The everything guide to processing plastic

Imagine you had to buy a $30,000 stove or refrigerator every year. You’d check specs, research brands and seek the best features for the least money. Right?

Well guess what: That’s how much you might be spending annually to accept credit and debit card payments at your restaurant. But chances are, you’re not shopping nearly so carefully.

“You should shop for card acceptance in the same manner as any other large purchase,” says Kevin O’Donnell, vice president of strategic relationships with Discover Financial Services in Riverwoods, Illinois. “Get at least three quotes from three different providers.”

The hard part is to know what you’re shopping for. A typical credit card processing program is a labyrinth of complex charges and esoteric fees, each taking a swipe at your profit margin.

Becoming a savvy shopper can save you more than money. An efficient program means faster table turns—and bigger sales. A Visa study of 100,000 QSRs found customers spent 30 percent more when paying by plastic rather than cash.

“Restaurants typically have the biggest volume of credit card sales per square foot [of any business],” says Ken Givens, regional manager for U.S. Merchant Solutions, a processor in Austin, Texas. “They’re about 30 percent of our portfolio, and we’d like to have a lot more of them.”

Getting the Best Rates 

You know those credit card offers that promise low interest rates in large print? Only if you squint at the small print do you find all kinds of extra costs.

Processing works the same way. A salesman offers you a great rate. Unless you do the math on your monthly statement, you’ll never notice you’re really paying twice what you were quoted.

Here’s how it happens and how you can compare one processor with another.

Processors pay “interchange fees” to credit card companies like Visa and MasterCard, to transfer money along a chain of banks that lead from a customer’s account to yours. Processors make their money by marking up those interchange fees before they bill you for a transaction.

Interchange fees are not one-card-fits-all. Visa alone recognizes 73 different types of plastic: consumer cards, corporate cards, rewards cards and debit cards. Depending on the type, the rate can range from 0.62 percent of the transaction up to 2.7 percent. Even for the same card, the interchange fee can change if you key in the number rather than swipe it. To simplify things, most processors group cards into a few tiers, charging you three rates instead of dozens.

“The tiered model takes the guesswork out of costs,” says Neal Korzekwinski, senior business manager of First Data Corp. in Melville, New York, which offers a processing program through the National Restaurant Association. “I know it’s going to come in at one of these three costs.”Here’s how three tiers typically break down:

Qualified. The base rate, which covers generic consumer credit and debit cards. On a $15 sale, you’d pay 37.4 cents. Some processors will offer a lower rate on debit cards, which are cheaper to process.

Mid-Qualified. If your customer uses a corporate card or a reward card, you pay a full percentage point more. The same sale now costs you 54.2 cents. 

Non-Qualified. Often charged for cards whose numbers are keyed in rather than swiped and cards taken over the phone or the Internet. It can add 1.6 percentage points to your base rate, which means you’re paying for your customer’s frequent flyer miles. A $15 sale costs you 65.4 cents.

“Mid- and non-qualifying transactions are all profit centers [for processors],” says Ryan Paine, an independent processor agent in Denver, adding that processors often inflate their markups on higher tiers. An alternative is an interchange-plus or pass-through program. The processor charges the same markup on every card and adds the interchange rate. The advantage: you see what you’re paying. The trade-off: reading a monthly statement with 40 kinds of transactions instead of three.

Mega-retailers have used interchange-plus programs for years, says Robert Becker, a processor in Pinehurst, North Carolina, and author of Merchant Processing 101. Small restaurants can get them, too, but a salesman may not volunteer one unless you ask.

A third and less common system is a flat-rate program, which charges the same percentage for every kind of card. The rates may look higher than other programs, but can sometimes work out to be cheaper, because they attach no extra fees (see sidebar for more on fees).

If these programs seem hopelessly obtuse, there’s a simple method for comparing them, says Michael Liu, president of flat-rate processor Capture Systems in Atlanta.

