Two smiling people handing a credit card to a restaurant employee using a POS system.

The ultimate guide to restaurant credit card processing

Friday, April 12, 2024

Whether you operate a small business with one location or a large chain, smart restaurant payment processing solutions are more important than ever when it comes to maintaining and growing your customer base. If you’re wondering how payments make a difference in terms of restaurant operations and revenue, you’re in the right place. In this blog, we’ll help you understand the ins and outs of credit card processing and how to make them work in your favor.

Understand the basics of restaurant payments

Let's start by covering the basics. A transaction only takes about a second to process, but a lot happens behind the scenes within that short time. Understanding the payment cycle means knowing the players in the transaction and how they all work together:

Merchant: the business accepting credit card transactions from customers

Merchant bank: the financial institution where the merchant account is held to receive the money from credit and debit card payments.

Card networks/associations: set interchange rates (we'll talk more about this later) and are a go-between for credit card processing companies and issuing banks. Some examples of card network types include Visa, Mastercard, American Express and Discover.

Issuing bank: the financial institution (like a bank account, for example) that issues the credit or debit card to the cardholder.

Payment processor/acquirer: the organization that connects the merchant, merchant bank and card networks to provide processing services.

Credit card processing in action

To accept credit card payments in person, you'll need a point-of-sale (POS) system to pair with a payment processor. With a POS, you can add transaction details quickly and accurately. For tableside orders, a mobile POS system can provide additional speed and efficiency for staff by allowing them to take payments of all card types, anywhere. A secure payment gateway will accurately complete transactions for online and app-based orders. With the right tools, you can begin accepting payments securely and faster than ever.

Here's what a typical payment process looks like.

Step 1: Authorization

When a restaurant accepts a customer's debit or credit card for payment (in-person, online or in-app), they must securely transmit the card information to their payment processor seeking payment authorization. The cardholder's issuing bank checks to see if funds are available and determines whether to approve or decline the request. The payment processor replies to the restaurant with a message indicating that the payment was accepted or declined.

Step 2: Batching

At the end of the day, the restaurant sends all accepted payments to the payment processor. Then, credit is issued to the restaurant, and the batch details are sent to the card network (Visa, Mastercard, American Express, etc).

Step 3: Settlement

At this point, the issuing bank transfers the funds (minus transaction fees) to the merchant bank and posts the payment to the cardholder's statement. The restaurant receives a monthly statement from their payment processor with a list of detailed transactions and monthly fees.

A bartender taking a credit card payment from a couple standing in front of a POS system.

Go beyond the basics to take advantage of payment trends

Mobile payments, contactless payments and EMV chip cards have changed how customers pay. Now more than ever, today’s customers are tech-savvy and want fast, seamless and secure transactions. More and more customers expect to walk into a restaurant and pay with just their phone. In fact, nearly 50% of consumers will only go to businesses that have contactless payments! Although this might be intimidating, it can also be an excellent opportunity to impress with the right tech. Multiple user-friendly payment options will speed up the dining experience — keeping your customers happy and your restaurant running smoothly.

Popular restaurant payment methods:

  • Contactless payments: Customers can make payments with a simple tap or wave over the credit card reader.

  • EMV chip cards: Equipped with embedded microchips, these enhance security by generating unique transaction codes for each use, reducing the risk of counterfeit, in-person card fraud.

  • Mobile wallets: Payment apps like Apple Pay or Google Pay add another layer of flexibility and security.

These popular payment types not only improve efficiency but also help prevent fraud and strengthen data security. Many case studies showcase growth in customer trust and fraud reduction, highlighting the impact of embracing new credit card processing tech.

A man in a restaurant smiling and typing on his laptop.

Stay informed about payment processing costs

According to a survey by Restaurant Business, over the past couple of years, costs have become more difficult for restaurateurs to deal with due to inflation and supply chain challenges. Payment processing comes with additional costs for restaurants. But the right providers also offer perks above the basic advantages of credit card acceptance. With so many options out there, it’s a good idea to familiarize yourself with the ins and outs of credit card processing fees. Keep reading to learn more about what to look out for so you’ll have peace of mind when you choose a payment processor.

There are different types of credit card fees, including:

  • Interchange fees: Set by card networks and paid to card-issuing banks.

  • Assessment fees: Charged by card networks for system maintenance.

  • Payment processing fees: These can be for accessing the card network, equipment, PCI DSS compliance protection and other services.

Reviewing your monthly statements will show you where these credit card processing fees end up. Understanding how they work and where they hide allows you to make informed decisions, manage costs and take more control over your finances.

A mobile POS taking a credit card payment.

How to find the right payment processor for your restaurant

Selecting the right payment processor or merchant services provider is a big decision that can impact your bottom line, employee satisfaction, customer experience and your own peace of mind. Payment processors that offer fee transparency, excellent customer support, seamless integration capabilities and other add-ons will stand out.

