If you own a restaurant in 2019, you know how important it is to offer your customers the convenience of paying by credit card.
In an increasingly cashless society, people want the choice to swipe, tap, dip, enter their PIN, or use their phones to authorize payment.
As an accommodating merchant, you want to give your customers what they want – even if credit card fees become one of your biggest business expenses.
That’s why it pays to be prepared when entering into an agreement with a payment processor, the company that provides you with payment terminals and the service that clears and routes credit card transactions.
There’s only one problem.
The fee structures associated with accepting credit cards are head-swimmingly complex.
There are processing fees, flat fees, and situational fees. Some are negotiable; some aren’t. Entering into an agreement with a payment processor is a lot like hiring a contractor to remodel your restaurant: it’s important to get a few quotes and negotiate the fine points.
Now, for some good news.
You don’t have to take a master class in economics to secure a reasonable rate from a reputable payment processor. All it takes is preparation, an understanding of what’s negotiable, and a keen eye to determine the best fit for your business.
Here are 5 steps that’ll help you get the best payment processing rate for your restaurant.
Before you even approach a payment processor, it’s important to anticipate the information they’ll need from you to prepare a customized rate.
If you have accurate, concise answers, the process will run smoothly and you’ll be in a better position to negotiate applicable fees.
Here are some of the questions a payment processor will ask:
If you’re setting up a payment processing agreement before you’ve opened your restaurant, you’ll need to provide projections.
Rates vary among processing companies but are usually calculated per transaction and range between 1% and 4%. Some payment processors also add a fixed dollar amount per transaction, typically from $0.10 to $0.30.
Payment processing companies typically offer better rates for higher-volume businesses in lower-risk industries, such as large grocery store, retail chains, and restaurants that do real-time transactions (i.e. nothing with recurring charges or future delivery).
But it’s important to provide these companies with realistic, achievable numbers (your answers to the questions above), to make sure you get the most accurate rate quotes possible.
Now that you’ve put together a package of your numbers or projections and have considered your payment terminal needs, it’s time to shop around for a payment processing partner.
While cost is a big factor when selecting a payment processor, it shouldn’t be the only criteria. It’s important to align with a trusted company that has a good reputation.
There are plenty of payment processors who charge bargain-basement rates but may not provide dependable customer service. You’ll want to strike a good balance between a reasonable rate and a stable, trustworthy company – ideally one that’s affiliated with a financial institution.
While individual fees of different payment processors may vary, they all have a basic fee structure. On every statement, you’ll find three types of fees: processing, flat, and situational.
When you’re comparing companies to each other, take a look at the prices associated with each type of fee. It’s important to understand which are negotiable and which are not.
Payment processors are responsible for capturing fees from credit card brands and issuing banks and providing a routing service. They charge a number of processing fees to recoup the charges and to be compensated for their services.
|Type of fee||What is it?||Negotiable?|
|Discount rate (aka qualified rate, merchant rate, discount rate, or MDR)||The fees for processing a payment made with a basic credit card (i.e. a card with no perks/rewards). It’s charged as a percentage of the total transaction (e.g. 1.5%).|
Payment processors may make this “floor” price intentionally low to appear attractive to merchants. Beware: If it’s too low for them to make any profit, they’re probably jacking up fees elsewhere.
|Interchange Fee||Each credit card brand (e.g. Visa, Mastercard, American Express, etc.) has a published, percentage-based fee that they charge every time one of their cardholders uses their credit card. It’s the cost of authorizing the charge. |
The interchange fee is higher for cards with perks or rewards than it is for basic cards.
The payment processor is responsible for paying this fee – and passes the cost on to the merchant.
|Non-qualified rate||This is a fee added to the discount rate (above) when non-basic credit cards (rewards, corporate, business) are used – and on transactions completed over the phone when the card is not present.|
These cards (and card-not-present transactions) carry higher risks, so they’re processed at a higher rate.
|Card brand (assessment) fee||This is a fee paid to the card brand (e.g. Visa, Mastercard) on every transaction. |
The card brand sets the fee, and it applies to all types of cards (basic to premium). Payment processors may or may not mark this up.
|Transaction Fee||A dollar amount fee on every transaction.||Yes|
Flat fees will vary by payment processor. Here are some of the most common types of flat fees.
