If you’re a restaurant owner, no one needs to tell you how competitive the food industry can be. The average restaurant profit margin sits somewhere between 3 to 5 percent. (Coincidentally, that’s also how high most restaurant credit card processing rates are…)
This means that if your restaurant pulls in $1 million per year, you’d be lucky to pocket $30,000 to $50,000 of that yourself. Perhaps that’s why over 60% of all restaurants close within their first three years of business.
Despite this staggeringly sobering statistic, there are a lot of restaurants out there. In 2018, there were over 660,000 restaurants in the United States. And those were only the ones they could count. Little hole-in-the-walls, restaurants-within-stores, and little known mom-and-pop shops included, there are probably over a million restaurants in the United States and counting.
What do all of these restaurants have in common? Most of their customers pay with credit cards ($1 pizza shops not included). And in an industry that’s already struggling for profits, credit card processing fees really add up. That’s why understanding restaurant credit card processing is so important.
How many people pay with credit cards in the U.S.?
Back in 2013, ValuePenguin conducted a worldwide survey and found that in the U.S. alone:
- 9 million merchants accepted Visa
- 9 million merchants accepted Mastercard
- 9 million merchants accepted Discover
- 6 million merchants accepted American Express*
*Keep in mind that there is a crossover between merchants who accept more than one card.
There are only 28.8 million small businesses in the U.S. according to the U.S. Small Business Administration, which means that more than 30% of all business owners in the U.S. accept the four major cards as payment.
With numbers like these, even with the rise of alternatives like PayPal and Square, credit card payments will continue to be the dominant form of non-cash payment around the country.
Now, onto the million-dollar question—how many of your restaurant patrons are paying with credit cards? And what do your restaurant credit card processing fees look like?
What percentage of restaurant sales are through cards?
In 2017, payment processor TSYS conducted a survey of over 1,000 consumers to see how they paid depending on where they were spending the money. The overall findings were that:
- 44% of all payments were made with debit cards
- 33% of all payments were made with credit cards
- 12% of all payments were made with cash
Debit cards are the preferred method of payment for smaller, day-to-day purchases, while credit cards are the preferred payment method for larger, one-off purchases.
So, when you consider that debit cards are used for smaller purchases and credit cards are used for larger purchases, it turns out that credit card and debit card purchases are fairly equivalent.
Dine-in restaurants accept 75% of all payments through credit cards and debit cards.
When it comes to business types, restaurants (dine-in and fast food) see a higher percentage of both debit and credit card payments than most other business types, excluding supermarkets.
Notably, dine-in restaurants (with higher bills) have a fairly low percentage of cash-paying customers (just 19%), while fast-food restaurants had a very high percentage of cash-paying customers (up to 39%).
Now that you know how many of your patrons are paying you with credit cards and debit cards, it’s time to figure out how much you’re losing in profits to processing fees.
What are restaurant credit card processing fees?
If you’re accepting one of the four major credit card networks, then you’re paying somewhere between 1.5–2.9% in credit card processing fees.
Your hard-earned money changes a lot of hands before it arrives back in your wallet.
As you can see, there are several parties involved in a single credit card swipe:
- Credit card associations: such as Visa, Discover, Mastercard, and American Express
- Credit card issuing banks: such as Chase, Citi, Capital One, and Wells Fargo
- Credit card payment processors: also called acquiring banks or acquirers, they are basically middlemen
- Payment gateways: if you accept PayPal or are using Square, for instance.
While 2.9% may not seem high, just imagine how annoyed you’d be if you found out your tax rate just increased by 2.9%. When it comes down to it, the net result really isn’t all that much different (but more on this later).
What about debit card processing fees?
Let’s not forget about debit cards, which make up 39% of all payments at dine-in restaurants and 36% of all payments at fast food restaurants. Debit cards are the most popular payment method for restaurant customers as a whole, so it pays to understand how much you’re losing in profit each time a debit card gets swiped at your establishment.
Debit card processing fees are charged by the same major credit card networks, and work out to 0.05% plus 21 cents and a 1-cent fraud-prevention adjustment per transaction, if eligible. Thankfully, this is a nearly negligible percentage fee compared to credit card processing rates.
In other words, if the same number of patrons at your restaurant spent an equal amount of money using credit cards and debit cards over the course of an entire year, your restaurant credit card processing fees would be 58x higher than your debit card processing fees.
Whether you accept payment via credit card or debit card, card processing fees are largely unavoidable or non-negotiable because of interchange fees. Which is why a lot of restaurants, especially in urban areas, only accept cash payments—it’s the only easy way around paying the processing fee.
There’s an even better way to accept both credit card payments and cash payments at your restaurant, but we’ll get to this in a little bit…
How much you pay in card processing fees in one year
According to the National Restaurant Association, the U.S. restaurant industry pulled in $799 billion in revenue in 2018. If there were 660,000 restaurants in the United States om 2018, as previously established, then that means that the average restaurant in the United States $1.21 million*.
*This is the mean, not the median (which is probably considerably lower).
Using this revenue figure as a sample, and the credit card and debit card processing percentages reported by TSYS as a benchmark, we can do some simple math to arrive at the average restaurant credit card processing fees and the average restaurant debit card processing fees in 2018.
Let’s review the data from the TSYS study. As many as 36% of dine-in restaurant customers pay with a credit card, while 39% pay with debit cards. Assuming you own a dine-in restaurant that makes $1.21 million per year, your revenue breaks down in the following manner:
- Total restaurant revenue: $1,210,000.00
- Payments accepted via credit card: $435,600.00
- Credit card processing fees (2.9%): $12,326.40
No matter who you are, $12,000 is a hefty chunk of change. What about your debit card processing fees?
- Total restaurant revenue: $1,210,000.00
- Payments accepted via debit card: $471,900.00
- Debit card processing fees (0.05%): $235.95
Fortunately, because of the 58x difference explained earlier, your debit card processing fees are basically negligible.
But let’s go back to that credit card processing bill of over $12,000.00. Keep in mind that’s for just one year in business. Assuming you stay in business for another 30 years, here’s how much you might end up paying in credit card processing fees even if you never increase your revenue:
|# of years in business:||30 years|
|30-year total revenue:||$36,300,000.00|
|% of credit card payments:||0.36 (33%)|
|In-store credit card processing fee (% only):||0.029 (2.9%)|
|% of debit card payments:||0.44 (39%)|
|In-store debit card processing fee (% only):||0.005 (0.05%)|
|Processing fees over 30 years:||$386,050.50|
As you can see, those card processing fees really add up. In 2017, the median home price in the U.S. was $199,200, which means your restaurant credit card processing fees and debit card processing fees over 30 years would add up to basically two entire one-family houses.
And in an industry where the average profit margins are 3–5%? That’s crazy. That basically means that your 2.9% credit card processing fee could be taking out 100% of your profits on the lower end, and over half of your profits on the higher end of that range.
What a cash discount program can do for you
It’s safe to say that restaurant credit card processing isn’t going anywhere anytime soon. Not only does accepting credit cards get you more revenue, but it also makes your customers’ lives easier and their dining experiences more convenient and enjoyable, which you can’t put a price on.
But those credit card processing fees are just too damn high for restaurants to sustain.
Fortunately, for the vast majority of brick-and-mortar small businesses that accept credit card and debit card payments via terminal credit card processing, there is a better way. With a cash discount program, you can bypass nearly all of your card processing fees while accepting cash, debit, and credit.
If you’d like to learn more about a cash discount program and how we can help you set one up in less than a week, just click the button below or call +1 (929) 293-1800: