How to Save on Credit Card Processing Fees

The past few years have been difficult for restaurants across the country as they have found themselves struggling to adjust to a new normal. Among the many pressures are rapidly rising credit card processing fees. Despite a recent settlement where the two largest card brands agreed to a modest cap of interchange fees for five years, processing fees show no signs of decreasing. The settlement does nothing to prevent processors from turning around and adding fees or raising rates on other line items. 

So, what does that mean for restaurants trying to cut costs? While some have decided to go cash-only, others have turned to surcharges or cash discounts to accommodate card-bearing customers. If you are considering the latter, here’s what you should know about implementing a surcharge or cash discount program.

1. The difference between surcharging and cash discounting

Simply put, surcharging is a service fee added to the bill, whereas cash discounting offers customers a lower price for paying in cash. The purpose behind these two is different: surcharging aims to cover the processing fee the restaurant would pay to accept the card, but cash discounting cuts out the processor altogether. Cash discounts are done by raising your prices and offering a flat discount for cash payments.

While it may sound nice to take the processor out of the equation, cash discounting relies on the assumption that customers will carry cash on them, which is less and less common. Such a discount does not affect the fees for customers who still choose to pay with a credit card. Surcharging, on the other hand, may be less appealing to customers – no one likes to pay a fee just to be able to pay the bill – but would cover processing costs. However, there are many regulations on surcharge programs (more on that below), making offering a true cash discount the less risky option.   

You will need to do your research before coming to a decision. Each strategy has its pros and cons depending on your unique customer demographics and behavior. For example, a restaurant trying to appeal to younger generations may choose to surcharge, whereas a business with older customers who are likely to use cash, might find a cash discount more effective. 

2. The role that card processors play in accepting card payments and surcharges 

It’s important to note that you don’t have to change your card processor to save money. It’s good to do research into your processor, as different processors work with different point of sale (POS) systems and have different fee structures, but switching is not a requirement for saving money on credit card processing fees. 

Cash discounts can be implemented without involving the processor at all, which is its major advantage. Surcharging programs must be set up through your POS system and must identify if the card is credit or debit before adding the fee. It’s illegal to surcharge debit card transactions, so skipping this step could result in heavy penalties. 

Aside from options like cash discounting and surcharging programs, you can also educate yourself on processing fees by looking closely at your monthly merchant statements. By continually monitoring your statements you can see when your processor raises their fees or adds any charges. The most efficient way to tackle lowering these fees is by partnering with a third-party auditor who can more easily identify the language used to obfuscate fees from the everyday merchant and can also negotiate with the processor on your behalf.

3. How to set up a truly compliant surcharge program, following guidance from state and card company regulations

If you’re planning on starting a surcharge program, know that laws and regulations for such programs vary by state and card brand. New York, for instance, mandated disclosure for credit card surcharges earlier this year, which requires businesses to limit surcharges to the amount charged by the processor and to post the total cost including the surcharge or a cash price alongside the credit card price before checkout. Generally, you’ll want to be aware of any fee limits (usually not more than the cost of the processing fee) or signage requirements. Most states require signage to be posted visibly at the point-of-sale for any credit card surcharges and some also require signage at the entrance.\

Pay attention to how you’re setting up your surcharge program and remember, you can’t surcharge debit cards. Likewise, make yourself aware of states’ individual fee caps and other rules, as any unintentional math errors can snowball into serious tax implications and hefty fines.

For restaurant owners, tackling card fees is essential for maximizing profits and remaining competitive in today’s economic environment. It’s important to remain vigilant and understand that regulations in one area do not preclude card brands or processors from making money through other fees or increases. By understanding how to mitigate rising credit card processing costs, restaurants can pave the way for greater financial stability and keep more of their hard-earned revenue.