The foodservice industry is transforming at an electric pace and quickly adopting new internal services like scheduling software, digital inventory tracking, digital reservations, and automated purchasing tools for lightning efficiency. Most consumers use credit cards to purchase for convenience, but this payment represents a considerable drain on quick-service restaurants’ bottom line. As an unstable economy looms, restaurants may soon shift to another model to cut costs. By passing on interchange fees to the consumer, restaurants may soon get the capital needed to withstand and grow during the looming recession.
According to an Incisiv study, 2020 fundamentally changed customer behavior and the role of digital across industries and geographies. While it was a disastrous year for restaurants overall, limited-service restaurants needed to invest in upgrading their digital capabilities and, in turn, saw massive growth in digital sales. A record 61 percent of surveyed customers order food digitally at least once a week, up from 29 percent a year ago.
A reported 76 percent of quick-service revenue comes from takeout and home delivery compared to 61 percent of fast-casual restaurants as of 2022. While COVID mitigation was the spark that fueled this digital dependence, the ease of digital ordering and expansion of different fulfillment options will ensure digital usage as the industry standard, even as customers resume normal activities and increase their restaurant visits. While many digital processes have evolved, quick-service restaurants still have a long way to go to meet customer expectations while improving their bottom line.
Credit card processing fees rank a shocking third-highest cost of doing business behind the cost of food and labor. As restaurants work to recover from the impact of the pandemic, interchange fees or “swipe” fees continue to curb their ability to grow and thrive. Although these fees can hinder long-term stability and growth, innovative credit card processing software, services and solutions can mitigate the impact of rising interchange fees.
As more consumers use credit cards to pay for dining, the swipe fees continue to mount, eating into razor-thin margins that average about 3–5 percent in the restaurant industry. A Federal Reserve Bank of San Francisco Diary of Consumer Payment Choice report revealed that consumers continued to use credit cards and debit cards for most of their payments, accounting for 57 percent of total payments in 2021 compared to 55 percent in 2020 and 54 percent in 2019. Recent credit card fee hikes are also eroding restaurant profits. In April, Visa and Mastercard raised transaction fees which are estimated to cost U.S. business owners an added $1.2 billion in fees.
Credit card processing fees have more than doubled over the last decade. According to the Nilson Report, U.S. merchants who accepted credit cards as payment for goods and services paid $105.23 billion in processing fees last year, an increase of 25.1 percent. Nilson Report data also revealed that credit cards accounted for 76.3 percent of total processing fees paid by U.S. merchants in 2021, up from 75.9 percent in 2020.
While restaurants have no control over the interchange fees set by card companies such as Visa and Mastercard, they can cut costs by selecting a payment processing company that tailors merchant services to the needs of each client. Rising credit card fees coupled with increasingly thin profit margins and general inflation make it challenging for many franchises to stay in business. To help recoup the cost of accepting cards, many restaurants are raising the prices of menu items, and other full-service restaurants are adding a credit card surcharge to bills.
Quick-service restaurants have unique payment processing needs. One size fits all solutions can result in overpaying for underutilized services and technology. Since 2020, quick-service restaurants have had low levels of innovation in their advanced ordering and payment options. Service solutions like allowing the customer to pay through PayPal, build a group order via a shared cart, and pay at the time of delivery are all still unavailable to most customers across the major quick-service restaurants brands, despite a desire for them.
In an increasingly cashless society, credit card processing fees are a high cost of conducting business for any restaurant. Quick-service restaurants don’t control those interchange fees, but they can better control costs with the payment processing services and software they use to accept credit cards. A tailored approach that provides transparency and custom options for consumers through innovative processing software, services and solutions can help restaurants drive growth while still mitigating the impact of rising interchange fees.
Cliff Green, a 31-year-old New Jersey native, has been revolutionizing the way merchants and consumers communicate through transactions since he was 21 years old. As founder and CEO of Green Payments, a national payment processor, Green utilized his expertise and dedication to the mission of empowering merchants of all sizes to achieve financial freedom. Over the past several years, Green has helped nearly 200 merchants per month reclaim their financial stability while tripling his own company’s revenue, generating more than $1 billion in consumer payments each year.