Consider all your options, and make sure to carefully read contract terms, spot hidden fees and understand elements like early termination charges and equipment lease agreements. Choosing a restaurant payment processor aligned with your business needs can ensure smooth transactions, more money in your pocket and a better dining experience for your customers.

Need help comparing some of the big names in payment processing? Check out this resource for a side-by-side comparison. Here are some additional factors to consider when choosing the best payment processor for your restaurant.

Integrate with restaurant POS systems

Integrating your restaurant's point of sale (POS) system with payment processing, business software, inventory management, payroll software and delivery services will boost your business in more ways than one. The POS system acts as a central hub where orders (including online ordering), payments and back-office functions meet — consolidating restaurant operations. The benefits? A crystal-clear picture of sales volume, improved efficiency through automation, reduced errors, time back in your day and more.

Ultimately, a sound POS system marries the front of the house with the back. This integration enhances productivity with speedy processing rates and provides a cohesive and enjoyable experience for business owners, staff and customers alike.

Enhance the customer experience with a loyalty program

Payment processing can also be a strategic tool to boost customer engagement. With loyalty and rewards programs, you'll keep business coming back and cultivate a loyal customer base. This can also provide a look into customer preferences and behaviors. Plus, data collected from credit card transactions can help improve customer service and marketing.

Understanding customer spending patterns and preferences helps you create unique promo offers, recommend menu items and make better focused marketing campaigns. The result is a more personalized and enjoyable dining experience that resonates with individual customer preferences. Efficient payment processing becomes not just a transactional tool, but a lucky clover for restaurants aiming to improve customer satisfaction and foster long-lasting relationships.

Credit card processing will sometimes come with challenges. The key to staying on top of them is being proactive. Some ways to do this are reading up on how credit card processing works (you're already ahead of the game — go you!), assessing the needs of your unique business, training staff on accurate data entry to square away any potential risk and get a POS system with integrated payment terminals and features.

Avoid chargebacks and credit card fraud

Chargebacks and disputes are inevitable hurdles in credit card processing. But with quick response time and the correct documents, you can navigate these situations stress-free. Provide clear and detailed records of transactions, deliveries and customer transactions, and you'll be well prepared to easily handle these challenges. Establishing a process for handling customer complaints and maintaining open communication can prevent issues from escalating into chargebacks.

Maintain PCI compliance

Card data security is an important part of payment processing. In fact, it’s crucial to protect customer data in order to avoid potential legal and financial consequences. Restaurants must adhere to the PCI DSS guidelines, which include securing cardholder info, restricting user permissions and regularly monitoring and testing security systems. Regular training for staff on PCI compliance and keeping software and systems up-to-date are essential security measures. A vigilant approach towards chargebacks and disputes safeguards financial transactions and fosters trust and confidence among your customers.

Mastering credit card processing is not just about adopting the latest tech; it's about understanding all the little details to create a secure and enjoyable experience for customers and staff. By embracing diverse payment processing solutions, restaurants can stay ahead of the curve and elevate their reputation and service.

FAQs

Credit card processing is essential for restaurants due to consumer reliance on electronic payments. Offering debit and credit card payment options provides convenience for customers and quicker transactions. Accepting debit and credit cards expands a restaurant's customer base and enhances efficiency, reducing the need for handling cash.

In a restaurant setting, credit card processing involves a series of steps. When a customer pays with a credit card, the transaction begins with authorization. The restaurant's POS system communicates with the credit card processor, which, in turn, seeks approval from the cardholder's issuing bank. Once authorized, the transaction moves to batching, where approved transactions are grouped together for settlement. Settlement involves the transfer of funds from the customer's bank to your restaurant account, completing the payment process.

Credit card processing fees for restaurants typically consist of three main components: interchange fees, assessment fees and processor markups. Interchange fees are set by card networks and paid to the card-issuing bank. Assessment fees are charged by the card networks for system maintenance. Processor markups cover the costs for the payment processor. Understanding these fee structures is crucial for restaurant owners to analyze their monthly statements and identify key cost drivers.

Business owners can use several strategies to minimize credit card processing fees without compromising quality. Negotiating with payment processors for lower rates, especially for high-volume businesses, can be very effective. Updating transaction processes, accurately entering data and reducing chargebacks can also contribute to fee reduction. Exploring alternative pricing models, such as flat-rate pricing or interchange plus pricing (where processors pass through interchange fees directly), can provide transparency and potentially lower costs. Reviewing your chosen credit card processor based on your restaurant's evolving needs helps maintain cost-effectiveness.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed. All trademarks contained herein are the sole and exclusive property of their respective owners.


Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us