What You Need to Know About Restaurant Merchant Services Providers & How They Operate

By Korry D.

A customer entering a pin number on a payment terminal

If given the choice, the majority of today’s diners would prefer to pay with a card over cash. But in order to make that option available, you need the help of restaurant merchant services providers.

A merchant services provider is a valuable payments partner that facilitates credit card processing in your restaurant, along with other important services.

That said, working with a restaurant merchant services provider comes with a price tag – primarily in the form of fees that can cut into your restaurant’s already razor-thin margins. No surprise that this is a deterrent for many independent restaurant owners.

If these fees have been preventing you from working with a restaurant merchant services provider – or if you’ve been blindly paying fees and wondering whether it’s really worth it – we’re here to help.


By covering everything you need to know about restaurant merchant services providers, including the role they play in authorizing a credit card transaction, where your fees actually go, and how to make sure you’re getting the best bang for your buck.


Let’s get started.

Credit card on a bill on a dish

What Is a Restaurant Merchant Services Provider?

Before we dive in, let’s clarify a few very important terms: credit card processors and merchant services providers.

Credit Card Processors

Credit card processors specifically refers to the companies working behind the scenes to maintain the technical communication between merchant services providers and the banks. These processors play an important role in processing your credit card transactions, however they have no direct relationship with your business. In fact, your payment processor is chosen by the bank your merchant services provider partners with.

Restaurant Merchant Services Providers

On the other hand, merchant services providers have a very close relationship with your business.

Just as the name suggests, merchant services providers (also known as merchant account providers) supply merchants (the term used to refer to their customers, in this case restaurants) with every payment component needed to accept non-cash modes of payment both online and offline. In other words, a restaurant merchant services provider allows you to accept credit or debit card transactions through a payment card reader, your point-of-sale (POS) system, or online (also known as a card-not-present transaction).

2 preview pages of the ultimate guide to credit card processing
The Ultimate Guide to Credit Card Processing

Everything you need to know about credit card processing

Download Guide

It’s important to note here that merchant services providers aren’t the only type of payment service providers out there.

When you’re deciding how to accept credit card payments in your restaurant, choosing your provider will come down to a decision between a merchant services provider and a payment processing aggregator. However, which one you choose will depend on a few key factors, which we’ll break down below.

Payment Processing Aggregators vs Merchant Services Providers

What is a payment processing aggregator?

Aggregators are payment service providers that register merchants (like your restaurant) directly under their own merchant ID number and process payment transactions through a single master account. Square is a popular example of an aggregator.

Payment processing aggregators are popular with small businesses (think one or two employees) because there’s no lengthy application process, so you can start accepting credit card payments quickly and easily. Aggregators are also popular among small businesses that process a low volume of transactions because aggregators provide a streamlined payments solution and charge a flat fee per transaction.

While a flat fee sounds great in theory, the drawback is the flat fee that aggregators charge is often higher than other payment services providers because they assume liability for their merchant base. This means that if you process a large volume of transactions, paying this higher flat fee could end up costing you a lot more than if you used a different payment services provider. 

Another drawback to aggregators is that you may have to wait a bit longer before your funds are deposited into your account. Generally you can expect to be paid within one to three business days from the transaction, however this varies based on which aggregator you go with. In some cases, you may be able to pay an additional fee (usually 1%) if you want to get immediate payments in your bank account.

On the other hand, merchant services providers are more popular with larger or higher volume venues looking for an integrated payments solution. Unlike aggregators, merchant services providers assign each business a dedicated merchant ID.

Merchant services providers also supply a range of additional services. These can include:

  • A more customized service experience by means of a personal account representative or 24/7 customer support.
  • Higher-end software programs that allow you to track your transactions and protect your business against service interruptions.
  • Quicker batch settlement times, so you won’t run into cash flow issues while waiting for your credit card payments to come through.
  • Full-service integration to ensure your payment terminal is properly integrated with your point-of-sale (POS) system.

And while most payment processing aggregators charge a flat fee per transaction, restaurant merchant services providers are more likely to provide a pricing model where you pay exactly what the card costs (i.e. cost plus pricing).

Of course, all of the added services the merchant services providers offer are built into the fees they charge. This means that if you opt to go with the provider with rock-bottom credit card fees, you’re going to get limited service options. That’s why it’s important to figure out what your business needs (and what it doesn’t need) before seeking out a payment services provider and negotiating your rates. In some cases, you might think about adding a credit card surcharge to recoup some of the money paid out to your merchant services provider.

How Does Credit Card Processing Work?

In addition to providing you with essential hardware such as credit card readers, payment processors and restaurant merchant services providers also do quite a few things behind the scenes to connect you to the complex payments ecosystem.

