Credit Card Processing Fees Don't Have to Break the Bank

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On today's episode of The Restaurant Realty in 10 host, Michael Carro, is joined by a first-time guest, Greg Litton. Greg pulls the fine print off of credit card processing and shares exactly what steps you can take to protect your business from undue credit card processing fees.

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Michael Carro 0:01 Welcome to The Restaurant Realty in 10. 10-minutes of uncensored straight talk for restaurant entrepreneurs twice-weekly The Restaurant Realty in 10 dives into restaurant operations facilities, real estate and investments. Welcome to The Restaurant Realty in 10. This is Michael Carro, your host and today I've got a special guest Greg Litton, with Everest Payment Solutions. You know, one of the things all restaurants have to face is whether or not they're going to take credit cards. And of course most of them do, but they typically choose a processor at the last minute because they're about ready to open. And most of these were not properly negotiated. So I thought I'd bring in Greg to introduce how you can renegotiate your rates, as well as talk about what all those crazy things are on your statements. So Greg, welcome to the program.

Greg Litton 0:45 Thank you, Michael.

Michael Carro 0:46 Tell us how you can help consumers in their credit card processing.

Greg Litton 0:49 Well, Everest Payment Solutions is like most in the processing business. We're an ISO or an independent sales organization, and we represent and sell with a couple of companies called TCS and First Data. First Data is the largest processor in the world. They're like the Bank of America of the banking business. But we basically sell their services and we control the rates to the restaurants.

Michael Carro 1:11 I know some restaurants, you've gone in and analyzed, and I've seen it myself, they're paying three and a half 4%, which is pretty darn high. If you do a million dollars in business that's 35 to $40,000, just in credit card processing fees, but you're seeing a much lower average with your restaurants or customers overall, tell us about what rates people should expect.

Greg Litton 1:32 Well, restaurant bars are what we call the low hanging fruit in the credit card processing business because everybody and their mother knows about them. They know they take a lot of credit cards. So that's what everybody hits. And so typically restaurant bars since everybody's trying to gain their business typically have lower rates. But in the restaurant and bar business if you're paying and when I say effective rate that's just at the end of the month, you take all your fees divided by your volume, and that's your effective rate. That's the important rate. And if that's more than two and a half, you need to have it analyzed.

Michael Carro 2:07 So if you want to go in and analyze somebody they call you. What do you need from them? And how does that process work?

Greg Litton 2:14 Well, it's actually pretty simple. All I need is a statement. Hopefully, it's a detailed statement. Some credit card companies will give out if they can get away with it, what they call a summary statement,

Michael Carro 2:23 a vague statement.

Greg Litton 2:24 Exactly. So people like me can't read them. That's the only thing that really matters. Because as a restaurant owner, I can sit down with them Michael and show them and I've done this for 15 plus years. I've never met anybody, not just in the restaurant business, but in any business that takes credit cards that truly understands it. It's so complicated and

Michael Carro 2:44 complicated on purpose.

Greg Litton 2:46 Yes, yes. But once I sit down, I can show the merchant everything he needs to know about the statement. I can't always determine how much the process or the person like me is adding and that's very important to know because, unfortunately, whatever the total fees are for the year for a million dollar restaurant, like $30,000, 95% of that is MasterCard, Visa and issuing bank of the credit card, and there's nothing that you as the owner can do about it, they're gonna take that money regardless, the only thing we can do is look at what the person, the other person, like me is adding on top of it. And if they give a halfway decent statement, it's pretty simple to figure out and show them this is what you're paying. Now you can't do anything about here's the small portion I can affect and this is what we can do for you. Are there some restaurants that inherently would pay a lower rate because their average ticket is higher like a high end Steakhouse versus a McDonald's that their average ticket maybe $5, whereas a steakhouse might be $70. Well, the bottom line is the total volume, not fees. The overall effective rate will be higher for a big steak house that has an average ticket of $100 versus a pizzeria that sells slightly is a pizza and has an average ticket of five or $6. And the reason for that MasterCard and Visa set the rates for each kind of card you take there are four different kinds of cards there debit cards, consumer just what they call credit cards, which there's no points, miles, you don't get anything for, then you have rewards cards, and then you have business cards, and they go up in cost on the backside to all four of them. That cheapest card being the debit card, the cheaper the average ticket, the more likely the customer is to use a debit card. So a pizzeria that takes debit cards is always going to have a lower effective rate than a high end Steakhouse. That doesn't mean what the process or like me is adding is lower if the volumes the same but again, that's the only thing that really matters or we can effect.

Michael Carro 4:44 See, that's the part that I didn't realize that in the lower cost items. The debit card is just being used more frequently, the rates still may be higher, but because they're using a card that costs less to use, that's why I was thinking it was lower cost

Greg Litton 4:59 Exactly. Somebody somebody might have a real low average ticket and have say a 2% effective rate the high end Steakhouse might have a just throw out something a 3% effective rate but their process or like me you're adding less on them than they are the low guy. So that does your overall effective rate doesn't mean that you're getting a good rate from me because most of that like I said, we can't affect that small percentage that's being added, hopefully small percent.

