March 1, 2011 |

Swipe and Pay

By Alyson McNutt English

5 things you need to know about taking credit cards


Pull out your wallet or pocketbook. What’s in there? Probably your driver’s license, some receipts, a few photos … and lots of plastic. But is there cash?

For many Americans, the answer is no. Business owners know that cash is no longer king for a large portion of their customer base. While lots of pizzerias already accept plastic, there are still plenty of operators who don’t want to make the switch. It means payment flexibility for customers, of course, but it also adds up to a lower take for every sale (thanks to transaction fees).

Plastic fees are certainly big business: In the U.S. alone, merchants fork over about $20 billion each year in fees for debit transactions; for credit transactions, that number more than doubles to $48 billion. But that doesn’t change the fact that many customers no longer carry cash. So what’s the right choice for you?

Here are five things you need to know about pizza and plastic to put you on the path to better understanding how these payments might work (or not work) for your restaurant.

1. Know what you’re getting into. If you’ve only taken cash and checks until now, you’ve probably had a few people at a local bank who have handled your business. With credit cards, it’s a new level of outside involvement. You have equipment to acquire, you need to find a processor to authorize transactions, and you’re dealing with the major card companies and their rates.
It can all be a little overwhelming, according to Darrah Brustein, a partner at Equitable Payments, a company that advises smaller business owners on choosing the best processing partner for their credit and debit transactions.
“Don’t let a rep confuse you with industry jargon,” Brustein says. “It can be confusing, but they should be able to break it down into plain English so you’re comfortable.”
2. Find the right-sized partners… What a processor does is pretty simple: every time someone swipes a card at your register, the processor authorizes the transaction and makes sure you get paid. While the idea is simple, however, choosing a processor can be anything but.
So what should an independent restaurant operator look for when shopping processors? “Your processor should be proactively looking at your costs and making sure you’re getting the best possible rates,” says Scott Anderson, CEO of OMEGA Processing, a Cincinnati-based credit card processing company.
3. … but look for someone who can do it all. Finding a processor who treats you as a valuable customer is critical for a lot of reasons. Just make sure you choose someone who can handle everything you need.
“Each vendor relationship costs time and money,” says Rick Stanford, Senior Vice President for Sage Payment Solutions in McLean, Virginia. “It’s usually more cost-effective and efficient to use a full-service payments provider who offers the technology necessary to process all payments.”
4. Understand ‘discount rates’ and find a good one. “Discount rate” sounds like a good thing, but when it comes to credit cards, your discount rate is actually how much of each transaction you pay toward fees, like the interchange fees that go to credit card companies like Mastercard and Visa. And this rate isn’t set in stone — your processor actually sets it.
“Just like death and taxes, Mastercard and Visa raise interchange fees regularly,” Anderson says. “Those fees won’t be consistent, but your other fees shouldn’t change.” Anderson says you should look for “cost-plus pricing.” It’s similar to what many people have on their credit cards, where interest rates are set at prime plus a certain percentage. That’s how your discount rate should work, as well –– the fees the credit cards charge may change, but your basic payment structure should stay consistent for the contract term.
And remember, credit and debit transactions may feel the same to the customer using a bankcard, but they look very different to merchants. The customer’s bank carries the bulk of the fee load when a customer uses a PIN to pay, while your store pays higher fees with credit. Many merchants now automatically run bankcards as PIN transactions and only switch it to credit if a customer specifically requests it. The more customers who choose debit, the lower your processing fees will be.
5. Don’t be discouraged that first month. When a merchant starts taking cards for the first time, the first thing they usually see is just higher fees, says Anderson. “It usually takes about 90 days for the business to start seeing an uptick in sales from customers coming in who wouldn’t have before they took plastic,” he explains. “But eventually, many places see about a 20 percent lift — and not just in customer sales but also tips. A person using plastic just tips more than the person pulling cash out of their pocket. They don’t worry as much about every penny, and they end up having higher receipts.”

If you’re thinking of making the leap but still aren’t sure, talk to your local bank and ask them if they’ll give you a trial run: “Say ‘I want to try this for six months,’” Anderson says. “If it doesn’t work, tell them you’ll return the equipment and we’ll just say it didn’t work.”

But if you get past those first few weeks, you’ll probably keep going. “I’m 52 and I always have cash, but my sons, who are in their 30’s, never do,” Anderson says. “It’s the way things are going. And once you see the convenience, the increased foot traffic, and the bigger average ticket size, most merchants will decide they like it.” u
Alyson McNutt English is freelance writer in Huntsville, Alabama.