A Simple Guide to Credit Card Transactions and Payment Processing

You worry so much about constructing your menus, sourcing great ingredients, coming up with the perfect décor, and marketing your restaurant services. Have you ever taken the time to find out how a credit card transaction actually works?

While the topic might seem boring to most, if you are a restaurant owner who accepts payments through credit and debit cards, you must understand how these transactions work. Read on to know more.

Why is this important? 

Bulk of purchases, especially at restaurants, is made using credit and debit cards. Customers can eat what they want without worrying about not having enough cash in their wallets. Also, the transactions are faster and much more convenient.

Of course, it can be a whole lot easier for you, too, if your customers use their credit cards to pay for their purchases at your restaurant. However, even if there is a small change in the laws on credit cards, it might have a significant impact on your bottom line.

How credit cards work at a restaurant?

Here are the steps involved in processing credit card transactions at your POS:

  1. Swiping – The first step in a credit card transaction starts with swiping the credit card at your Point of Sale.
  2. Data transfer – Once you do that, the Point of Sale will send the credit card data to the payment gateway, where the data is encrypted for maximum security.
  3. Validation – From the gateway, the data is sent to the credit card processing company, which communicates with the respective bank to ensure the validity of the credit card.
  4. Confirmation – Once validated, the confirmation will be sent back to the point of sale through the payment gateway. That’s when you get the message the payment has been approved.
  5. Receipt generation – After the payment is approved, the terminal will generate a receipt, adding the transaction details to the respective batch.
  6. Batching out – At the end of the night, all payments of that particular batch will be sent to the gateway for further encryption.
  7. Money transfer – The gateway will send the encrypted data of the batch to the credit card processing company, which will transfer the money to your bank account after executing all the transactions.

The credit card processing company will charge you some fees for processing your credit card transactions. The fee will usually be a fixed percentage of the total amount that is automatically transferred to the company’s account.

In the case of Visa, MasterCard, and Discover transactions, the fee is usually around two percent. Amex will cost you more depending on the pricing model and payment processor you are using. The price for online transactions will be between 2.30 percent and 2.50 percent. Put together, and this might come up to a sizable amount that you should be prepared to lose.

Thankfully this loss can be compensated through markup. You can calculate your effective markup rate by dividing your markup fees by your total monthly sales and then multiplying the quotient by 100.

Some payment trends in 2020 

The advancements in technology have brought about a considerable change in the expectations of customers from the restaurant industry. As a restaurant owner, you will have to stay ahead of these trends to keep your brand relevant.

Here are a few restaurant payment trends of 2020 that you need to be aware of:

  • Smaller purchases go cashless – Most restaurants get hesitant to go cashless when it comes to processing smaller purchases. But this could be a hindrance to customer satisfaction considering the consumers’ preference for plastic money. Be ready to entertain cashless transactions irrespective of the size of the bills.
  • Integrated payment processors on the rise – The need to process too many credit cards with varying processing fees have paved the way for integrated payment processors. With this installed, you can bundle up multiple services with a single fee.
  • Focus on Alternate Payment Technologies – Consumers are fined for using alternate payment technologies such as PayPal and various payment apps as long as they are convenient to use and get them some rewards.

It is time to spend some time looking through such trends and learn more about payment service options. Not only will these enhance your customer experiences, but they will also help you stay ahead of the game.

Know to Grow

More and more customers have started going cashless with every purchase they make. As a restaurant, it is your duty to understand their expectations and cater to them in the best way possible. Do your research to get maximum information about how things work and then make your decisions.

Additional Resources:

https://www.forbes.com/sites/forbesfinancecouncil/2019/06/10/the-three-most-important-things-to-consider-when-choosing-a-credit-card-processor/#1c6f3c17ba7e

https://www.huffpost.com/entry/does-your-business-accept-credit-cards-dont-make_b_5a26e007e4b0e383e63c3d1c