Michael Carro 5:26 So the whole thing for negotiation is the spread for the company like you,

Greg Litton 5:31 Exactly.

Michael Carro 5:32 That's it. That's what's being negotiated. Some might charge one charge and another would charge different charge and that is effectively what you're negotiating. There are cards that you can take and not take. That would also increase your your overall effective rate American Express, I understand is the most expensive card out there you have your Visa, MasterCard, somewhere in the middle. Then you have these discount cards like discover they came out with a lower price card. I see in Europe, a lot of places don't accept American Express because it's so expensive. What is your experience?

Greg Litton 6:04 Well, American Express has come down, but they are still the highest rated card. If you take American Express, you're gonna pay them and they still do it directly. They're gonna take their cut regardless. MasterCard, Visa and Discover, when Discover first came out, they tried the model after American Express, it didn't work so well for him. So they jumped in the same boat with MasterCard and Visa where they basically don't do anything. They just make a small percentage off of everything. And American Express, they still do the work, they still make the higher fees.

Michael Carro 6:34 Are they like a processing bank? Is that what you're saying?

Greg Litton 6:37 Kind of in the sense that they do their own stuff, but most lower average ticket restaurants probably could do away with it. Do you know anybody that has an American Express card that doesn't have a Visa or MasterCard?

Michael Carro 6:49 No, you can't you have to have a Visa because there's too many places that still don't take American Express.

Greg Litton 6:53 Exactly. So when I advise merchants that really need to accept American Express the high dollar jewelry stores an expensive steakhouse,

Michael Carro 7:03 because those are your corporate accounts,

Greg Litton 7:05 corporate accounts and people want to get American Express American Express has great customer service, too. And they if somebody steals or gets into your account anyway, they're pretty dang good. But you don't have to accept it as a lower average ticket place.

Michael Carro 7:19 How long are processing contracts when a customer signs up with somebody like your company?

Greg Litton 7:25 Well, the standard in the business is three years. I tell everybody that when I sign somebody up, and I'll tell you what makes my situation a little different. I got into the business with the Royal Bank of Scotland. When I was with the Royal Bank of Scotland, I would sign merchants up and I had no control over their rates after I did. And one of the biggest, and I hate to say this, but it really is a scam in the business is how credit card processing companies start jacking the price.

Michael Carro 7:53 The creep.

Greg Litton 7:53 Exactly. And it's a legitimate reason but it's abused every April and every October master visa and all the credit cards, they tweak some of their card rates. And when they do this somewhere in the language of your contract says if MasterCard and Visa change their rates, we have the right to change yours. And that's a legitimate reason. The problem is what they do is abuse it. MasterCard has, I haven't even counted them. But they've got 50 to 75 different cards that you can take in prices. Visa has over 100. If they tweak one of those cards, five basis points, what a lot of these companies do is they send out a letter to you as the as the restaurant owner and say, Michael, I'm so sorry to have to do this. But MasterCard and Visa have raised their rates. So we have to raise your rates by another 15 basis points on every card, even though they only change one card five.

Michael Carro 8:46 Gotcha.

Greg Litton 8:47 And so at the end of that it says if you don't call to dispute this in 30 days you are

Michael Carro 8:51 accepting it,

Greg Litton 8:52 accepting it. And so what that does, and most restaurant owners don't understand these statements to begin with. They don't pay it attention to it.

Michael Carro 9:00 Quite honestly, they're just too damn busy to worry about some 15 basis point spread, they believe that it's just being passed on as an expense that they have no control over. They can't worry about being scammed by every vendor out there. And so that's why they need somebody like you in their corner to always watch out. So you went from Royal Bank of Scotland to what

Greg Litton 9:19 I'm with Everest Payment Solutions. And the reason I left there is Royal Bank of Scotland. We're doing that to my customers. And I ended up going with some guys that had originally hired me they started their own company. And right now I tell people, one of the most important things if a credit card processor or person in the business can't give you the assurance when he signs you up that the rate and the amount that we're charging or adding to your fees. If he can't assure you those aren't going up and I can put in in writing then I wouldn't sign with him. Because if he can't give you that, that means they're gonna do it, period.

Michael Carro 9:53 Folks, you heard it from Greg Litton Everest Payment Solutions. That's your credit card update for the day. Good luck. See you soon. Thank you for listening to The Restaurant Realty in 10. If you're interested in restaurants, whether operations facilities buying, leasing or investment The Restaurant Realty in 10 is for you. Please subscribe to this podcast and you can also visit TheRestaurantRealty.com for show notes topics and additional information.