The debate rages on every single day on credit card processing fees. Newbies want information on who is the “best” processor, when what they really mean is “cheapest”. Someone with something to sell always answers “check my page” or “DM me and I’ll help”. Then my favorite answer always shows up: “charge them a fee that’s what I do.” The comments will also be flooded with “Square” and “Clover” followed with the naysayer’s complaints with each company.
EVERY, and I do mean every, company has complaints against how it operates. Customer service, late/slow deposits, hidden fees, frozen accounts, middlemen, differing rates, equipment fees, on going charges, etc., etc. Square has them, Clover has them, as does all the other companies. Asking for my opinion or some else on a public forum like Facebook groups will only get a limited answer based on extremely limited experience. I have worked in this business since 1977 and taken credit cards since 1990. I started with Square in 2010 and with all that time in food service have only used a total of 5 different processors. Each with problems and benefits of their own.
You should also understand there are two different types of processing companies out there. Square (PayPal Here, Intuit ToGo, etc.) are flat fee aggregators. Meaning the fee is exactly the same no matter which card is used and no merchant account is required. This makes the threshold to get started much simpler for the average food vendor. Clover (and a ton of other services) are merchant account processors. Meaning they require a merchant account (which some people will not qualify for) as well as possibly charge variable fees based on card type and brand. Comparing the two accounts types is unfair as they have completely different benefits and application requirements.
To get a full understanding of each processor type and unbiased reviews go to https://www.merchantmaverick.com/review-category/mobile-credit-card-processing/. Pick the processor that meets your financial needs and has rates and fees your business can afford. Also understand what you need out of the hardware they offer. Do you need a simple POS or one with lots of inventory control, payroll functions, loyalty programs, etc. or do you just need to process credit cards?
Here is what you need to know about accepting credit and debit cards. Keeping it simple for street vending.
As a business owner you have 4 choices:
Don’t take cards. I hope from the stats in numbers 1 & 2 above you understand taking cards is a necessary evil in street and event vending. In my 40 years of experience (through observation and actual time studies) credit card transactions are significantly faster than counting out change. Yes, there can be internet issues, connect issues, etc. that pop up from time to time. Cash has its own set of problems like breaking a Hundred dollar bill early in the day, using a counterfeit pen to verify bills, opening new rolls of coins, having to get more ones or fives, lots of cash on hand makes your business an easy target for robbery. Convinced to take cards yet? Since taking cards is a MUST DO for a food vendor let’s figure the best way to handle those pesky fees.
Pass the fees along to your guests as a “convenience fee”. Seems smart right? Not really. Charging a fee comes across as petty and cheap from a guest perception point and is illegal in 10 states. Where the fees are legal, they have a 4% cap since the merchant CAN NOT PROFIT from charging a fee. “Convenience fees” become overly complicated when a debit card is presented rather than a credit card. https://www.thebalance.com/credit-card-surcharges-315423 Convenience fees are also frowned upon by the credit card issuers and each has a specific policies AGAINST these fees in most circumstances. https://www.creditcards.com/credit-card-news/credit-card-convenience-fees-cost-surcharges-1280.php Setting a minimum purchase complicates things as well. Debit cards present different rules than credit cards. It is also against the credit card issuer rules to set a minimum fee for debit cards. https://www.thebalance.com/debit-card-minimums-illegal-or-just-annoying-315267 OK, OK, no charging additional fees, what should a vendor consider?
Offer a cash discount program (CDP). This type of program is allowed and actually spelled out in card issuer policies. https://s3.amazonaws.com/Harbortouch_Files/VBN_CashDiscount_101818.pdf A cash discount policy means a vendor must list TWO different prices for each product. Just like a gasoline station does that offers a cash discount. The pump will list one price marked “Credit” and one price marked “Cash”. Of course, the credit price is higher accounting for the processing fees. There are a number of companies that offer CDP processing, all of which use some promise of “free” (to you) processing. The bottom line for a legal CDP is to have a menu that clearly spells out both a cash and a credit price as well as other notifications that explain and/or alert your guests to the two-tier pricing system. The problem with this system is guest confusion and overly complicated price structures. Street or event vending is very much time bound. The faster you take and fill orders the more money you will make. But with CDP the order taking process is slowed down by lengthy explanations for a two-tier price system. As well as the complaints about having to pay more because the guest has no available cash. In food service every obstacle you place to a smooth order taking process gets magnified into a negative review, bad word of mouth or no repeat guests when another service or food related issue pops up. The simplest thing to is:
Do the math when setting menu prices. Wow what a concept! Just like pricing your menu to account for the price of food and propane, just price your menu assuming EVERYONE is going to use a card. What?! Can it really be that easy? Yes, yes it can.
Let’s look at a product that everyone freaked out about when Square raised fees to 10¢ + 2.6%. Soda.
Coca Cola is available from Sam’s Club for 32.05¢ each. Most folks sell it for a dollar. When Square raised their price, people panicked, whining about the increase on a percentage basis for the least expensive product they sell, a soda. That makes selling a soda all by itself cost a vendor 44.65¢ when a card is used. I can’t tell how many posts whined about 13% charges, blah, blah, blah. Yet if Coke raised the price to 45¢ the vendor would either suck up the increase or raise their own price.
When I price a menu, I assume everyone will use a card. When Square added that 10¢ transaction fee, I just added 25¢ to some of my higher food cost items to compensate. So that one-dollar soda became a $1.25 soda. Still cheaper than a convenience store and well cheaper than from a vending machine.
The gross profit (which is sales less cost of goods) would look like this:
Before: $1.00 - $0.3205 - $0.0275 = $0.6520 gross profit
After: $1.25 - $0.3205 - $0.10 - $0.0260 = $0.8035 profit
Look what happens when someone pays with cash.
Cash: $1.25 - $0.3205 = $0.9295
Does it make any sense to use a cash discount program? Does it make any sense to add a surcharge (which is legally limited to 4% and you can’t show a profit from that charge)? Does it make financial sense to just refuse accepting cards?
If you are stumped the answer is “NO”.
I can hear someone saying, “I don’t deal with change it slows me down.” Food service is a nickel and dime business. Charging even dollars went out with the turn of the century. The only people charging on the even dollar are amateurs or mathematically challenged. Perhaps it is time to pull out the addition and subtraction flash cards from elementary school and learn how to deal with our nickel and dime business.
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I have had a passion for helping people since an early age back in rural Kentucky. That passion grew into teaching and training managers and owners how to grow sales, increase profits, and retain guests. You’ll find a ton of information here about improving restaurant and food cart/trailer operations and profits. Got questions? Email me at Bill_Moore@live.com