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Did you know that in today’s restaurant landscape, an impressive 81% of transactions are executed through restaurant credit card processing systems? As cash takes a back seat, customers increasingly prefer the convenience and rewards associated with card payments. Moreover, this trend shows no signs of slowing down, with card payments projected to continue dominating the restaurant industry. 

Picture a bustling restaurant during peak hours, with a line of eager customers extending out the door. In such scenarios, dealing with cash can be incredibly inconvenient. The constant need to look for change, longer transaction times, and the risk of errors can be a real hassle. According to a survey conducted by Visa in 2023, more and more consumers are turning to digital payments. In fact, nearly 60% of those surveyed expect to use digital payments more often this year. 

However, it’s important to recognize that behind every simple card swipe lies a complex web of restaurant payment processing. For many restaurant owners, this can be a daunting and costly challenge. Surprisingly, numerous owners remain unaware of how the entire credit card processing system works within the restaurant industry. 

But fear not, as we’re here to break it all down. In this blog post, we’ll delve into everything you need to know about restaurant credit card processing. We’ll explore the intricacies of fees, compliance with regulations, and share valuable tips on enhancing security. It’s time to take command of your restaurant’s financial processes and gain complete clarity about where your money goes.


What is Restaurant Credit Card Processing?

Restaurant credit card processing refers to the system and technology that allows restaurants to accept credit and debit card payments from their customers. It involves the secure transmission of payment information, verification of funds, and the completion of the financial transaction. This essential component of modern dining experiences not only enhances convenience for customers but also streamlines the payment process for restaurants.  
From swiping or inserting cards at the table to mobile payment options, restaurant credit card processing encompasses various methods that make settling bills efficient and hassle-free. It’s a vital aspect of restaurant operations in today’s cashless society, offering benefits like faster transaction times, improved accuracy, and access to valuable customer data.


How Debit and Credit Card Processing Works

Now, let’s get familiar with the participants involved in the restaurant payment processing. There are five key players that will help you understand how debit and credit card processing works.


The “merchant” refers to the business (in this context – the restaurant) that accepts credit card payments from its customers. Essentially, it’s the entity providing goods or services to the cardholder (guest) in exchange for payment.


Acquiring/Merchants Bank

The acquiring bank, often referred to as the merchant’s bank, plays a crucial role in the payment process. Its primary responsibility is to receive payment authorization requests from the merchant. Subsequently, these requests are forwarded through the appropriate channels to the issuing bank for approval. 

Payment Processor

The company that provides your payment terminal and runs each transaction. The terminal or device allows merchants to accept credit cards. It also sends payment details to the credit card network. After this is done, the payment authorization goes back to the acquiring bank. 

Credit Card Network

Some examples are but not limited to Visa, MasterCard, and American Express. These companies control the networks for processing cards and govern interchange fees.

Issuing Bank

The financial institution that issues the credit card. Examples of credit card issuers are Bank of America, Chase, and Citibank. The issuing bank receives the payment authorization request from the network. It then makes the critical decision of either approving or declining the transaction.

As you can see, there are many different parties involved in each transaction. Understanding who the key players are is very beneficial. Restaurant payment processing is one of the highest costs small business owners may have to face. Knowing about the credit card transaction process is the first step. It will allow you to save money and make smarter business decisions.

The Transaction Process

There are three stages to the transaction process. Stages include authorization, authentication, then, clearing and settlement. Here’s an overview of the transaction process:

Stage 1: Authorization

  1. The cardholder gives their credit card to the merchant at their POS system.
  2. A staff member swipes the card at POS and card details are sent to the acquiring bank.
  3. The acquiring bank forwards the card details to the credit card network.
  4. The credit card network forwards the payment authorization request to the issuing bank.


Stage 2: Authentication

  1. The issuing bank receives the request.
  2. They then confirm the credit card number and check available funds. After, they match the billing address to the one on file and verify the CVV number.
  3. The issuing bank approves or declines and forwards that information to the merchant. The response is sent through the credit card network and processor.
  4. Once approved, the issuing bank places a hold on the cardholder’s account. The POS will collect all authorizations at the end of the day in a “batch”.
  5. A receipt is given to the customer provided by the merchant.

Stage 3: Clearing and Settlement

  1. The merchant sends the “batch” to the acquiring bank or processor.
  2. The processor routes everything to the credit card networks for settlement.
  3. The credit card networks then send each approved transaction to the issuing bank.
  4. The issuing bank transfers the funds minus an “interchange fee”.
  5. The credit card network pays the acquiring bank and processor their certain percentage fees.
  6. Acquiring bank credits the merchant’s account for the card purchases. A “merchant discount rate” is a fee charged to pay for the processing of cards.

