STOP and read this before you go any further. This will help you not get taken advantage of when it comes to credit card processing fees. Espcially if you are looking for better credit card processing rates in your business. I didn't know anything about credit card processing fees when I opened my first restaurant. Now I know all their little tricks and I don't want you to fall for the same lines I did.
An Overview of Credit Card Processing Fees in Restaurants and how Small Businesses can Fight Back
While credit cards may have indeed caused much misery to people who were careless with their actions, they remain an invaluable part of modern life for anyone who believes they can be trusted with one. It’s an extremely convenient way of accessing some emergency funds should the situation require it, just like it can give people the means to immediately pay for products and services they would otherwise have to save up money for. Today, virtually every single business accepts credit and debit cards as a valid payment method, but unfortunately this opened up a veritable Pandora’s Box for small businesses and restaurants. Before delving into the heart of the matter and exploring the possible solutions, it’s important to take the time to understand what credit card processing fees in restaurants really mean.
An Examination of Credit Card Processing Fees in Restaurants
To begin with, it’s important to understand what happens when a customer pays with a credit card at a restaurant. When a customer swipes their card, multiple major players will claim a slice of the pie, and they are: the bank, the card association, the payment processor and the payment gateway. In most cases, those four parties will split between them approximately 2% to 3% (or more in some cases) of the total amount being paid out to the restaurant. In other words, the restaurants are essentially charged for the privilege of being able to offer their customers the ability to pay with their credit cards.
There are four main types of processing rates:
• Flat-rate pricing may be the newest option on the market, but it’s gaining in popularity at a staggering rate. Basically-speaking, it’s the option of paying a flat rate based on a median calculated from a number of financial factors. This allows restaurant owners to project their future expenditures much more easily.
• Interchange - plus pricing entails the establishment of three different fees by the bank, card association and credit card processor. The processor’s markup may be negotiable, and the fees tend to vary from one type of card to the next, meaning future costs become more difficult to predict as it’s nearly impossible to tell which cards customers will be using in the long run.
• Tiered pricing involves the creation of various tiers (or buckets, as some refer to them) with varying fees. Though it’s possible to make as many tiers as one pleases, most processors stick with three. Thus, whenever a credit card transaction is performed the system classifies it in one of those tiers based on various criteria.
• Surcharge plan - This isn't legal in all states but it is vary benificial for the restaurant owner. Everytime a customer uses their card at your restaurant they are charge a percentage of their total. This percentage can very from state to state. This makes it so the restaurant owner is not charge for the customer using their card. This is becoming more and more popular.
How Credit Card Processing Fees Hurt Small Businesses
For a small enterprise, survival is often a day-to-day battle where the owner can’t take many days off or vacations. It’s always important to keep up with the latest trends, and in this case it means that simply not accepting credit card payments isn’t a choice. Their use is already far too ingrained in human culture, and it’s only logical to assume that in the future they will become even more prevalent. To deny servicing credit card customers means to turn away a huge chunk of one’s business.
With that being said, on the surface it doesn’t seem as if the fee can hurt a business all that much, but there is more to it than seems at first sight. The type of card a customer uses actually plays a significant role in determining what percentage of the transaction will cover the processing fees. While for regular cards it’s usually the first mentioned 2% to 3%, premium cards tend to impose a much higher tariff, and under such conditions making ends meet in the long run becomes a very real problem. And thus, merchants find themselves forced to raise prices on their merchandise in an attempt to offset those ridiculous costs.
The Little Businesses are Fighting Back
High credit card processing fees in restaurants and other businesses have become such a prevalent problem that many owners have started to fight back against the practice. The most inspiring example of that is the 2012 lawsuit against Visa and MasterCard where $6 billion was paid out in settlement money to a large number of small retailers*. Additionally, stores acquired the right to incur a small extra charge on customers who are using certain cards with higher processing fees. The matter is far from won, but business owners must take example from that case, band together and work to change the attitude of credit card companies whose obvious money-grabbing schemes are endangering the free market… even if it means taking them to court.
* http://globalnews.ca/news/266195/mastercard-visa-and-banks-reach-6-billion-settlement-with-retailers-over-card-fees/ Source for lawsuit