Processing Transactions is a necessary and ongoing expense for every restaurant. If you want to meet the needs and expectations of your customers, you have to accept debit and credit cards.

Payment processing occurs in two different ways: through a payment processor and through a register. Point-of-sale, or POS, systems take care of the logistics, from checking the validity of a credit card to logging transactions.

payment processing

How Does Payment Processing Work?

If a person makes a payment in cash, you put the money into the register and provide the purchaser with change. But the world now runs on credit and debit cards, and this is where a payment processor comes in.

What is a payment processor?

You'll find two main terms: acquirer and processor. And while some people erroneously use these words interchangeably, they're two completely different things.

  • Acquirer. The bank or financial institution that will be processing the transaction, such as VISA.

  • Processor. The company that communicates with the bank when a transaction is made.

Both of these entities work together when a transaction is made. Think of the processor as the mediator that relays your request to financial institutions.

It's the job of the payment processor to:

  • Authorize the transaction

  • Facilitate the transfer of funds

  • Ensure that you're paid

How does payment processing work?

The processor serves as a line of communication between credit card and debit card issuers, but they're also there to serve in your best interests. These professionals will work with you to ensure that you use a payment system that's best suited to restaurants.

Acquirers will take all of the information from the processor and approve the transaction. Once approved, the acquirer will settle the account, and the interchange will ensure that the funds are deposited in the restaurant's account.

restaurant credit card processing

Credit Card Processing Fees Explained

In an ideal world, all customers would pay for their meals with cash. Why? Because credit card processing fees can eat into your profits. Some restaurants are offsetting these fees by adding a surcharge to orders paid for with a credit or debit card.

And there is a valid reason for these fees: payment processors need to make money. Each time a non-cash sale is made, there is a fee that must be paid by the restaurant. There are three main types of fees that are charged:

  1. Processor markup

  2. Service fee

  3. Interchange fee

All parties involved in the transaction will want to be paid a fee. Restaurants will pay the payment processor a flat fee and a percentage of the transaction. Fees vary greatly, and a restaurant should try negotiating the best fee for their clients.

Restaurant pay rates range from 2.87% to 4.35% on average when volumes are between $10,000 and $250,000 annually. If a restaurant has higher volume sales, they'll be able to negotiate the fee for processing the payment.

Additional fees for restaurants in this volume range are often 30% to 60% higher than the quoted rate because of:

  • Chargeback fees

  • Account fees

  • PCI-compliance fees

Every major brand will have their own processing fee, and the same rules apply: process more payments to receive a higher discount. The major credit card processing fees are:

  • American Express: 2.5% to 3.5% fee

  • Discover: 1.56% to 2.3% fee

  • Mastercard: 1.55% to 2.6% fee

  • Visa: 1.43% to 2.4% fee

What's the best credit card processing for restaurants? Based off of the above fee ranges, Visa and Discover have the best fee ranges. You may be able to negotiate your fees with each major brand to have fees all in a similar range. If you choose to work with someone like Square, the fees have likely been negotiated to the same rate.


You never know what credit or debit card issuer your customers are going to use. When fees are all the same, it's less of a burden as a business owner. The more predictable the rates, the better you'll be able to account for menu prices and profit margins.

touch screen pos systems

What is a POS System for a Restaurant?

Your restaurant's POS will have payment processing built into it. Whenever a customer swipes a debit or credit card, your payment processing systems will take control. The Internet allows for rapid approval of a transaction, but there are also accessories that will work with an old POS system to accept credit cards.

How to Use a POS System in a Restaurant

Times are changing, and a lot of restaurants are using touchscreen POS systems. When touchscreens are used, this allows for portable systems that can do everything, including:

  • Securing data

  • Taking orders quickly, sending the order directly to the kitchen

  • Better staff control

  • Dish and ingredient tracking

  • Automatic tracking of inventory systems

When a POS system is incorporated into a restaurant, it can take a lot of the managerial work away from managers. These systems can now connect to your restaurant's database system, allowing the POS system to account for all inventory items used in a sale.

For example, if a person orders a side of pasta, the system may deduct all of the ingredients used to make the pasta from the ingredient database. This means less manual labor and an automatic means of inventory management. Advanced systems can also keep track of serving staff, connect to the restaurant's kitchen and streamline the entire ordering process.

Older POS systems may just accept payment and connect to the restaurant's database.

The restaurant payment systems of the past were basic, but there are now entire suites of tools available to make these point of sale systems stand out from the competition.

Reporting has also been incorporated into newer systems to allow an owner to track:

  • Customers served per hour

  • Employee productivity

  • Average sales per employee

  • Time it takes for orders to be served

  • Most popular items

With a connected world, it's easier and more intuitive to control several restaurants using one point of sale system. Menu items and pricing can be updated at all locations from one central POS system.

payment processor

But there is a drawback to these systems: they rely on computers and connectivity. A lot of newer restaurants will even have difficulty ringing up food prices manually and serving customers because of complete reliance on POS systems.

Backups must also be in place to ensure that all transaction data remains safe and available at all times. The IRS will want you to have all of your receipts, profit and loss statements and payroll statements available. If your system crashes and there's no backup in place, it will be a manager's worst nightmare. It's important to have all of the infrastructure needed to run a POS properly.

A lot of POS systems will take care of everything, from backing up your data to securing it, but if the power goes out or an internal system crashes, it's important that staff know how to take orders manually.

POS systems will also allow your restaurant to accept a different payment processor, which will all integrate into the system flawlessly. It's up to you to work with a processor that offers the best terms and availability for your business.

As your business grows, it's important to discuss discounts and terms with processors. Even lowering fees by 0.5% per transaction can lead to massive savings and better profitability for your business. It's ideal to have transaction values of $250,000 or higher before trying to negotiate for better fee percentages and discounts.


For more on POS Systems in restaurants read here