Payment Processing for Restaurants: What You Need to Know

If you’re a restaurant owner who’s just starting out, you’re likely swimming in important decisions to make. One of those decisions is your payments system, including your point-of-sale and payment processor. You may not realize it yet, but your payment processor will play an important role in determining the future of your restaurant. Choosing the right processor can free you up to grow and expand with ease while choosing the wrong one can be a devastating blow to your profit margins.

If you’re a restaurant owner who’s just starting out, you’re likely swimming in important decisions to make. One of those decisions is your payments system, including your point-of-sale and payment processor. You may not realize it yet, but your payment processor will play an important role in determining the future of your restaurant. Choosing the right processor can free you up to grow and expand with ease while choosing the wrong one can be a devastating blow to your profit margins.

Picking the right payment processor is a daunting task, but luckily we’ve come up with a “cheat sheet” specifically for restaurants to guide you on your way.

Choosing Your Point-of-Sale System

Restaurants–whether you are quick service or sit-down—are heavily reliant on their point-of-sale (POS) systems for day-to-day operations, so that’s the best place to start.

For restaurants of all kinds, your POS system plays an important role in communication between servers and your guests as well as between servers and kitchen staff. You need to ensure that your system is robust enough to handle both roles while also giving your customers all the payment options they want.

Before you can make a decision, you have to understand what it is that you need. Will you need one payment terminal or multiples? What is your maximum budget? How will your customers be able to pay? Once you compile your own data, you can start to narrow down the options that will work to help you attain your goals.

If you don’t even know where to start, you’ve come to the right place. The best way to get the ball rolling is to do exactly what you’re doing now: research some online providers and start to get a feel for your options. Reach out to other restaurant owners to see what they are using; they’re the people who are most likely to know which systems lend themselves to efficiency in your restaurant, and which systems should be avoided.

If you find a system that captures your interest, you should immediately look at the payment options available through that system. If the system allows for integration with a variety of payments gateways and processors, that’s your green light to continue. If the system requires a contract or ties you down to a specific payments provider, keep looking.

Once you pick a POS system, you can start to focus on other payment processing decisions. The POS system is your first stop, but you’ve still got your biggest decision left: your payment processor.

A Brief Aside: Payment Processing Pricing

Before you can select your processor, there’s one big thing you need to understand: pricing. The payments industry is intentionally complex and confusing, so we’re going to break this down as simply as possible.

Payment processors come at all sorts of price points, so no matter your restaurant's size, you can find one that works for you. However, if you’re not familiar with how pricing is done in payments, you could end up grossly overpaying to accept cards. Here are the three pricing types you can expect to see:

Interchange-plus Pricing

Of all the options, this is probably the most transparent pricing structure. The going rates are completely separate from the interchange fees (the cost of actually completing a transaction), and it is usually broken down into a transaction cost plus a percentage of the transaction plus a static cost. For example, if your processor quoted you a rate of 0.15% plus $0.10, you would pay interchange plus 0.15% of the transaction amount, plus an additional $0.10 to complete that transaction.

Do you see what we mean by confusing? And this is the simplest pricing structure!

Note that processors using this model might also charge a monthly membership fee. That may sound fishy, but these membership fees are typically an indicator of a more transparent processor. Rather than taking variable percentages from each transaction, membership processors just take a set amount each month so you’re not surprised by your bill.

All things considered, an interchange plus pricing structure is a safe option for almost any business. It’s transparent, flexible, and usually pretty affordable.

Pure Percentage Pricing

Pure percentage, oftentimes referred to as “flat-rate pricing,” is all the rage amongst some of the bigger names in payments. Rather than worrying about separate interchange and processor fees, this model charges a flat percentage on all transactions, typically around 3%. While this sounds a lot simpler than the interchange plus model, it can actually end up costing you a lot more. Think about it: in order to ensure they’re making money off of every transaction, the processor will set the percentage high enough to cover any interchange fee. That means that any low-interchange transaction (say, if a customer uses their debit card) will be very costly to you.

This is not the best choice for small businesses. In fact, it really only works out for businesses with customers who primarily use high-reward credit cards.

Tiered Pricing

If you get anything out of this article, let it be this: Avoid tiered pricing like the plague. Tiered pricing is clever, in that it looks a lot like a interchange plus model. The difference is that processor rates on transactions change based on the card used by your customer. The problem is that the categorization of cards is entirely non-transparent, making it nearly impossible for you to know what you’ll pay for a given transaction. Do not sign a contract with tiered pricing.