Step One: Find out the effective rate you’re really paying, not the 1.59 percent you think you’re paying. Do this by adding up all the fees on your existing bill. Then divide them by your total sales. If your fees total $3,000, and your sales are $100,000, your effective rate is 3 percent.

Step Two: Show a salesman your current bill, and ask what your total charges would be under their program. Using the same math as before, calculate the effective rate, and it will be clear which deal is the best.

One more trick for getting better rates: Negotiate. If you think a rate or a fee is too high, and a competitor offers a lower one, a salesman will often shave a few percentage points. Says Liu, “They don’t want to lose the deal.” 

Rating the rate systems

Three-Tiered for quickservice restaurants
Qualified: 1.49% + $.15 per transaction
Mid-Qualified: 2.61% + $.15 per transaction
Non-Qualified: 3.36% + $.15 per transaction
Source: FirstData Corp.

Interchange-plus, sample of card types
Visa Restaurant Debit Card:
Interchange fee 1.29 % + $.010 per transaction, plus markup of .30 % + $ .10 per transaction = 1.59 % + $0.20 per transaction
Visa Credit Card: Interchange fee of 1.75 % + $0.04 per transaction, plus same markup = 2.05 % + $0.14 per transaction
Restaurant Rewards Card: Interchange fee 2.00 % + $0.10 per transaction, plus same markup = 2.30 % + $0.20 per transaction
Source: Credit Card Processing Services

Flat-rate program
All Cards:
1.99% to 2.99%, depending on your sales volume, no transaction fee
Source: Capture Systems

A field guide to fees

What a processor gives up in lower rates, it often tries to make up in surcharges and fees. But a good negotiator can get some of them waived. Others you can avoid having to pay if you set up your program properly. Here’s a guide to the most common types. Inquire about each of the fees below, and then ask, “Are there any other fees that aren’t on this list?”

Easy to waive
Annual fee. Many processors charge none at all.
Customer service usage fee. A charge for calling customer service. Negotiate it away.

Waivable for seasoned negotiators
Address verification fee. Some processors give you a discount if you key in a customer’s zip code, to combat fraud. But others charge you extra.
Monthly minimum. If your monthly bill doesn’t add up to at least $25, most processors will charge you the difference. If you’re a seasonal business that’s closed some months, see if the fee can be waived.
Setup fee. A one-time charge. The bigger your sales, the less the salesman may insist on it.

Won’t be waived
Daily batch fee. Most processors charge you up to 30 cents to tally up your transactions each day.
Capture fee. Most processors charge a few cents extra to process American Express and Discover cards.
Chargeback fee. Can hit $5 if a customer disputes a charge. Luckily, it rarely happens in restaurants.
Transaction fee. This is really part of your discount rate, but often appears on a different part of your statement. The norm is 10 to 20 cents per transaction.
Statement fee. From $3 to $10 to send you a monthly bill

PIN pad fees. Debit cards are cheap to process–unless your customer punches in a 4-digit PIN number. Then your processor might slap on 70 cents. On a $15 order, that could triple your cost, so most fast-feeders don’t use PIN pads.
Voice verification fee. For calling in a number by phone. Don’t do it unless your terminal is broken.

10 Questions to Ask a Credit Card Salesman

How long have you been in business? Should be at least two years.

What other restaurants have you worked with? Get at least three references.

What’s your customer service setup? Can you reach someone 24/7, and will it be the same person every time? Try making a test call to the customer service number.

Will your program work with my point-of-sale system? Find out what other POS systems the processor supports, too, in case you change systems down the line.

What’s the cost for terminals? Leasing for $49 a month sounds cheap. But it adds up to $1,764 over a three-year contract, versus buying a new machine for $200 to $400. A few processors provide terminals for free.

Do you handle smart cards or contactless cards? This technology, where the customer waves a card with an embedded chip instead of swiping it, looks like the next big thing.

Do you handle gift cards? No need to buy separate terminals for gift cards. Most credit card terminals can be programmed to process them.

