Column: Eating in restaurants should be more expensive

Americas - USA West Los Angeles
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I don’t quite see how the two are related? I don’t think any of us doubt that margin restaurants are slim, and so giving an itemized breakdown sort of makes sense. Also, I think there is a conceptual difference btw a 3rd party charging for what amounts to a convenience for the customer, as opposed to a business charging what it needs to keep the lights on and to make enough profit to make it all worth it. I don’t think the credit card companies are exactly hurting for $.

I’m a small business (not in anything resembling a restaurant, though), and I don’t think the credit card companies would give me an itemized breakdown of the 2-3% they’re charging me (and top of whatever other fees the platform itself uses). I don’t accept credit cards, but my services are so completely different that this is a viable option for me. For restaurants (esp during a pandemic), I don’t think it’s viable to do cash only.

I don’t know anything about a monopoly, but, as the business itself, I don’t think I’m interfacing directly w/ First Data, et al. I’m interfacing w/ the merchant services that is not necessarily particularly transparent about how they established their fees…

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23

should that matter? If I’m a Square shareholder I want Square to charge what it needs to charge to stay competitive and make a profit so I can in turn make a profit on my investment.

I mean the whole “credit card monopoly” thing above is BS. there’s plenty of competition in the payment processing world with a wide range of fees and services provided.

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Depends if you contract directly with First Data, et al or use a reseller.

@ShadrackToussaint made a good point about the competition at the MSP level not affecting the interchange rates that VISA/MC and card issuing banks charge.

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Well, yes. Your (heavily implied) argument is that restaurants shouldn’t complain about being gouged by credit card fees when they nickle and dime customers for all sorts of stuff. If Square can charge whatever they like, then why shouldn’t the restaurants?

You may think it’s fine that restaurants charge whatever, but my friend who lives in SGV (and has no interest in the behind-the-scenes stuff in running a restaurant) just complained about how his to-go meals are easily costing 50% more than they were a year ago. Customers complai about restaurants charging more (w/o seemingly to realize that it may come from increasing overhead), so why can’t restaurants b*tch about credit card fees? It’s not like the customers go back to their credit-card companies and ask, “Why do you charge so much for people to use their credit cards?” (or even know about much credit card companies charge business for merchant services)

I would also argue that restaurants are more vulnerable than are other small businesses b/c their survival is more dependent on credit cards. I don’t accept credit cards b/c my work flow (and not just cash flow) in terms of frequent and repeated client interactions allows me to easily collect payment weeks or even months afterward. Restaurants obviously can’t survive that way.

Again, my business doesn’t use CC so I don’t have a great of knowledge about this… But, when I’ve taken a quick glance myself at “the competition,” they all seem to charge almost the exact same amount. Is competition actually competition when there is some level of price fixing going on? (which I think is @ShadrackToussaint’s point). The appearance of competition isn’t accurate.

When I visit the First Data website, it pushes Carat, Clover, Gpay for Small Business. Not sure how a small business w/ limited economies of scale to leverage deals would interact w/ directly w/ First Data? (or if would even make a difference if they could, for the reason you mention)

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So we’re in agreement there is no problem with the status quo and letting the market do its thing.

But, when I’ve taken a quick glance myself at “the competition,” they all seem to charge almost the exact same amount. Is competition actually competition when there is some level of price fixing going on?

I usually see 2-3% as pretty standard plus a certain per transaction fee. Given the percentages involved that’s a pretty solid spread. Surely some payment processing vendors add to the value proposition by providing turnkey solutions.

Anyway, we seem to be at odds over what is a fair value for these services provided. At the end of the day, my stance is the restaurant can decide if the fees are worth it or not (and many don’t with respect to american express). The same goes for surcharges from the restaurant to the consumer.

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You have an implied premise here that restaurants are being gouged by credit card processing fees.
You have not presented sufficient support for that premise and therefore I do not yet accept it.

These are eCommerce platforms and POS companies. Restaurants, even tiny ones, often contract directly with First Data, WorldPay, Paymentech, etc.

