Restaurant owners are used to operating on razor-thin margins. Between fluctuating food costs, rising rent, and expensive labor, the last thing you need is credit card processing fees eating into your profits.
But that’s exactly what’s happening to most restaurants today.
We find restaurants overpaying by 1-2% on payment processing, easily costing them tens of thousands of overages per year.
The good news is that the vast majority of restaurant credit card processing fees are controllable costs. And unlike your rent or utilities expenses that are largely out of your hands, you can start taking steps right now to pay less for restaurant payment processing.
Understanding Your Restaurant’s Processing Costs
Before you can lower your restaurant’s credit card processing fees, you need to understand what you’re actually paying for.
The payment processing industry is intentionally complex because processors want to make it as challenging as possible for you to understand your costs.
They’re hoping you’re too busy running your restaurant to educate yourself on the processing components, and your statements are dozens of pages long with hundreds of line items that you likely don’t have time to read.
Three Components of Restaurant Credit Card Processing
First and foremost, you need to understand that every transaction processed by your restaurant has three components:
- Interchange Fees — Non-negotiable rates set by the card networks based on card type and transaction environment, paid directly to card-issuing banks.
- Assessment Fees — Also non-negotiable and charged by the card brands for using their networks.
- Markup — Also known as the discount rate, this is what your processor charges for their services (which is 100% negotiable).
One major problem is that most restaurants can’t see these components because they’re using a tiered or flat-rate pricing model that bundles everything together and hides where the money is actually going.
Processors thrive on this type of setup because they can charge higher markups without you realizing how much you’re overpaying.
Why Restaurant Transactions Cost More
Restaurants, bars, and food-service businesses are faced with unique payment processing challenges that drive up costs:
- Customers use their best rewards cards (like 3x points on dining) that come with higher interchange rates.
- Tip adjustments can complicate authorizations and settlements, resulting in extra fees.
- Card-not-present transactions are expensive (for online orders, reservation deposits, QR code ordering that’s paid in advance, etc.).
- High volumes amplify every fee. When you’re processing hundreds of daily transactions those “small” $0.10 fees add up quickly.
- Certain interchange programs (like Amex OptBlue) charge higher rates as the transaction amount increases.
- Complex payment integrations with POS systems, kitchen display software, and third-party platforms also inflate your rates.
Other industries just don’t have to deal with these types of obstacles.
And this doesn’t even include navigating the fact that your processor is trying to charge you as much as possible at all times, and they’re plotting rate future increases as we speak (more on this later).
Restaurant Interchange Rates
Let’s take a closer look at some common interchange costs for restaurant transactions. This will help you understand how much your processor is marking up your transactions:
- Visa Restaurant 1 – 2.20% to 2.70% ($0.08 minimum)
- Visa Restaurant 2 – 2.10% to 2.60% ($0.04 minimum)
- Visa Small Merchant Restaurant – 2.10% to 2.60% ($0.04 minimum)
- Mastercard Restaurant – 1.85% + $0.10 to 2.00% + $0.10
- American Express (Card Present) – 1.60% + $0.04 to 2.85% + $0.10
- American Express (CNP) – 1.90% + $0.10 to 3.15% + $0.10
As you can see, there’s a huge range here depending on the card type and transaction environment — and there’s even a significant difference within the same card networks (an Amex restaurant interchange rate can double depending on the transaction amount and whether it’s accepted in-person or online).
Your Mastercard transactions can be as low as 1.85% + $0.10 at the interchange level.
So if your processor is charging you 3.00% + $0.15 per transaction, the markup is over 115 basis points. Payment processors obviously deserve to be compensated for the service they’re providing. But over 1% is just absurd.
How to Optimize Restaurant Interchange Rates
Remember, interchange rates calculated at the network level are non-negotiable. But that doesn’t mean you don’t have control over those costs.
You can take steps to ensure you’re qualifying for the lowest possible rates.
Qualifying for interchange rates that are 0.10% or 0.20% lower can add up to massive savings at scale. Here’s how you can do it.
Make Sure You Have the Right MCC Code Designation
Your merchant category code (MCC) determines your baseline interchange rates.
Full-service restaurants with tableside service don’t have the same codes as fast-food establishments, which can result in different interchange-level charges.