Do you support high-speed Internet connections? Authorize a card in two seconds instead of 20.

How soon will funds be deposited in my bank account? Should take two days or less.

Do you offer online reporting? Checking your account every few days can spot problems like fraud before they get out of hand.

Data theft: Protecting your customers–and yourself.

Restaurant consultant Kevin Moll recently got a call from his card company asking if he had left the country that day. His records showed he’d bought gas in Denver in the morning and afternoon, but in-between, he’d spent $1,800 at a record store in London. “Somebody got hold of my number, created a fake credit card and swiped it,” says Moll, CEO of National Restaurant Consultants.

Theft of customers’ credit card numbers is on the upswing, and foodservice is a prime target. Visa reports that 62 percent of thefts in 2007 involved restaurants. One breach, reported in May, cost at least $600,000 in losses after hackers broke into computer systems at 11 units of Dave and Buster’s, a chain based in Dallas. 

Restaurants are most vulnerable in two areas. Online intruders can burglarize their point-of-sale systems. Less high-tech, but no less threatening, are inside jobs: data theft by employees.

These days, the buzzword for protecting POS systems is “PCI compliance.” It refers to the Payment Card Industry Data Security Standard, a shared set of rules adopted by card issuers.

The standards are not simple, but following them can be—if your hardware and software is certified as PCI-compliant. Visa and MasterCard publish lists online. Even if you buy a certified system, your credit card processor might require a security audit, to avoid fines of up to $25,000 from the card companies.

The riskiest chance for theft is the moment a server takes a customer’s card. “At a typical retail merchant, a card is handled in full view of a customer,” says Greg Worsch, group executive for processor Chase Paymentech in Dallas. “In a restaurant environment, you hand your card to a server and he takes it someplace else.”

While he’s away, a server can copy the receipts, or even swipe a card through a pocket-sized terminal, called a skimmer. A few rules to prevent both kinds of theft:

  • Delete customer data from your computer, once you’ve wired it to your processor.
  • Limit the number of employees with passwords and change the passwords often.
  • Program your terminals to truncate the numbers on credit card receipts, showing only the last four digits. It’s an easy change for your processor to make, and most states now require it by law.
  • Keep all terminals in public view, so servers have no opportunities to copy data.

A new device, the wireless terminal, allows a customer to swipe a card at the table, without handing it to a server. But it’s cumbersome in other ways, explains Kevin Aniess, president of Credit Card Processing Services in Doylestown, Pennsylvania. “The customer may not want to swipe the card in front of the other guests. They’re not inexpensive, and you have to have multiple units. And they have to be charged up, or they’re not usable the next day.”

Equipment: Fight the fraud

Taking steps to prevent credit card fraud can boost your customers’ peace of mind and protect your restaurant from the bad publicity and potential fines of a security breach. Here are some technology tools that can help keep credit card information secure.

Merchant Link TransactionVault ( One way to protect your customers’ credit card data is to not store it on site where prying eyes and hackers can take a crack at it. TransactionVault is a hosted service available as part of Merchant Link’s credit card processing system. Sensitive data is handled by Merchant Link’s remote secure data vault rather than in the restaurant’s local system.

SoftTouch SoftPay ( SoftPay is a restaurant self-pay system that is similar to the self-checkout lines found in grocery stores. Customers use a loyalty fob or self-pay card found at their table to check their bill and run their credit card at a standalone payment kiosk. It’s fast for the customer and keeps their credit card in their hands at all times.

uWink ( uWink’s Interactive uOrder System offers another way to have customers pay at the table. The multi-lingual touchscreen self-service system lets customers place orders, play games and pay using a credit card.

Verifone Vx670 ( The Vx670 is a compact wireless handheld payment device that allows customers or waitstaff to run credit cards right at the table. A built-in printer, splash resistant design and easy to follow interface make it a user-friendly pay-at-table option.

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