Is the restaurant Point of Sale (POS) business becoming more a transaction fee-based business? It may be happening right under your nose without you realizing it.
Transaction fees: A necessary but costly aspect of a POS solution
Point of Sale (POS) systems are a restaurant industry staple. They are capable of doing just about anything for your business – and automatically at that. Of course, a core function of the POS is that of transaction processing. Its job is to make transactions faster and easier for both you and your customers including credit card payments and digital payments. Customers increasingly prefer credit cards over cash payments and with the onslaught of Covid, the trend for such cashless transactions accelerated tenfold. The convenience of paying by card not only helps reduce physical contact but also helps keep customer revenue intact. Credit Card issuers themselves are also doing a good job of marketing their product through more aggressive rewards programs. For example, American Express Gold cards are 4x points and a CapitalOne Savor card offers 4% on take out restaurants. These incentives drive consumer behavior.
On the downside however, credit card transaction fees can be significant to a business. They can potentially be the costliest aspect of your point-of-sale solution. There are various different fees involved from interchange reimbursement and assessment fees, flat fees (like PCI fees, annual fees, early termination fees and monthly minimum fees), and incidental fees (such as chargebacks or verification services). On top of these “standard” costs or running fees, is the percentage rate the credit card companies charge you, each time a customer uses their card to buy from you. This customer transaction fee can be anything from 1.5% to 3.5%, depending on the credit card company. Clearly, all businesses want to keep costs down so the lower the rate the better. But, if you are tied or limited to a specific credit card processor you may not get much of a say in terms of the rate you pay.
The Rise of the Single Option POS
There are many POS systems on the market that require you to change your credit card processing over to their company in order to buy their POS system (Toast is an example). Similarly, there have been a number of POS companies that have been acquired by credit card processors (such as Revention/HungerRush). While both are valid business models and the act of being bought and sold to larger enterprises is nothing new, when it comes to your POS, being limited to one payment processor option may not be good for your business. Let’s look at some of the pitfalls.
- Cost: The most obvious one is cost. More often than not, POS solutions that only allow you use their card processor, also happen to be quite inexpensive, and therefore highly attractive to the buyer. But, when you are limited to one specific card payment processor there is no room for negotiation. It is highly likely that you will be charged the higher – and if you are locked into a contract, there is nothing much you can do. Ultimately, the rates you end up paying for the credit card processing is likely to be more expensive than buying a POS system or leasing it. In comparison, a POS system that can be utilized with multiple merchant accounts for payment processing, represents a much better deal in the long-term.
- POS Features: Credit card fees won’t grow your restaurant business. Better marketing, merchandising and operations management functions will. The challenge is that cost-conscious restaurants become enamored with the low up-front fees found in single processor option systems. In essence, they choose short-term pain relief in exchange for a long term ‘bleed.’ But if the moneymaker for a POS company is the transaction fee, you can bet that payment features will get the most attention from the POS company’s support and R&D teams – and NOT those features that focus on efficiency and revenue growth for the restaurant (like email marketing, delivery management, labor management, inventory management, menu management etc.).
Choose your POS and processor wisely
When there is a growing trend of tighter relationships between POS and processor, it is for a commercial reason. When priorities are maximizing fees, you will see an impact on product and your wallet.
Understand what you’re signing up for. Your POS provider should allow you to choose your processor, which gives you the ability to negotiate the most favorable rates. Be mindful of any long-term commitments or monthly fees. Make sure the payment provider’s transaction pricing is clear and straightforward.
If you are already engaged with a POS provider, ensure that you are aware of any future acquisition plans or change of ownership and what that might mean for you and your business.