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I think the problem is restaurants ultimately can’t charge whatever they want because the public is uninformed on the true cost of food and what it costs to run a restaurant.*

The public doesn’t care about processing fees, delivery service fees, food, labor, gas, electricity, water, linen service, the cost of running the ice machine, etc.

But they know how much a sandwich costs because they’ve made them at home.

Food is incredibly emotional. When I worked at a grocery store I received people’s anger and frustrations all the time because the food they wanted was costing them more than they wanted to pay.

*Of course, yes, it’s still technically a choice to accept credit cards and the fees are anyone’s choice to take on.

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don’t sell sandwiches anyone can make at home then?

Conversely I pay good money for ramen because making ramen at home sucks.

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One odd thing about the restaurant business is that people get into it for reasons other than making money, which probably helps account for two-thirds of them going out of business within three years.

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31

Think we have pretty different perspectives on this, and that’s okay and I do appreciate your pov, but for me markets don’t exist in a state of nature.

And I don’t blame you for not reading the links if you didn’t, as it’s a lot of reading, but the interchange fee structure, responsible for ultimately processing all these credit card payments, is set by 3 players basically, Visa, Mastercard and Amex. It is different than the payment processing overlayer, which is the First Data, Square, Clover that @Starchtrade referred to. If you get into the links, it is a monopolized market controlled by a few players who raise fees in unison.

I think it’s good to debate what a fair fee or profit is for the interchange service, if that should be 1%, 2% or the .5% it is in Europe, but right now the market is structured to benefit big business at the expense of small business, and to me that’s a choice and not a situation where businesses can effectively opt out and just take cash.

I know most aren’t super into the minutiae of this, but the Durbin amendment, which regulated these fees on debit cards after the financial crisis, is pretty illuminating.

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32

No, not quite.

If by “market” you mean “free market,” then I would argue that there really isn’t a free market at play here, esp w/ one side that is relatively hidden from the end user (the customer ordering food from the restaurant) completely manipulating a portion of “the market.” In California, you’re not even legally allowed to add a surcharge for credit-card use. How can “fair value” be discerned when the customer (which, again, I’m saying is the person ordering the food) is blind to so much of the process (which I think gets to one of @butteredwaffles’s points)?

The fact we both named Square, rather than the credit-card companies themselves, indicates that we ourselves are a bit blind to the whole process, and I daresay that we know way more than the average restaurant customer about these things.

I’m too lazy to review everything I’ve written in this thread, but that actually wasn’t the point I was trying to make. :slight_smile:

My point was more to express confusion about thinking it’s fine for credit cards to charge whatever they want but then criticizing restaurants for complaining about their relative lack of power in the process b/c of consumer ignorance (or whatever they perceive to be the root cause) or for line-itemizing what they need to do to make the whole enterprise worthwhile. And I’m not saying YOU specifically thought this. But it did seem to be a sentiment expressed here.

As to whether credit card fees are truly “gouging”… That I cannot comment on b/c I’m too far removed from restaurant cash flow, aside from the bits and pieces I learn here. And even if the fees aren’t gouge-y, I still wouldn’t criticize restaurants for complaining about it.

Yes, yes, yes. I’ve worked w/ a few people in the business, and, yeah, raking in the dough was absolutely not their top priority. I imagine the way they feel about food is the way artists feel about… their art.

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33

As a sidenote to this conversation, the best advice for restaurants would be to leverage their position as their sales grow to renegotiate their processing fees and switch merchant service providers often (if they can handle the administrative changes; e.g. book reconciliation.). As a restaurant gets comfortable with their merchant service provider, the merchant service provider will often sneak in additional fees over the months and years. Switching up service providers is a good way to sluff off these fees and ensure that they are getting the most competitive rate.

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34

Investors who have no day-to-day role in the business also get into restaurants for reasons other than making money.

Credit card interchange fees in the US are around twice what they are in Europe. Do we get twice as much for our money? We certainly get less security (no chip and pin) and more annoyance from having to change credit card numbers due to the resulting greater incidence of fraud.

https://www.valuepenguin.com/interchange-fees-na-vs-eu

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35

Why should the customer have to understand. I don’t know how much it costs to run any of the businesses I go to. They charge a price and I decide if it’s worth it or not. It’s up to them to figure out the rest.

