Restaurant 101: Credit Cards, the Fees Restaurants Love to Hate

Posted on August 20th, 2008 1:58pm by Nancy Nichols
Filed under Restaurant 101, Uncategorized

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.

6 comments

  1. Ask any owner, and they will groan about… the hassles of serving food in a restaurant.

    I’m expecting that to be the next installment in this series. Heaven knows that’s the only thing left for them to bitch about.

    I’ll let them in on a little secret: there’s a shortage of pipeline welders.

    @ 2:38 pm on August 20, 2008

  2. Even worse, if your POS isn’t “PCI-DSS” compliant and your computers get hacked, the merchant bank can debit money right out of your account, withhold credit card payments, and charge you penalties (including the cost of a POS audit (about $10k) and the cost of issuing new credit cards to customers ($20-$30 per card).

    Ask your POS provider if your computer system is storing magnetic strip data – if so, change it. The theme in card transactions is, “If you don’t need it, delete it.”

    An advocacy group has put together a short youtube video to teach retailers about protecting themselves. Very good info.

    http://www.youtube.com/watch?v=7W-k3R2N7Zk&feature=related

    There was also a recent Nation’s Restaurant News article on this topic:

    http://www.nrn.com/thisWeeksIssue.aspx?id=354570

    @ 3:52 pm on August 20, 2008

  3. @Billusa99 – Sorry to give that impression Bill, all of us at Sevy’s really do love what we do and try our best to satisfy every guest that walks through our doors.

    And pipewelders are always welcome at Sevy’s.

    @ 4:42 pm on August 20, 2008

  4. @Billusa99, I think you missed the point. Restaurant 101 is not a bitch fest about the business, we are attempting to educate diners to the behind the scenes of the restaurant business. Anyway, pipeline welders probably have a union backing them.

    @ 7:53 pm on August 20, 2008

  5. Billusa – Love your rants, but direct your verbal arrows at the target. In this case it’s all about those credit card companies whose exorbitant charges contribute to the cost of dining out. Pity the first time restaurateur who does not fully educate themselves long before opening their doors with all the ins and outs, costs and hidden costs, paper and tech requirements of dealing with credit cards. It’s an important part of the business end of running a restaurant that the novice had better tend to before ever putting on a toque, and well worth the time it is given in a 101 class.

    @ 12:28 pm on August 23, 2008

  6. Thanks for your sharing guys!

    @ 8:42 am on February 22, 2009