Before we can explain how the credit card processing works, we need to break down each of the additional players involved:

  • The customer (the diner making the payment);
  • The merchant (your restaurant);
  • The credit card network (e.g. Visa or Mastercard); and
  • The issuing bank (the institution from which the diner received his or her credit card, such as Chase or TD Canada Trust)

Both payment processors and restaurant merchant services providers work with all these players to fulfill their most important task for you: to clear and route the transaction so that the diner’s money is deposited safely into your account.

And how exactly does this happen?

While it may seem like a simple process, the truth is that a credit card transaction is comprised of many important steps:

  1. The customer requests to pay by credit card.
  2. You authorize their credit card by inserting it into a payment terminal. Your merchant services provider receives that information and passes it on to the credit card processor and the credit card brand network (i.e. VISA, Mastercard, American Express or Discover).
  3. After the banks have confirmed that the credit or funds are available, your credit card processor relays this information back to your restaurant merchant services provider.
  4. The credit card card brand network requests payment authorization from the customer’s issuing bank.

In short, your processor is responsible for communicating transaction information between the merchant services provider and the network, while your merchant services provider takes care of the initial input and output of transaction information from the cardholder.

Payment processor infographic
Fixed rates vs. cost plus pricing models for restaurants

When you close out at the end of a business day, you’re sending a batch of all your approved authorizations to your payment processor. After that, the process looks like this:

  1. The payment processor sends the information to the appropriate card network and, at the same time, deposits the appropriate funds into your account (and debits all associated processing fees).
  2. The credit card network, meanwhile, debits the merchant’s bank (aka the issuing bank) and reimburses your payment processor. 
  3. You, the merchant, are then required to repay your issuing bank when you receive your credit card statement at the end of the month.

Virtually every party in this process charges a fee for their efforts because of the risk involved.

Not only are all the parties involved responsible for making sure everyone gets a slice of the pie, they also assume the majority of the risk if something goes wrong (i.e. if a customer uses a fraudulent card, or your restaurant ends up going bankrupt).

In exchange for their services, merchant services providers will charge you a fee. Exactly how much depends on a number of different factors.

One factor is the type of payment. Generally, the more secure the form of payment, the less expensive it is. For example, swiping a card through a credit card reader (a magstripe payment) costs more per transaction than a restaurant mobile payment because the former is more open to fraud.

What is credit card fraud in this context?

Credit card fraud is when someone steals a customer’s card information, a personal identification number (PIN), or the actual physical card and uses it to pay for something. Magstripe cards are particularly vulnerable to this, which is why EMV technology was developed to replace it. 

And what is EMV?

EMV simply refers to the computer chips and technology used to authenticate card transactions. Learning about the EMV liability shift, credit fraud, and growing risks is a good first step toward preventing fraud in your restaurant.

2 preview pages of the ultimate guide to credit card processing
The Ultimate Guide to Credit Card Processing

Everything you need to know about credit card processing

Download Guide

Finding the Right Merchant Services Provider Rate

The credit card processing fees you pay will likely differ from the fee paid by the restaurant down the street. That’s because these rates depend on a variety of factors, and they vary from one merchant services provider to the next.

Before giving you a custom rate, a restaurant merchant services provider will closely examine your specific situation, including:

  • Your industry
  • Your business and credit history
  • Your projected or established transaction volume
  • The number of card swipes expected to take place in a given month or year
  • Your average transaction sale

This will help the merchant services provider determine what type of risk you carry and how much business it can expect to see from you.

Spoiler alert: Lower-risk businesses with higher volumes will generally pay lower rates, especially if they already have a proven track record with other providers. New restaurants with high volume will likely be able to land a competitive rate if they shop around, while low-volume businesses will inevitably be charged higher rates.

Restaurant merchant services providers also take information like transaction volume and industry level to use it to calculate your processor markup fee – a flat or percentage-based fee (or combination of the two) that pays the payment processor for routing your money and assuming the risk.

Decoding Payment Processing Pricing Models

As we mentioned earlier, partners like your restaurant merchant services provider isn’t the only player in this game.

The fee they charge must cover all the fees they’re going to incur down the road – from the credit card network and banks – as well as the services they provide you. As a result, their fee structure can be a little, um, complex.

To boil it down as simply as possible, you can expect to see three types of fees outlined in your payment processing contract: flat, situational, and processing.

Flat Fees

Flat fees are the fees you’ll see every month with little variance – meaning, they’re not percentage-based. These will include terms like network access fee, monthly fee, and online reporting fee.

Situational Fees

Situational fees are charged on a per-event basis, so you won’t see them all the time. They can include charges like monthly minimum fees, international fees, and set-up fees. 

