Editor's Note
Most operators treat swipe fees the way they treat the electric bill. It's a number that shows up, you pay it, you move on. This week Restaurant Business laid out how that number is calculated, and there's a detail in it that should annoy anyone who runs a tipped house. There's also a bill sitting in Congress that four years of bipartisan support hasn't been able to move. Plus a surprise in the August jobs numbers.
Let's get into it.
— James, Founder of Savory Bites
This Week In The Industry
You're Paying a Card Fee on Your Servers' Tips
Card companies took $198.25 billion in swipe fees last year. Some of it came off your servers' tips.
Here is how. A guest's check comes to $100. They add $20. Tax on top. The card runs for $128, and your swipe fee is calculated on the $128.
Not on the $100 you earned. On the tip your server takes home, and on the tax you collect for the state and hand straight over. You are paying a percentage on money that was never yours.
"Visa and Mastercard systematically charge small businesses more in swipe fees," said Doug Kantor, general counsel at the National Association of Convenience Stores. "Also, the swipe fees get charged as a percentage against the tipped and taxed amount, not pre-tax and tip. That's a huge penalty to businesses that operate on tips."
The fees themselves are up 80% since 2020. Merchant groups rank them as their second-highest operating cost, behind labor and ahead of rent, though that ranking comes out of convenience stores and retail, where there is no kitchen and no food cost. On a restaurant P&L the rate is smaller than that, low single digits of sales. What makes it sting is not the rate. It is the base they calculate it on.
That is why more registers carry the small print about a 3% fee on credit transactions, and why plenty of operators still won't. Handing the cost to the guest solves the arithmetic and creates a problem at the table.
The Credit Card Competition Act is the attempt to fix it upstream. It would require large banks to route transactions over at least two competing networks, one of them outside Visa and Mastercard, which together control roughly 85% of the market. The National Restaurant Association estimates that competition would save businesses and customers around $17 billion a year.
On paper it should have passed years ago. It is a free-market fix that costs the government nothing. Sens. Roger Marshall of Kansas and Dick Durbin of Illinois reintroduced it in January, and it just picked up three more co-sponsors: Bernie Moreno of Ohio, Cynthia Lummis of Wyoming and Angus King of Maine. Republicans, a Democrat and an independent on the same bill, with a presidential endorsement.
It still hasn't moved. Banks and credit unions have fought it hard, and Kantor is blunt about the rest: "Congress just does not pass as much legislation as they used to. This year, an election year, there has been plenty of difficulty agreeing on things." The sponsors tried to attach it to another bill in January and failed. The next target may be a defense spending package, and Kantor is hopeful about the lame duck session.
Meanwhile Visa and Mastercard settled a two-decade antitrust fight for $38 billion, agreeing to cut rates by 0.1% for five years and give merchants more flexibility over which card categories they accept. A judge granted preliminary approval in June. The National Restaurant Association said it "does little to address the problem," not after "a year when nearly half of restaurant owners didn't make a profit."
A 0.1% cut for five years lowers the price. Competition would change how the price gets set. Those are not the same thing.
Two things worth doing this week.
Pull your last merchant statement and work out your effective rate: total fees divided by total card volume. Most operators can quote their food cost to the tenth of a point and have never looked at this number. It is usually higher than the rate they were sold.
Then ask your processor, in writing, how your fees are calculated on tips and tax. You probably can't change it. But it decides whether this bill matters to you, and it turns a Washington story into a number on your own P&L.
News Bites
📈 Restaurants Led Every Industry in Job Growth Last Month After two straight months of losses, restaurants added more jobs in August than any other industry in the country, according to BLS data. That runs opposite to most of the last two years of hiring news. If your market has been tight, more competition for the same people is coming, and the operators who post schedules further out and make swaps easy are the ones who keep staff when someone down the street starts hiring. Source: NRN
🍹 Lower-ABV Drinks and Earlier Happy Hours Carried the Summer Bar Square's data has spritzes driving bar sales through the summer, alongside happy hours starting earlier in the day. Both point at the same guest: someone who wants the occasion without the evening it used to require. A spritz is also cheap to build, fast to pour and priced like a cocktail, which helps the margin and the labor line at once. Source: NRN
Ellie's Corner
Every week this space is dedicated to something we're building at Ellie Carte. An AI phone ordering and restaurant management platform built for independent restaurants and hospitality operators.
The swipe fee is a cost you don't set and can't negotiate. Most of the P&L is like that right now. The phone isn't. Every call that rings out during a rush is revenue that was already yours, walking away because nobody was free to pick it up, and there's no bank or network in the middle of that one. Ellie answers every call, takes the order, and keeps the customer's history attached to their number.
👉 Learn more at elliecarte.com
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