Finding Your Processor

Now that you know what to look for and what to avoid when it comes to pricing, it’s time to begin your processor search. Unfortunately, there’s some bad news for you: there are literally hundreds of processors for you to choose from, and the differences are minimal. In fact, most run on identical systems, so really, your decision should come down to two factors: price and fit.

You’ve got your POS in place, and you know what you need to run your restaurant effectively, so you should be able to spot a good fit fairly quickly. Just as long as a provider can integrate into your chosen POS -- whether directly or via a payments gateway -- and it offers the right payments options, you’ve found a viable processor.

So now it comes down to price. To make it easy for you, solicit quotes from 4-5 processors and require all of them to use the same pricing model (interchange-plus is preferred). Compare the rates they provide against each other and leverage offers to negotiate lower rates. It can be a time-consuming process, but you’ll find that all processors are willing to negotiate significantly to win your account.

If you don’t want to invest the time into negotiating rates yourself, you can leave it up to the payments experts at SwipeSum -- we’ll go through this whole process on your behalf and show you the best offers on the table. You can get started here.

What About Square and Clover?

In your search for a processor, it’s likely that you’ll come across some trendy names, specifically Square and Clover. These are very popular among restaurant owners, and for good reason. Their simple and aesthetically pleasing POS systems are easy to set up and come as part of your contract, so they seem like the simplest option for restaurants who are just getting started. While they do offer a lot of convenience, the restrictive contracts and pricing just aren’t your best option. If you feel the ready-to-use POS system justifies more expensive processing, then go for it. But if you really want the best deal, you may want to look elsewhere.

EMV Compliance: What should I know about chip cards?

In 2015, credit card companies pioneered a law for businesses to introduce EMV compliant POS systems. This EMV-compliance (named after the companies who started the movement: Europay, Mastercard, and Visa) simply means your POS system has a chip reader. Chip cards are becoming more and more popular because of their added security compared with mag stripe cards.

Though not everyone has a chip card, it’s a safe bet that the majority of your customers will. If you don’t introduce EMV-compliant POS systems you could be held responsible for fraudulent charges which means a lot of your hard-earned profits down the drain

Pay-At-Table Terminals: May I take your card?

In the wake of chip cards, restaurants are also facing changes to one of their most common practices: transactions away from the table. Any time a card is away from its owner’s possession there is an increased risk of their card information being stolen. For this reason, restaurants are being pushed to introduce pay-at-table card terminals.

Turns out that this method—though more expensive than traditional terminals due to the “higher-tech” equipment—has a lot of added benefits:

  1. Decreased chance of identity theft: when the customer doesn’t have to hand over their card, you have less of a liability
  2. Increase in table turnovers: no more playing the waiting game between the server placing the check on the table and the actual completion of the transaction with the customer’s signature
  3. Higher tips: when everything moves more smoothly when it comes time to pay the bill, customers have been proven to tip better, especially when you can add tip or percentage suggestions to the card reader
  4. Fewer chargebacks: when you get with the times, your chance for fraud decreases and everyone can breathe easier

It may seem like a weird practice when you first implement it, but the best advice is just to be open about it with your customers. Let them know that you’re starting this practice to ensure their security. When you train your servers, make sure you’re also teaching them how to “train” the customers how to use it.

Once it’s implemented, there are a few more steps to take to make sure the system runs smoothly:

  1. Choose between bluetooth and wifi: they’re both secure, it really just depends on the size of your restaurant
  2. Make sure you still have the availability to split checks at the table: convenience is key
  3. Make sure your pay-at-table terminal can process EMV, mag stripe, and contactless payments: the more payment options you accept the more happy customers (and credit card companies) you’ll have
  4. Ensure your device has at least a 3-year warranty: restaurant terminals go through a lot of wear and tear—especially if you have a bar or outdoor seating available—so you want to make sure your device will last

It’s daunting when you look at everything all at once, but when you break it down it’s simple. Pick a good POS system that integrates with a transparently-priced processor, and then ensure that system can allow for the current financial and technological movements like EMV compatibility and pay-at-table ability.

Michael Seaman

Michael Seaman

Michael is the co-founder and CEO of Swipesum. A veteran of the payments industry, Michael and his brother Stephen have led Swipesum since its inception in 2016. In his free time, Michael enjoyes time with his three children.

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