Credit Card Processing for Restaurants: What You Need to Know

Accepting credit and debit cards at your restaurant is an absolute necessity to attract customers. A study by PYMNTS found that 70% of restaurant customers used a card to pay for their meals in 2023, so restaurants that don’t accept cards will be less appealing to the vast majority of consumers trying to decide where to eat.

However, figuring out how to start accepting credit cards can be difficult. There’s a wide range of cheap credit card processing companies available, but they offer vastly different pricing options.

In this guide, we’ll explain everything you need to know about how credit card processing for restaurants works and how to choose a payment processor. We’ll also highlight three restaurant payment processors you can start using today.

Key Takeaways

• Restaurant credit card processing is a multi-step process involving the initial card payment, approval by your customer’s card-issuing bank, and settlement between your customer’s bank and your credit card processor.
• There are three common pricing models for credit card processing: flat-rate pricing, tiered pricing, and interchange-plus pricing. Most processors offer pricing by quote only and charge additional service fees.
• When choosing a credit card processor, consider the processor’s pricing structure, whether a contract is required, how quickly they pay you for sales, what credit card machines they offer, and how responsive their customer service is.
• Three of the top credit card processors for restaurants today are Toast, Square, and Helcim.

How Does Credit Card Processing Work for Restaurants?

Credit card processing is a multi-step process that involves numerous entities. We’ll break down credit card processing into three steps.

Step 1: Card payment

Credit card processing begins when a customer swipes, dips, or taps their card using your card processing machine. The customer’s card information is sent to your payment processor, which then forwards it to the card network (for example, Visa, Mastercard, or American Express) behind the customer’s card.

Step 2: Approval

The card network sends your customer’s card information to the bank that issued their card (for example, Chase, Capital One, or Citi). The bank checks the transaction for signs of fraud and ensures the customer won’t exceed their credit limit or account balance (for debit card transactions).

If everything looks okay, the bank approves the transaction. The card networks forward that approval to your payment processor, which then signals your card processing machine to complete the transaction and issue a receipt.

The whole approval process takes only a few seconds.

Step 3: Settlement

Once a transaction is complete, your payment processor will put money for the sale into your business bank account. How long this takes varies by processor, but you can typically expect to get paid within two business days.

The money your credit card processor sends you is usually an advance, and the customer’s card-issuing bank must then pay back your processor. The issuing bank will typically transfer money to your payment processor within three to five days to settle the transaction.

Pricing Structures for Restaurant Payment Processing

Payment processors for restaurants offer several different pricing structures. It’s important to understand how these work so you can choose the one that will minimize processing costs for your business.

Let’s take a closer look at the three most common pricing models credit card processors use.

Flat-rate pricing

Flat-rate pricing is a relatively simple pricing structure used by restaurant payment processors like Square and Stripe. You pay a fixed rate for every credit and debit card transaction—for example, 2.9% plus $0.30 per transaction.

The benefit of flat-rate pricing is that it’s very easy to predict your transaction fees. Some processors have different rates for in-person and online credit card transactions, but that’s about as complex as flat-rate pricing gets.

The downside is that flat-rate pricing is often more expensive than other pricing models. You pay the same price for every transaction, so your payment processor pockets any savings on low-cost transactions instead of passing those savings on to you.

Tiered pricing

In a tiered pricing model, your payment processor categorizes your transactions into several different tiers based on factors like the transaction size, what type of card your customer used, and whether the card was swiped, dipped, tapped, or keyed in manually. Each tier has its own rate.

Tiered pricing can potentially save you money compared to flat-rate pricing, but it’s hard to be sure. Payment processors aren’t always transparent about why certain transactions fall into certain tiers, so you could end up with a lot of transactions in higher-rate tiers. If you do consider tiered pricing, remember that only a small fraction of your transactions are likely to qualify for the lowest advertised rate.

Interchange-plus pricing

With interchange-plus pricing, you pay the wholesale costs for a transaction plus a processing fee. Wholesale costs include the fees charged by your customer’s card-issuing bank and the credit card networks, which your payment processor has no control over. The processing fee is a markup that goes directly to your payment processor.

Interchange-plus pricing is typically the cheapest pricing model. If a transaction costs less—for example, because the card-issuing bank charges a lower fee—then the savings are passed onto you instead of going to your payment processor.

The drawback to this model is that you’ll pay a different fee for every transaction, so it can be hard to predict your costs.

