Guide to Credit Card Processing for Restaurants

Credit cards have been around for decades, and while exciting new payment methods have developed, they still play a significant role in the day-to-day lives of Americans. Most new payment methods rely on credit cards; these technologies include mobile wallets, in-store accounts, and digital banking. With the ease of use and prevalence of credit cards, cash is becoming even less popular.  


Why Encourage Card Transactions at Your Restaurant?   

According to the most recent payments study by the Federal Reserve (published in 2019), total credit card payments grew by about 8.9 percent per year from 2015 to 2018. By 2018, total card payments grew to 131.2 billion, valuing about $7.08 trillion.  

The rise in digital payments is due to customers’ demands for payment methods that are intuitive, low cost, efficient, and internationally compatible. These benefits apply to both the customer and the restaurant; for example, card-only self-serve kiosks or tap-and-go near-field communication (NFC) payment terminals require minimum effort from both parties. When more transactions can be processed at a lower cost, everyone wins. 


Make Credit Card Payments More Efficient

On the surface, credit cards look simple. It’s a matter of the restaurant inputting a price, the customer swipes, and the bank transfers the funds from the customer to the restaurant. If you take a more in-depth look, you’ll realize that it’s a bit more complex. 

Card transactions require multiple steps, most of them invisible to the customer and restaurant. The steps involved can be grouped into the three following stages:  


1. Authorization

  • The customer swipes, dips, or taps their card at the terminal, which has been provided by the processor. The “processor” is the provider of the devices and technology necessary to be able to accept credit. They can be a third party, an independent organization, or an extension of the restaurant’s acquiring bank.
  • The terminal immediately and electronically sends the customer’s card details to the acquiring bank (also known as a merchant bank, a bank or financial institution that processes credit card transactions on behalf of the restaurant).
  • The acquiring bank receives the customer’s card details from the terminal and sends these details to the corresponding card network (the organizations that own and operate the networks that process credit card transactions such as Visa, Mastercard, Discover, and American Express).
  • The card network inspects the card details and requests authorization (card number, expiration date, security code, cardholder billing address, and transaction amount) from the issuing bank (the credit card issuer, the financial institution that gave the credit card used in the transaction to the customer. They are the entities that ultimately approves or declines a purchase.) 


2. Authentication

  • After receiving the authorization request, the issuing bank validates the information and checks to see if the customer has enough funds for their transaction. The issuing bank either approves or declines the transaction and sends the result of the authorization request back to the restaurant through all of the same channels.
  • After receiving the result of the authorization request, the restaurant creates a receipt and provides it to the customer, signifying the end of the transaction process for the customer. Daily, the restaurant collects all approved authorizations for that day into a “batch” that’s sent to the acquiring bank. 


3. Settlement 

  • Once the acquiring bank receives the daily batch of approved authorizations from the restaurant, the different entities involved in the transaction process take their respective fees for providing their services. Finally, the acquiring bank deposits the restaurant’s hard-earned money (minus any processing or service fees) into the restaurant’s bank account. 


What to Look for in a Payment Processing System  

When sifting through the myriad of payment processing systems available to you, try to be methodical. Start with a basic list of features that would benefit your restaurant, such as: 

  • Security– Your restaurant’s and customers’ financial data will be processed on this system. Ensure that the system is PCI compliant and has security features like tokenization and point to point encryption. 
  • Integration– Easy integration with your POS or purchase a POS system with payment 
  • Ease of use– Setting up and maintaining the payment processing system should not be hard or disruptive to your business. Training, enrollment applications, hardware, and software upgrades are all factors that could end up being costly if the provider does not make them painless.  
  • Fast EMV processing 
  • Supports new fintech like Apple Pay, Google Pay, Samsung Pay, and PayPal with NFC
  • A real-time cloud-based transaction portal that can provide records and data analysis 
  • Store and forward for automatic approval of transactions while offline
  • Support services are crucial should anything go wrong. Email options are sometimes secure, but there are days when you will need to talk to a live person at odd hours.  


Don’t Forget Processing Fees  

In business, you always have to watch your costs. When it comes to choosing a payment processing system, always look at the costs. There are an abundance of choices when it comes to payment processing systems, so the price is one factor you can use to differentiate between them using factors like:

  • The fees charged for terminals and other leased equipment 
  • Early termination penalties and charges
  • Fees for exceeding monthly quotas
  • Fees for missing minimum monthly quotas  

These charges are guaranteed to appear, so it’s best to get a handle on them early. Although convention may make you lean towards the cheapest system, keep in mind the importance of paying a premium for essential things like data security and fraud protection. 

There is tiered pricing for different volumes of transactions. Try to get a package that will suit your current needs and one that will accommodate your growth plans. 


Give Credit, it’s Due  

To increase efficiency, lower your costs, and explore new technological opportunities, your restaurant will need to process credit card payments. It will benefit both you and your customers to have an expanded, more straightforward, more efficient method of payment.