Processing Fees

Along with the processor markup fee we mentioned before, you can expect to see a couple other processing fees on each transaction, such as:

  • Interchange fee (a percentage-based cost of authorizing a transaction, charged by the credit card companies)
  • Card brand fee (a percentage-based fee paid to the credit card network on each transaction)

While some of these fees are non-negotiable, others come with a bit of wiggle room.

All in, though, you can expect to pay between 1% and 4% per transaction, along with a potential fixed dollar amount ranging from $0.10 to $0.30. This is in addition to your monthly fixed fees.

Restaurant employee holding a payment terminal towards you
Tired of Paying Too Many Credit Card Processing Fees?

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How to Choose the Provider

We’re not going to lie – the payment processing landscape isn’t always an easy one to navigate.

Not only do most restaurant merchant services providers offer a similar service (at least on the surface), but you may find both good and bad online reviews for each provider you look into.

That’s why it’s important to do as much preliminary research as possible before you begin your search and then carefully interview each potential provider (and compare their answers). 

We know, we know – this takes up your valuable time. But since it can save you both time and money in the long run, it’s worth the investment now.

To help you out, we’ve put together a list of questions to ask merchant services providers, as well as why these questions are important ones to ask.

1)   What are your rates/fees/pricing model and how do the numbers break down?

The fees that restaurant merchant services providers (and aggregators) charge are notoriously complex, which is why transparency is the top sign of a good provider.

Some may leave you (intentionally) in the dark or make it difficult to compare their pricing structure to others. Some may charge incredibly low processing fees but make up for it in their vague (and confusing) flat fees. Others combine the wholesale costs (like the credit card brands’ interchange rates, which are universal) with their markup costs, making it difficult to differentiate the two.

That’s why, if you’re going with a restaurant merchant services provider (as opposed to an aggregator), make sure they offer a pass-through pricing structure, which separates the wholesale from the markup costs.

Now could also be a good time to find out what their contracts are like and whether you’ll be signing your life away with a long-term deal. If they seem reluctant to provide in-depth answers, it’s probably a good clue to look elsewhere. 

2)   What are your differentiators?

With so many restaurant merchant services providers in the market, it’s important to uncover what they think sets them apart (i.e. get the information straight from the horse’s mouth).

Maybe one offers best-in-class customer support, or an innovative software solution that also allows for inventory management. Maybe they excel in mobile credit card processing. Or perhaps they offer accurate billing and the security of being backed by a reputable financial institution.

Whatever it is, ask them to lay it out for you in detail and make them explain why that matters to your business.

3) What are my payment processing needs and wants?

Okay, so this isn’t something that can be answered by a merchant services provider, but it’s a question that should nevertheless be asked.

Once you have a decent list of reputable providers – with a clear understanding of their pricing structures and differentiators – it’s time to figure out what you’re willing to pay for.

Do you need a restaurant merchant services provider, or will an aggregator suffice? Do you need a company that specializes in ecommerce, mobile payments, credit card machines, or phone orders? Do you want the flexibility to switch your restaurant merchant services provider without switching your POS (or vice versa)?

The answers to these questions will help you whittle down your list of providers and zero in on the ones that are the best fit for your business.

4)   Are you PCI compliant?

Chances are if your chosen provider is able to work with the major credit card brands, their terminals are PCI compliant. But it doesn’t hurt to ask.

If they’re not, you need to know (otherwise you could be charged a huge fine by the credit card companies).

If they are, they may have additional security features they’d like to tell you about – such as full-service integration options that could strengthen your POS system. Even if you’re not in the market for them, it’s good to know they exist – in case you require them down the road. 

The Value of Merchant Services Providers

There’s no getting around it: To provide your patrons with the convenience of credit card payments, you have to be prepared to part with some hard earned revenue.

But what you get for that money depends on your restaurant merchant services provider.

While it may require a bit of legwork and self-reflection, it’s definitely worth your while to survey the payment processing landscape and decide which services you’re willing to pay for and which you could do without.

With that information in hand – and the ability to truly understand what your fees are getting you – you’ll be able to rest a bit easier, knowing you’re getting the best possible bang for your buck while increasing your number of satisfied customers.

Still feeling overwhelmed by the payment processing landscape?

Ready to look at payment solutions?

Learn More About TouchBistro Payments and TouchBistro’s Integrated Payment Processing Partners.

TouchBistro Payments powered by Chase is currently available for U.S. customers only.

Photo of Korry D
by Korry D.

As the former Senior Product Marketing Manager at TouchBistro, Korry helped restaurateurs navigate the complicated waters of payments by deeply understanding both restaurants and the payments market. He has a passion for hockey, beer, and hot wings, and loves when all three happen at once.

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