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36

I think the problem is understanding the situation restaurants are in requires empathy. And empathy is in short supply in this country.

Also recognizing the effects of stagnant wage growth and a disappearing middle class.

It’s like the Chris Rock joke about minimum wage:

If I could pay you less, I would.

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37

Thank you. This is exactly and more succinctly the point I was attempting in my long winded, link heavy way.

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Nice

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I don’t run a restaurant but I take credit cards and it is terrible. They charge me three percent and believe me it adds up through the year. There is a byzantine system of financial regulations and money transmitter laws that basically allow for this ongoing big business monopoly to occur and small businesses are unable to push back and take it up :poop:constantly

I wish there was a way to negotiate but I don’t have leverage as a small business owner to get lower rates and those companies have no incentive to lower their processing fees because there is no better alternative. It’s a fuck you pay me situation, worse thing is that if there’s ever a chargeback you are always left holding the bag because by siding with the payers the card companies get more business.

Can’t wait for crypto to take over but those big guys will probably figure out how to tack on 3% to that too.

But the writings on the wall, income disparity in America is increasing and upwards financial mobility for most is a pipe dream. Good times are definitely coming :expressionless:

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40

Exactly it’s not like it’s their product. But they control the money getting to you and can easily take it away.

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41

i once represented harbortouch, which is one of the largest national providers of merchant services, which includes POS systems as well as credit card services. as such i consider myself better equipped than most to comment on credit card services.

fees start with interchange fees, which are charged by the issuing bank and go to the issuing bank regardless of who provides the credit card service. you can find a more complete definition as well as listing of rates depending on the type of card as well as the type of business at:

the type of card typically reflects the amount of benefits the card provides for the holder. the benefits are paid for by the interchange rate - the more benefits you get back, the higher the interchange rate is likely to be. even with a debit (check) card, the lowest restaurant interchange rate is .05% & a $.21 transaction fee. that transaction fee is a killer at lunch time. let’s imagine that the average lunch ticket is $20. a $.21 transaction fee is still over 1% of a $20 ticket (sale). (and if you buy something at the store for only $2 even with a debit card they’re paying over 10%!!! - think about that when you pick up a bag of chips at the grocery store.)

go to an exempt check card and the rate goes to 1.19% - but the transaction fee drops down to $.10. on a $20 ticket, that overall rate is about 1.7% if you go contactless the ‘card not present’ rate goes up to 1.65% and the overall rate on a $20 ticket goes up to over 2% - again just for exempt debit cards - and we haven’t even begun to add on the processing fees charged by vendors like harbortouch & first data.

but let’s look at actual credit cards next - their interchange rate typically reflects the benefits provided - which are paid for out of the higher interchange rate. those rates start on page 7 (section c) but go to page 8 for CPS restaurant: the rates range from

1.54% & $.10 (about 2% on a $20 ticket) to 2.4% & $.10 (about 2.9%)

add another .3% for contactless (card not present) transactions - which not only take away from the bottom line, but also leaves merchants vulnerable to chargebacks because there’s no signed receipt.

again - that’s BEFORE processors add their fees. you’re talking at least another .2% and another $.07 a transaction - and the $.07 is more the killer when you’re talking about an average $20 ticket at lunch. that’s about another .5% total. i had a doctor who was taking a $25 co-pay AND paying upwards of 6% going with first data. ouch!

personally, if i were running a small business, i’d go with square - i don’t know how they manage to make a profit, but their 2.75% flat rate is a GREAT DEAL especially if your average ticket runs about $25. but harbortouch grabs a huge percentage of the market because they bundle their credit services with their POS systems - which are quite robust and probably the best vanilla system out there. it even tracks employee hours, and some inventory stuff.

the percentages drop significantly when the average ticket price goes up to over $100; $.17 is only an additional .17% but when you’re in an industry where your ticket averages are small, that’s where it hurts the most. that’s why many places try to add a service charge for anything under $20. (that’s technically unlawful - and you can actually sue the business - and win - and get that service charge back)

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