Feeling like you have a better understanding yet? It’s a lot of back and forth under the surface of a simple swipe. Now, let’s get into the different types of processing fees.

Restaurant Payment Processing Fees

The world of restaurant payment processing involves a series of fees that ensure everyone involved gets compensated. This is typically a percentage that the payment processor pays out to the key players. These fees, although individually modest, collectively make up a significant portion. That’s why payment processors charge the merchant a processing fee. 
According to PayPal, here’s a breakdown of processing fees:

1) Interchange Fee

This fee, typically the largest component, is a percentage of each transaction. It goes to the credit card network (like Visa or Mastercard) for facilitating the transaction. The amount can vary based on factors like the type of card used (e.g., rewards card or standard card) and how the transaction is processed (swiped, keyed-in, or contactless).

2) Merchant Bank Markup Fee

Your merchant bank, which processes your credit card transactions, charges this fee. It’s another percentage of the transaction amount. This fee includes a profit margin for the bank’s services, customer support, and assuming the risk associated with credit card transactions.

3) Assessment Fee

The credit card network imposes this fee to maintain its infrastructure and fund various services, including fraud prevention and dispute resolution. It’s typically a percentage of the transaction but may also include a fixed amount per transaction.

4) Transaction Fee

For every transaction processed, a fixed dollar amount is incurred. This fee directly compensates payment processors for their services. 

Typically, the first three fees are consolidated into a single rate when quoted (e.g., 1.25% + 0.3%). 

In addition to understanding these fees, it’s essential to be aware of the importance of PCI compliance for your restaurant.  Learn more about why it’s important your restaurant is PCI compliant here. 

By breaking down these fees, you can gain a clearer understanding of the costs associated with payment processing in your restaurant.

Breaking Down Restaurant Pricing Models

Before choosing your payment processor, it’s important to know what it’s going to cost. There are three main pricing models that are common in credit card processing. Understanding them will help you choose what’s best for your restaurant.


The beauty of flat rate pricing lies in its simplified and predictable payment structure. It’s easy to grasp, even for those not well-versed in payment processing intricacies. Instead of juggling multiple rates and fees, you deal with a single flat rate for all transactions, regardless of card type or transaction amount. This simplification enhances expense tracking efficiency.  
Moreover, flat rate pricing eliminates premium charges associated with specific card types, ensuring uniform transaction costs and a seamless payment experience for all customers. Understanding the distinction between card-present (eg: tableside ordering and payment) and card-not-present transactions (eg: online ordering, phone orders, QR code activated payments, or delivery services) is vital for optimizing payment processing in the restaurant industry.

Interchange Plus

When a customer pays with a card, their credit card network charges an interchange fee. Each credit card network has a set percentage-based interchange fee they charge. The fee is the cost of authorizing the card. It’s no surprise that the interchange fee is much less for a debit card (0.3%) than a credit card (1.81%).  

The interchange charge and assessment fee are combined together as the “interchange fee”. In this pricing model, your payment processor adds a fixed markup fee. The pros of this model are that it offers visibility into the breakdown of your processing rates. But on the flip side, your statements will be harder to understand.  

Check out the average interchange rates by card type from ValuePenguin here.


A tiered pricing model is broken down into three tiers. The tiers are based on the amount of risk associated with each transaction. The three tiers are:

  • Qualified rate: This involves transactions with a  credit card that are non-rewarding. This is normally offered at the lowest rates.
  • Mid-qualified rate: This is a higher rate than the qualified rate. Mid-qualified rates include a higher risk of fraud because there’s no card present. 
  • Non-qualified: This tear is for those who don’t qualify for those above. A non-qualified tier is going to be one of the highest rates you can pay. Guests who have rewards, corporate, or signature transactions may have non-qualified rates.

These fees are a great way to start examining different payment processors. Kind in mind that each processor will have different fees. That’s why it’s critical you know what each payment processor offers.

To visually see how pricing really works, use this helpful infographic from PayPal.

Simplify Your Payments

In summary, this article has provided you with valuable insights into the world of restaurant payment processing and credit card transactions. We’ve delved into the key players, how transactions work, and the associated fees.

This knowledge can help serve as your compass in selecting the optimal payment provider for your restaurant venture. At CAKE, we are dedicated to simplifying your payment experience. With transparency as our foundation, we pledge to keep your costs straightforward. You won’t encounter hidden, monthly, refund, or inactivity fees. Use our Smart Chargeback Assistance to manage chargebacks, ensuring uninterrupted service. 

Ready to embark on a seamless payment journey with a new credit card processor? Explore how CAKE can kickstart your path to streamlined, worry-free restaurant payment processing today. 


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