So if you’re incorrectly classified, you could be paying more than you should be. This can happen to restaurants that pivoted or changed their business model after being issued a merchant account. So check with your processor to determine your MCC code, and if it’s wrong, get it fixed ASAP.
Settle Transactions Within 24 Hours
If you don’t settle (batch out) your transactions within 24 hours of authorization, they can automatically downgrade to higher interchange rates.
Here’s what happens.
You swipe a card during breakfast on Sunday morning. The transaction is authorized but sits in your terminal. If you don’t open until lunch time on Monday (and that’s when you settle yesterday’s transactions), you’ve exceeded the 24-hour window, and that transaction is likely going to cost you an extra 0.50% to 1%.
You either need to batch out every shift or set your terminal to batch out every day at a specific time (like 2 am).
Handle Tips Correctly
Credit card processors and card networks understand that tipping is obviously common practice at restaurants. So they know that the pre-authorization amount can be different from the final settlement amount.
So Visa automatically allows tips up to 20% above the pre-authorized amount, and Mastercard allows up to 25% over the pre-auth amount.
Mastercard also penalizes you for undefined authorizations (whereas restaurants need to be using pre-authorization requests). So if you’re still using outdated practices for handling tips and authorization, you could literally be overpaying on every transaction because your interchange rate is downgrading.
Capture Level 2 Data For Corporate Cards
If you accept corporate or business cards, these transactions can qualify for lower interchange rates if you capture additional card data.
This isn’t always practical for standard dining experiences. But it’s definitely something you should consider setting up if you regularly handle corporate takeout orders and business catering.
Let’s say your restaurant does $10,000 per week in corporate catering, plus another $20,000 per month for private corporate events.
If you can save 0.15% on interchange for $760,000 in corporate transactions, that’s $1,140 in savings right there.
Encourage Card-Present Transactions
It’s always more expensive to process transactions online. There’s more risk for fraud and chargebacks when the card isn’t present, so the card networks bake that into the interchange rate in the form of a higher cost.
So do whatever possible to get paid in person, even for online orders.
Rather than letting customers pay for online orders during checkout, wait until they arrive to tap their cards. Same goes for delivery orders. It’s better to use a mobile card reader and have them physically tap their card when the driver arrives at their door.
And while QR code menus with built-in tableside ordering have become the new normal for many restaurants, you should still wait until the card reader is present before accepting the payment.
Do the math. Card-not-present transactions are 0.10% more expensive on Visa cards. What’s your annual takeout volume? If you do $2 million in carry-out orders, that 0.10% savings puts an extra $2,000 in your pocket.
What’s a Good Rate for Restaurant Credit Card Processing?
A good deal on payment processing for restaurants is typically a total effective rate of around 2.20% to 2.65%.
If you accept more premium cards, the interchange rates will be higher. Whereas if your customers typically pay via debit card, the interchange rates will be much lower.
High-volume restaurants should target processor markups around 0.06% to 0.10% depending on the complexity of your setup and potential integrations.
Smaller businesses or brand new restaurants may be paying closer to a 0.15% or 0.20% markup to your processor.
The “monthly fees” beyond the transactional costs should be minimal (if at all). I’m talking under $25 per month for most businesses. If you’re paying hundreds or thousands of additional fees from your processor, it’s just inflating your effective rate and a way for your processor to hide more markups.
So make sure you account for all of your processing costs when calculating your effective rate.
The difference between a 3.3% effective rate and a 2.4% effective rate on $1.5 million in annual volume is $13,500 in unnecessary fees.
Choosing the Right Pricing Model
Your restaurant needs to be on an interchange-plus pricing model. Period.
That’s by far the best way to lower your effective rate, as you pay the wholesale rate at the interchange level, plus a small markup to your processor.
Flat-rate processing sounds simple because it’s easy to understand. But you end up overpaying on basically every single transaction (and that’s why so many processors try to push restaurants into flat-rate plans).
Tiered or “bundled” pricing can be even worse. This is when your transactions are bucketed into categories like qualified, mid-qualified, and non-qualified. But your processor controls the tiers, which gives them every incentive to push your transactions into higher-priced buckets.
Unless you’re a brand new food truck or something that’s just starting out and needs a way to accept credit cards ASAP, then take the time to go through the underwriting process of an interchange-plus merchant account.