|Type of fee||What is it?||Negotiable?|
|Annual fee||Charged once a year for the payment processor’s services.||Yes|
|Monthly fee||Charged every month for the payment processor’s services.||Yes|
|Batch fee||The cost of sending each “batch” of completed transactions for the day to the bank for payment.||Yes|
|Network access fee||A fee charged by the credit card brand for accessing their network.||Yes|
|Online reporting fee||The fee for the ability to view your statement online.||Yes|
|PCI fee||Meeting the Payment Card Industry (PCI) Data Security Standard is mandatory. All payment processors must ensure their merchants are following the rules. |
Some payment processors charge an additional fee to ensure compliance.
|Statement fee||The cost of preparing and providing your billing statement. You may try to bypass this fee by asking for online-only access.||Yes|
|Terminal fee||The cost of renting, leasing, or buying a terminal.||Yes|
As their name suggests, situational fees are charged when specific situations arise. They aren’t necessarily regular or predictable, so it’s important to understand the types of fees that could be incurred.
Here are some of the ones to watch for.
|Type of fee||What is it?||Negotiable?|
|Chargeback fee||This is levied when a customer claims fraud or wants a refund. |
The payment processor will charge this fee for processing the chargeback.
|Retrieval request fee||This is a fee for retrieving information when a customer requests a chargeback (refund).||No|
|International fee||Applied when a customer uses an international credit card.||No|
|Liquidated damages fee||If you choose to terminate your contract with the payment processor before the agreed-upon date, they may charge a fee associated with the monthly profit value of your account.||Yes|
|Monthly minimum fee||Merchants who fail to reach their transaction total for the month or year may be charged this fee. |
The payment processor may choose to charge you the difference between the agreed-upon monthly minimum and the actual transactions.
|Non-sufficient funds (NSF) fee||If you don’t have enough funds in your account to pay the payment processor fees, you will be charged a fee.||No|
|Set-up fee||The cost of setting up or creating an account with a payment processor.||Yes|
For the restaurant industry, payment processors typically provide two types of pricing models:
Most restaurants today use the cost plus model for its transparency and easy-to-understand terms and fees.
Under this model, you’re responsible for the non-negotiable interchange fee (for the type of credit card) plus the payment processor markup. The markup is a fixed percentage of the total check, the card brand fee, and a per-transaction flat fee.
The cost plus pricing model has a straightforward formula like this:
1.54% + 0.10% + 0.10% + $0.25 = 1.74% + $0.25 total processing fees
This type of simple formula makes it easy to compare processing fees from company to company.
When reviewing quotes from payment processing companies, it’s not always possible to compare apples to apples. Some processors may charge low fees in one place but higher somewhere else. Some may include a terminal in the agreement.
Take a look at the flat and situational fees as well. Using our negotiating cheat sheet, focus on the ones that are negotiable and consider asking for a better rate on some or all of them.
You’ll also want to look at contract termination terms. You may decide the flexibility of a shorter-term contract outweighs the benefits of a lower cost elsewhere.
When you’ve narrowed it down to one or two payment processors, it’s time to make sure you’re getting the best deal possible. Here are some tips on negotiating:
Don’t just take a cursory glance at the quotes you’ve gathered from payment processors. Pore over them so you understand exactly where and how they’re making money. A low rate on one credit card fee may be neutralized with an excessive fee elsewhere. You should be able to list the pros and cons of each quote before you head to the negotiating table. Use our cheat sheet to help you keep track of what the fees are for and which ones are negotiable.
After you’ve gone over the quote with a fine-toothed comb, book a call or in-person meeting and ask the sales rep to go over it with you, line by line. Ask them to explain each feature and fee. It wouldn’t hurt to gasp or wince from time to time. Seriously. They may react to your body language or verbal cues with a better price. If not, when you arrive at each negotiable fee, ask for the best price they have. Point out what their competitors are charging.
If you’ve uncovered a better price elsewhere, share it with the payment processor you want to work with to see if they can price-match. Even if they can’t meet the exact price, they may be able to offer perks like free payment terminals or a shorter contract. This may be worth more than a lower fee.
Take your time when reviewing quotes from payment processors. Don’t let them rush you into making a decision. Consider sharing them with an accountant or lawyer to help you find the right overall fit.
When you think you’ve negotiated your contract to the lowest possible price and the best possible features, take one further step before you close the deal. Be absolutely sure that they are giving you the most optimal pricing. It’s surprising what a simple question can accomplish.
When you consider the number of credit card transactions your restaurant will ultimately process every day, it’s well worth the time it takes to understand credit card fees and negotiate them to within an inch of their life.
The best payment processing rate for your restaurant is out there. It’s up to you to find it.