Is Your Restaurant Paying Too Much in Transaction Fees? Eight Questions to Ask Yourself

Settling on a payment solution for your restaurant is an unavoidable decision, yet it’s one that business owners often rush through without realizing that small contractual details can result in thousands of dollars lost or saved in the long run. With so many payment providers on the market, businesses should carefully weigh their options and make sure they have all of their questions answered before they make a final decision.

For example, some merchant service providers take advantage of business owners with hidden fees, cancellation charges, transaction requirements, and other questionable practices: all things you want to avoid. These are the essential questions you should be asking yourself to make sure that your merchant service provider has your best interests in mind.

Which type of transaction processing is the best option for my restaurant?

When accepting payments in restaurants, there are a few major ways your transaction fees are calculated: namely, flat-rate pricing, interchange plus pricing, and tiered pricing.

Flat-rate pricing simply means there is a fixed percent per transaction and a flat fee, so typically something like 2.9 percent + $0.10 per transaction. Tiered pricing charges you according to the transaction type, with different types costing varying amounts. Interchange Plus handles transactions individually, determining the price according to the interchange fee charged by the card associations (Visa, Mastercard, etc.) and then adds a markup taken by your merchant services provider, e.g. .25 percent + 25 cents per transaction.


Most restaurant-owners (especially early on) opt for flat-rate pricing, especially lower cost restaurants that are typically dealing with checks under $100. It’s simple and easy to figure out how much and why you’re spending on transaction fees, which is what makes it attractive. However, while flat-rate pricing can be great when you’re just starting out, you should definitely consider Interchange Plus pricing once your restaurant really starts to grow. 

Why? Let’s illustrate with an example.

Let’s say you accepted 10,000 $100 transactions a month, with around half of those costing 2.7 percent via interchange plus (after all fees), with the other half hovering around 1.6 percent (also via interchange). Now let’s say you were paying a 2.3 percent flat rate. You’d end up paying $23,000 in transaction fees with that 2.3 percent flat rate.

Now, let’s consider that same scenario from an interchange plus pricing perspective. Half of your transactions at 2.7 percent ends up being $13,500 and the other half at 1.6 percent is $8,000. 

That’s $21,500 for the month instead of $23,000 — a saving of $1,500 per month, or $18,000 a year. And while this is a conservative and simplified example, many discrepancies I’ve found in restaurants are even greater. 

Your MSP should be helping you find the best rate for your business every step of the way, and if they aren’t, you can probably bet they’re making money off of it. 

Does my merchant services provider charge me for under or over-transacting?

Some merchants will actually charge you for having a bad month, so it’s crucial to find this out before you sign any agreements. This is especially shocking considering they earn money for every transaction you make, so they’re making more money when times are good. Your MSP should be your partner, not someone that beats you while you’re down.

On a similar note, it also pays to ask if there’s a transaction cap, and if so, what are the fees for surpassing it? Again, this is predatory since they are already earning more money from bigger transaction volume — why should you be charged for earning them more money?

How is my merchant services provider helping me fight back against chargebacks?

As you probably know, chargebacks are a substantial expense for any restaurant owner, and finding ways to fight back against them can have a big impact on your monthly processing expenses. Utilizing pre-authorizations and having a dedicated team member for chargebacks can help, but it’s always helpful when your MSP assists you with their own team member and/or provides thought leadership. If they don’t do that, that’s a conversation worth having with your provider or at the very least is something to consider when looking for a different MSP.


Do I receive breach assistance in case of a PCI compliance issue?

Some MSPs offer breach assistance in case of PCI compliance violations, which can certainly be a great failsafe to have in your back pocket in case of a breach. It could also pay to inquire about the support you get on PCI compliance from your MSP, as some have specific PCI Compliance dashboards that reduce labor costs and stress by making it simpler and more efficient for businesses to stay compliant.

If I was given free terminals, why? Where will my merchant services provider make up the money?

It’s virtually unheard of for businesses to give away free software, hardware, or insanely low payment processing rates without being sure that they’re going to make it up somewhere else. If a rate or deal seems too good to be true, that’s because it probably is — so look out for hidden fees here more than anywhere else. If you’re being offered free terminals and a 1.5 percent flat rate, the MSP is either taking advantage of you or is about to go out of business.

Does my contract prevent rate changes or stipulations where rates will go up without prior notice?

This is when you go through your contract with a fine-toothed comb. There are few things worse than being hit with surprise transaction fees during a tough month. Your terms and rates should be “locked in” until you officially renegotiate with your MSP, so if the contract says otherwise, it’s best to bring it up with the provider.


Does my contract include excessive terms, like cancellation fees?

Unfortunately, it’s not uncommon to find providers in the merchant services industry that feed off their customers’ failure. If you’re confronted with someone asking for a five to seven-year commitment combined with a heftycancellation fee, alarm bells should be ringing. They should be earning your business, month after month!

Is my MSP a partner with my best interests in mind, or a necessary evil that I have to deal with?

In the end, your merchant service provider should feel like a partner. If they’re never available, don’t have consistent technical support, aren’t growing, aren’t equipping you with the latest tech, and always feel like they’re squeezing you for money, then it may be time to reconsider. Never settle for bad service. 

The kinds of questions you should be asking your merchant service provider should be a bit clearer now. By making sure you have (the desired) answers to each of these questions, you can potentially save a lot of money that would have otherwise been lost thanks to unfavorable rates, hidden charges, and ultimately MSPs that don’t have your restaurant’s best interests in mind.