And if you’re not on an interchange-plus model right now, you can still get on one without changing processors. Contact our team here at MCC if you need help with this.
Junk Fees and Padded Assessments
Beyond the rate you pay for each transaction, there’s a high probability that your monthly merchant statement is filled with other miscellaneous fees that all sound legitimate but are likely junk.
Examples include:
- Statement fees
- Gateway fees
- Batch fees
- PCI compliance fees
- Settlement funding fees
- Risk assessment fees
- Deposit service fees
- Compliance fees
- Annual fees
The list goes on and on.
Some are charged as a fixed monthly rate, while others are charged as a percentage of your total processing volume.
Processors add these fees to your account as a way to increase their margins. They may tell you that you’re getting a “great deal” by paying just a 0.10% markup on each transaction. But the junk fees they’re charging you could easily push their markup into the 0.20% range.
Some processors even pad assessment rates. This is an unethical practice that involves passing through card network assessments at a higher rate, while making it look like the fee is coming from Visa, Amex, Mastercard, or Discover. But your processor is just pocketing the difference.
Learning how to read your monthly merchant statement is crucial, and it can help you identify which fees are legitimate and which ones are junk fees that can be removed from your account.
Other Contract Clauses Costing You Money
Here are some other processor tactics we see at the contract level that leads to restaurants overpaying on credit card processing:
- Equipment leases
- Automatic rate increases
- Early termination fees
- Monthly minimums
- Liquidated damages clauses
It’s always cheaper to buy your terminals outright instead of renting them. Despite your processor making it seem like this is such a great deal (and they may even offer a “free” terminal as a starting point).
Negotiating Better Rates With Your Current Payment Processor
96% of restaurant processing statements that we audit include overcharges.
So in addition to interchange-level optimizations, you also need to negotiate the best possible deal with your current service provider.
What’s actually negotiable:
- Processor markups
- Discount rates
- Per transaction fees
- PCI compliance program fees
- Statement fees and batch fees
- Equipment rentals
Every fee coming directly from your processor can be negotiated.
You just can’t negotiate the interchange rates and assessment fees that are set by the card networks.
Switching Providers is Rarely the Answer
Every restaurant wants lower processing fees but most owners don’t want to deal with it because they think they need to change providers.
Your restaurant operations are likely fully integrated with your existing processor, and switching would be a huge hassle (not to mention expensive). And any potential savings here would be offset by the switching costs.
So you’re partially right if you have this mindset — switching isn’t the answer.
But you’re wrong if you think that switching is the only way to save money. The best way to save money on restaurant credit card processing is by negotiating better terms with your current provider.
You have tons of leverage here because they don’t want to lose your business. There’s a good chance your processor already has a ton of margin baked into the rate that they’re giving you.
Pick up the phone and demand better terms. Get all of the junk fees eliminated from your account, and ask them to lower your discount rate to something more competitive.
Leveraging a quote from another provider can help (even if you have no intention of switching).
Avoid Surcharging Your Customers
Surcharging is also a bad idea for restaurants.
Aside from the legal complexities and compliance requirements, the real problem here is that you’re not actually getting lower processing rates. You’re just passing those costs to your customers in a way that’s probably going to cost you more business in the long run.
For restaurants, surcharge fees give customers an excuse to tip your servers less — leading to unhappy staff and a snowball effect that can quickly spiral out of control.
Your surcharge fee also gives your processor impunity to increase your rates seemingly undetected (since you’re not actually paying them yourself). So if the laws change or for some reason you’re no longer able to surcharge customers, you’ll be stuck with way higher rates than you started with.
Final Thoughts
Credit card processing fees are actually one of the few restaurant costs that you can directly control and significantly reduce. Fractions of a percentage here can result in tens of thousands of dollars in savings.
Between interchange optimizations, transparent pricing models, eliminating junk fees, and negotiating fair processor markups, some of you could save upwards of a full percentage point on your current processing costs.
What could your restaurant do with an extra $10,000 or $20,000 annually? For high-volume restaurants, those savings can eclipse $50,000 every year,
It starts with a full statement audit to truly understand where your costs are going and where the savings opportunities are. From there, you can contact your processor directly to negotiate better terms.
If you need help with lowering your restaurant’s credit card processing costs, contact our team here at MCC. We’ll give you a free statement audit and help you save thousands without switching providers.