Miss Amy is back from vacation and ready to roll out a new subject for us all to chew on. Today she explains a restaurant’s cost of doing business with credit cards. As customers, we don’t think twice about flipping a card out to pay for a meal while the restaurateur has to deal with tons of paperwork and fee assessments. Yuck-a-doo, I hate math. Here she goes:
Ask any owner, and they will groan about the fee amounts, the charge complexities, and the required software upgrades to their point-of-sale equipment. Since 2001, the cost of processing credit card transactions has dropped considerably but merchant fees have risen over 133% , a fact that has lead the National Restaurant Association to join with other small merchant groups and support the Credit Card Fair Fee Act. To summarize, small business owners would like to know what they are paying for–merchant statements can include over 12 lines of various charges, depending on the type of card that was used.
For example, a guest could present a card for payment, and the fees, depending on what type of card they use could range anywhere from 1.86% to 2.8% (plus a transaction fee of 10 cents). For restaurants, which typically pay the fees on gratuities, this becomes a 3+% drain on gross sales. It has been estimated that less than 13% of the fees actually go towards the cost of processing charges, while 44% of the fees goes to a “points programs“, a recruitment tool for credit card growth.
But such excess in a free economy eventually brings cheaper alternatives. Already “contactless payment systems” and “mobile wallets” are being tweaked and perfected for an electronic age. And Revolution, LLC founded by AOL co-founder Steve Case is rolling ahead with the Revolution Money card, promising far lower merchant rates. For an even more in depth look at the future of the credit card payment industry, read Diamond Management & Technology Consultants 2006 report, “A New Business Model for Card Payments“, by Amy Dawson and Carl Hugener.