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Credit card processing fees for restaurants can be confusing, to say the least. So start, you need to understand the different types of restaurant credit card processing, the benchmark card processing fees, and how to calculate your effective rate and markup.

Here is what you need to know about restaurant credit card processing.


Different Types Of Credit Card Processing

There are many types of credit card processing: flat-rate processing, tiered pricing, flat rate pricing, and interchange-plus restaurant payment processing pricing are some to note. Some companies offer a pay-as-you-go flat rate where you pay the same fee, regardless of the type of card, with exceptions for card-not-present transactions or international cards, which have higher set rates.

Tiered pricing means the processing fee is higher based on how risky the transaction is. For example, buying a pastry at your local cafe is a lower risk than buying an appliance online. Transactions are typically organized into three tiers, with the lowest risk known as “qualified,” then “mid-qualified,” and the riskiest are “non-qualified”—which are the most expensive to process. However, it’s not always clear what makes a purchase qualified or non-qualified, with different companies categorizing the same transactions differently.

Interchange-plus pricing offers more clarity than tiered pricing. You simply pay the interchange rate and processor’s markup, typically a small percentage of 0.20% to 0.75%, plus a per-transaction fee of anything from $0.15 to $0.30.

Flat rate is an increasingly popular pricing model for credit card processing. The easiest way to explain it, and the version of flat rate processing mostly commonly used is where a payments processor charges based on a fixed percentage of credit card transactions.

The payment processing industry is very good at appearing to be more complicated than it is. Even experts can get in the unfortunate habit of explaining things in an unnecessarily convoluted way. The end result is completely illegible and frightening diagrams such as this one:


Here is what happens when a payment is processed.

what happens when a payment is processed

  1. A server swipes a credit or debit card at their point of sale.
  2. The point of sale takes that credit card data and sends it off to another computer called payment gateway. This device encrypts the credit card information to make it secure.
  3. The gateway then sends that data to a processing company. This company communicates with banks to make sure the credit card is active and valid.
  4. This confirmation is then sent back through the gateway to the point of sale, and the terminal tells the server that the payment has been approved.
  5. Once validated, the terminal generates a receipt for the transaction and puts it in that night’s batch.
  6. When the system batches out at the end of the night, the payment, along with all others in the batch, is sent back to the gateway, which encrypts all the credit card information again.
  7. Once encrypted, the gateway sends the data from that batch to the processing company, which executes all the transactions, transferring money to the business’ bank account.



Benchmark Card Processing Fees

To swipe a card you’re looking at roughly 1.95 percent—2 percent for Visa, Mastercard, and Discover transactions. For online ordering, it’s roughly 2.30 percent—2.50 percent. Amex will invariably cost more to process than other cards, depending on your payment processor and the pricing model you’re on.


How To Calculate Your Effective Rate and Markup

Your effective rate is the total percentage of your sales lost to fees. It’s easy to calculate: divide total monthly fees such as statement fees, gateway fees, and equipment leases etc., by the sum of total monthly sales.

Your effective markup compares processors that offer interchange-plus or subscription plans.
If your monthly sales total is $10,000 and you pay $650 in markup fees (including statement fees and additional monthly services), your effective markup calculation is simply:

(markup fee/total sale) x 100

= (650/10,000) x 100
= (0.065) x 100
= 6.5 percent

This doesn’t work for comparing tiered or pay-as-you-go processors, who don’t separate markup from the interchange. But it is a basic credit card processing fee calculation that will be enough to get you started.

Get Insights from your Restaurant Credit Card Processing

Upserve Payments provides you with insights about your restaurant and guest purchase decisions, which turns a line-item expense into an investment in your business. We combine that information with other systems in your restaurant, making it available to you with no reports to pull, no calculations to make, and without having to change how you currently operate. With a fair and transparent pricing structure, Upserve Payments couldn’t be simpler – fixed rate plus a small per transaction fee so as your business grows, you keep the upside. No hidden fees.

Check out Upserve’s guide to EMV restaurant compliance!

Written by   |  
Mitchell Hall is a writer and editor living in Boston, MA. Originally from New Zealand, growing up he spent nearly ten years greedily imbibing the spirit of hospitality as a kitchenhand, waiter, and barman.
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