Additional fees

In addition to credit card processing fees, many payment processors charge flat service fees that can add up. Some common fees include:

• One-time account setup fees
• Monthly account fees
• Payment Card Industry (PCI) compliance fees
• Card processing machine rental fees
• Chargeback fees

Many processors also set minimum monthly processing fees. If your total transaction fees are less than this minimum, your bill will be rounded up to the minimum. For example, if you have a minimum monthly processing fee of $100 but your restaurant only generates $90 in transaction fees in a month, your processor will charge you $10 to meet the minimum fee.

What Determines Your Cost for Payment Processing?

Most credit card processors for restaurants offer pricing by quote only. Regardless of which pricing model you choose, payment processors offer different rates for different types of businesses. Here are the main factors that impact your costs:

Business size and revenue

How big your business is and how much revenue you generate from card transactions are major factors in determining your credit card processing fees. For example, large restaurants or restaurants with multiple locations typically have more revenue and may be able to negotiate lower per-transaction processing rates.

Card type

For tiered and interchange-plus pricing, different types of credit and debit cards have different costs. In tiered pricing schemes, business credit cards and American Express cards typically fall into higher-rate tiers. In interchange-plus schemes, different card-issuing banks charge different fees, which changes the wholesale price of your transaction.

Transaction type

Most credit card processors charge more for card-not-present transactions (like online payments) compared to transactions where the card is physically swiped, dipped, or tapped. This is because card-not-present transactions have higher rates of fraud.

How To Choose a Payment Processor for Your Restaurant

Here are the most important factors to consider when choosing the best payment processor for your restaurant.

Pricing model and fees

Carefully consider which pricing model best suits your business and will offer the lowest costs. In general, interchange-plus pricing is the cheapest but also the most complex. Fixed-rate pricing is the easiest to understand but may result in higher costs.

After choosing a pricing structure, get quotes from multiple processors so you can compare pricing. Remember to include any additional service fees that processors charge when comparing your options.

Long-term contracts

Some credit card processors require you to sign a long-term contract that can be very expensive to break. You may be able to lower your transaction costs by signing a contract, but it’s important to be sure you can meet the terms of the contract before going this route.

Payment speed

Many credit card processors pay your business for card sales the next day, but some offer same-day payment options that can be helpful for managing your cash flow. Watch out for processors that take more than two days to deliver payment.

Card processing machines

Most payment processors offer credit card processing machines and point-of-sale systems for sale or lease. Check how much these machines will cost and whether they meet the needs of your business. For example, if you need to take payments on the go—like from a food truck or at a food festival—you may prefer a card machine that integrates with your smartphone.

If you already have your own card processing machines, check which providers let you use them.

Customer support

If something goes wrong with your ability to take payments, you need help fixing the problem right away. Most restaurants operate during dining hours, not normal business hours, and many are open late. So, it’s important to choose a payment processor that offers 24/7 customer support, ideally by phone or live chat.

It’s also a good idea to check out customer reviews to see what other restaurateurs’ experiences with different processors have been like.

3 Restaurant Payment Processors To Consider

Now that you know what goes into payment processing and how to choose a processor, let’s take a closer look at three providers that can help you accept card payments today.

Toast

Toast is a comprehensive services provider for restaurants, offering everything from payment processing and a restaurant point-of-sale system to payroll, marketing, and supply chain management tools. It’s a good option if you’re just starting a restaurant and need a full suite of software to hit the ground running.

As a credit card processor, Toast offers transparent interchange-plus pricing with no hidden fees. Funds are normally paid out the next day, but you can get paid within 30 minutes for a small fee. Toast also offers a variety of credit card machines, including handheld credit card readers and a self-ordering kiosk for customers.

Square

Square is a low-cost payment services provider that charges a flat rate of 2.6% + $0.10 for in-person credit card payments and 2.9% + $0.30 for online card payments. It’s one of the most affordable options if you prefer flat-rate pricing and there are no long-term contracts.

Square offers multiple card readers, including some that integrate with your smartphone so you can accept payments when catering for events or selling food at festivals. Square also offers a restaurant point-of-sale system and handheld card readers your staff can take to tables. You get 24/7 customer support and payments within two business days.

Helcim

Helcim is an interchange-plus payment processor with markups starting at only 0.15% + $0.06 per transaction. The company is fully transparent about your transaction fees and doesn’t charge any additional fees, such as setup or PCI compliance fees.

Helcim has a limited selection of credit card readers, but they’re very inexpensive. You also get a point-of-sale system and integrations for popular accounting software like Quickbooks and Xero. Helcim pays out your sales within two business days.