurants

For a rough guideline:

  • Flat Rate Processors: Around 2.75% per transaction.
  • Interchange Plus Pricing: Starting around 1.9% for competitive rates.

Frequently Asked Questions

What are the card processing fees for restaurants?

Card processing fees for restaurants include flat fees, situational fees, and processing fees. These encompass a range of costs such as interchange fees, assessment fees, transaction fees, merchant account fees, and potentially hidden fees like monthly minimums or statement fees.

What is the typical fee for credit card processing?

The typical fee for credit card processing can vary significantly based on the pricing model chosen, such as Interchange Plus, Flat Rate, or Tiered Pricing. These fees are made up of interchange fees, assessment fees, and transaction fees, which can be a flat rate per transaction or a percentage of the transaction amount.

Can merchants charge 2% extra on credit card payments?

The blog post discusses implementing credit card surcharges in restaurants but does not specify a fixed percentage like 2%. It mentions the importance of complying with local laws and considering customer reception when deciding on surcharges.

What are transaction fees on a credit card?

Transaction fees on a credit card are charged every time a customer uses their card at a restaurant. These fees are split among the issuing bank, the card network, and the payment processor. They can be structured as a flat rate per transaction, a percentage of the transaction amount, or sometimes both.

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