The State of Card Payments for the Hospitality Industry
The good news? 2023 was a year of significant revenue growth for both the hotel and restaurant industry as they continue to rebound from the pandemic, up 9.6% (total revenue available per room) and 10% (overall sales) respectively. However, 2023 was also an expensive year for labor, which experienced a high increase in costs.
While labor costs show no signs of slowing, there are other line expenses that hospitality executives can look to reduce expenses and help bolster profits. Merchant processing fees surpassed $160 billion across all US businesses last year. As it currently stands, the system allowing you to collect payments is likely costing you more than it should. Most of the losses manifest as vague, miscellaneous fees crammed in among the other legitimate charges for card use, adding up quite significantly over a year.
Over time, these overhead costs can lead to significant losses in revenue for your business. These challenges, combined with the fact that hospitality companies face extra pressure to keep customers happy and provide a seamless experience, mean they must determine a strategy that allows both the merchant and the customer to have their cake and eat it too. With proper guidance, a seamless payment experience for customers and more robust tracking and monitoring of credit card statements for merchants is entirely feasible.
Common solutions in other industries like upcharging or price increases may not sit well with customers. If you’re running a restaurant, for example, there’s nothing diners hate more than being hit with an unexpected credit card surcharge at the end of their night. There are other avenues to revamp and invest in your payment suite, but also protect yourself–and your customers–from rising credit card fees.
Stronger POS Management
POS management and integration can help drive cost savings and reduce credit card fees in the long run if chosen strategically and set up properly. Unfortunately, many restaurants, hotels, and other hospitality companies struggle with POS management. Three key areas that are worth spending some time discussing include API access and processor compatibility.
- API access: POS systems use APIs (application programming interfaces) to allow for software customization without changing the hardware. In the ever-evolving world of tech, there will always be more add-ons and system updates offered after the initial setup. It’s important that your POS system offers flexibility to access new (and update) existing APIs to provide more functionality and maintain point-of-sale hygiene.
- Processor options: Some POS systems only allow you to work with one processor while others are processor agnostic. This distinction is especially important if you discover that your processor is overcharging and you’d like to explore switching to another provider. There are many processing options out there, all with varying fees and pricing structures so it’s important to weigh the pros and cons of a POS system, as well as the processor relationship, so you can choose the one that works best for your business.
- Consumer experience: It’s been mentioned ad nauseam, but consumers love convenience and ease of use when purchasing or paying for something. This can be done in a few ways; for example, adding contactless payment capabilities for Apple and Google Pay. In addition, implementing a lighter touch customer experience that helps customers feel welcomed and not overpowered; allowing customers to tip on their own time, for example, may create less pressure and mitigate potential friction between workers and customers.
To choose the best POS system for your company, it’s helpful to work with an expert to evaluate what would make the most sense given your volume, business type, transaction mix, and other considerations. The payments industry is notoriously convoluted and opaque, with little regulatory oversight in some areas, making it difficult for merchants to advocate for themselves when struck with inflated fees and ambiguous statements. With that in mind, working with experts to understand the intricacies of the payments and processing systems right from the get-go will help hospitality executives simultaneously innovate and revamp their payment solutions while also protecting themselves from bloated processing costs.
Surcharging Credit Card Payments
As mentioned, many business owners have started adding additional fees for using credit cards. Although it’s one way to make up for your processing fees, there are many pitfalls to be aware of before implementing such a program.
First and foremost, hospitality companies must keep in mind the regulations around credit card surcharging. These vary based on city and state but keep in mind that the laws for credit card charges are different than those for debit card charges. Many states also cap the percentage per transaction that merchants can charge, and any unintentional math errors in the setup can and will snowball down the road, leading to serious tax implications and fines.
The other method to add a credit card usage fee is to implement a cash discount. Instead of adding a surcharge fee to the bill, you can offer a discount on any items or services paid for in cash. This is the safer method since it eliminates the processor from the equation, but it relies on your customers carrying around cash to be effective. Additionally, businesses risk frustrating or upsetting customers who are affected by surcharges, leading to a degraded consumer experience and lower customer retention. Like any payment strategy, there’s a give and take, but cash discounting has its limitations due to the decreasing popularity of cash.
Best Practices for Payments Hygiene
Regardless of how you choose to address card fees, it is vital to evaluate your POS system and become more familiar with monthly statements—particularly potential hidden or junk fees—and use these data points to negotiate lower fees. This can happen through more vigilant auditing on a company’s part or working with an expert who can help decipher these confusing statements.
In the long run, hospitality businesses that optimize their credit card processing systems and costs will position themselves for greater financial success while also creating better experiences for their end customers. Through a combination of technology and more knowledge of the space, the hospitality industry must continue to take steps to avoid ever-increasing credit card processing costs in the year ahead.
About the Author
Eric Cohen is CEO of Merchant Advocate. A veteran of the finance industry, Cohen founded Merchant Advocate in 2006. After his extensive experience in the merchant services industry, he was determined to create a fair value proposition and transparency for merchants with their credit card processors. He established Merchant Advocate to act as a trusted advisor on behalf of all size and categories of businesses. As the CEO and founder of Merchant Advocate, Eric leads the team with passion that comes from saving merchants over $300MM. He is always striving to help business owners save money. His unique vision has driven the development of an entirely new industry of Advocacy in Merchants Services.