Credit card processing is one of the most significant developments to hit the restaurant industry in recent memory. This convenient technology lets business owners accept payments remotely, without the need for cash or checks. It makes buying and selling easier for merchants and customers alike, promoting smoother business processes.

Although most companies have managed credit card transactions the same way for years, new restaurant technology trends are revolutionizing the process. If your restaurant accepts cards as payment, it’s helpful to understand the underlying systems that make both the new and old methods possible.

Let’s dig in.

What is credit card processing?

Credit card processing is the method businesses use to accept payment by card. It includes a complex sequence of actions that are initiated when a customer swipes, taps or dips their card at your POS terminal. When the process is complete, the payment appears in your bank account.

For decades, customers paid for food by offering cash or writing a check. That all changed in 1950 when the first true credit card — the Diners Club card — allowed customers to charge their meals at a select number of restaurants in New York. Recognizing the benefits of this handy payment processing method, more businesses got on board. The idea spread to other cities, and within a few years, numerous banks began to offer credit cards.

Today, restaurants use this technology to provide a faster and more convenient checkout process. Unlike other payment methods, which require you to accept cash or checks and manually deposit them into your bank account, credit card processing allows you to transfer money remotely from a customer’s bank to yours.

The ins and outs of credit card processing

Restaurant credit card processing seems simple on the surface — a customer hands you a card, and the terminal either accepts or denies the payment. Behind the scenes, it’s considerably more complicated.

When the customer inserts their card, the card reader sends an authorization request to the device’s payment processor. The processor then relays the request to the network for the appropriate card association; Visa or MasterCard are two common national processing options. Using this network, your bank checks to make sure the customer’s account has enough money to cover the bill. The system returns a code that tells your POS to approve or deny the transaction.

These initial steps of credit card processing happen in seconds. However, when a transaction is approved, it can take a few days for the customer’s bank to send the funds to your bank.

Credit card technology is evolving, and your restaurant may have one of a few primary processing types. The oldest is the magnetic stripe, which stores customer information and transmits it to your POS via swipe. Most banks, however, have now adopted cards that are embedded with a tiny chip. They generate a different code for every purchase, creating an extra layer of security and making it harder to steal account information.

Today, many customers prefer a third option: contactless cards. These cards have chips that are equipped with tiny radio antennas. To transmit their account information, the customer taps the card on the reader — it sends the information over radio waves using radio frequency identification (RFID). Systems like Apple Pay use similar near-field communication (NFC) technology, enabling customers to pay with cards stored on their smartphones.

Keeping up with these latest trends in restaurant technology can help make your menu more accessible to customers. In fact, 80% of consumers have used contactless payments. If you fall into the 67% of U.S. retailers that don’t offer this payment method, you could be missing out.

What to look for in a credit card processor

A high-performing credit card processor enables you to complete transactions quickly and create a better customer experience. When you’re choosing a credit card processor, consider these factors:

• Payment processing types. Select a processor that accepts a wide variety of in-person and online transactions. At a minimum, this includes swipe, chip, and contactless cards. RFID or NFC payments are particularly important; more than 50% of Americans use contactless payments. Most models also enable you to manually type in the customer’s credit card number for phone transactions or as a backup if other methods fail. If your restaurant participates in off-site events, look for a processor that allows mobile payment processing.
• Fees. Credit card processors charge a variety of fees for their services. Verify the percentages and calculate how they’ll affect your profit margins.
• Customer service options. Make sure an agent is available around the clock to help you if a problem arises. Read customer reviews; if you see a pattern of complaints about service, proceed with extreme caution. Regular outages or payment problems can damage customer relationships.
• Physical hardware. Investigate the type of hardware the processor offers and make sure it’s appropriate for your restaurant. It’s also a good idea to check whether the card reader is separate or built into a proprietary POS.
• Compatibility. Verify that the system is compatible with your existing POS, CRM, and bookkeeping software.
• Terms. Check the terms of the agreement to find out how long it takes before funds are deposited into your account, verify the length of the contract, and learn about the fees for early termination.

Common credit card processing fees to be aware of

Accepting credit card payments involves multiple parties; each one typically charges a small processing fee for every transaction you make. They usually include:

• Merchant services fee. This is what your payment processor charges for its processing services.
• Interchange fee. This payment goes to the customer’s credit card issuer.
• Assessment fee. This fee is charged every month as a percentage of your total sales. It goes to the credit card associations for the different types of cards you accept.

Actual fee amounts can vary considerably but usually range between 1.5% and 3.5% of each transaction. Each payment processor has its own pricing structure, so it’s important to compare quotes. The most expensive options tend to be those that charge a percentage of the sale plus an additional fee. Though the flat fee is usually small, it can add up significantly over time. You can avoid high fees by choosing a provider that eliminates charges for renting equipment and sending statements.

Keep in mind that fees can vary between transaction types. To find the best deal, compare your sales data to the processor’s costs for in-person transactions, online sales, contactless app payments, and non-preferred cards. 

Benefits of using credit card processing at your restaurant

Despite credit card processing fees, it’s almost always beneficial to your business to accept debit card and credit card payments. Doing so helps you deliver a more convenient experience — customers can enjoy your food without a trip to the ATM. And because they don’t have to worry about having enough cash on hand, diners are free to spend more.

Modern consumers are accustomed to paying by card; in 2022, 41% of Americans made all their regular purchases without cash. Accepting cards lets you bring in more revenue from these cash-free customers.

Credit card processing also benefits your employees. The digital system reduces the risk of human error, making it easier to balance the till. Because customers don’t have to wait for change, transactions move more efficiently.

While credit cards have both benefits and drawbacks, you can minimize risk with these best practices:

• Ask for customer IDs.
• Use the chip instead of the magnetic stripe when possible.
• Offer contactless payments.
• Give a receipt for every transaction.
• Partner with a secure, reputable processor.

For most restaurants, the benefits of credit card processing far outweigh the fees. By choosing a payment processor carefully, you can minimize costs and deliver a fast, seamless checkout experience.Looking for more ways to integrate technology into your restaurant? Partner with Grubhub today to explore POS integrations, online ordering and delivery.