Credit card fees are gobbling up restaurant profits in South Texas

McALLEN — About 60 local restaurateurs gathered Monday to talk about a growing squeeze on their bottom lines — and how they’re trying to survive it.

At the center of that conversation were credit card swipe fees — the percentage restaurants pay to card networks and issuing banks on every transaction.

Those fees have climbed over the past two decades and now represent a major expense for restaurants nationwide, Texas Restaurant Association Chief Public Affairs Officer Kelsey Erickson Streufert said Monday at a McAllen town hall hosted by the association.

Streufert said Visa and Mastercard control about 85% of the credit card market, which leaves restaurants with no real alternative to steep fees. She put the average processing fee at 2.35% and said it could be higher for small businesses.

“And that may sound like a small number, but the average restaurant profit margin is 5%,” she said. “So if you’re making 5% and giving 3.5% of that to Visa and Mastercard, what is left for you to run your business?”

Larry Delgado, who owns house. wine. & bistro. and SALT – New American Table, agreed that those fees are a threat.

Delgado said those fees translate to $120,000 to $130,000 a year for his businesses, money he could otherwise spend on training, new equipment, or employee raises.

“That keeps me up at night,” he said.

Retailers nationwide have long looked to combat swipe fees, leading to years-long litigation, appeals for customers to pay in cash and legislative efforts at reform.

Streufert described it as a David-and-Goliath fight. 

On the one hand, she said, the credit card industry is very well-funded and fields its own arguments against reforming swipe fees.

On the other, there have been some bright points for the restaurateurs. 

President Donald Trump has indicated support against swipe fees and the restaurant sector has allies in other industries. 

Streufert was even optimistic about how negatively she viewed the situation. Any reform, no matter how small, would be a win.

“This issue is so bad that there are a lot of ways that we could make it better, and we are open to all of those ideas,” she said. “I guarantee you the other side is open to none of those ideas because they’re making a lot of money.”

The people at the town hall seemed to broadly agree that immigration policies that have disrupted other industries have had a chilling effect on the restaurant sector.

“There’s a tremendous amount of fear of going out and eating right now,” McAllen City Commissioner Tony Aguirre said. “Maybe in McAllen not as much, but in the surrounding cities of McAllen, there’s a lot of restaurants that are slow because people are afraid to go out and eat.”

Those concerns don’t mean Monday’s town hall was overly negative.

Streufert pointed to legislative wins for the TRA last year, including money-saving permit reforms and preventing new menu, signage, pricing and labeling mandates.

Monday’s meeting even turned up two prospective legislative contacts for the industry: both of the Rio Grande Valley’s state senators, who spoke at the town hall. 

Industry members also said they’re optimistic about restaurants, including Bob Lozano, CEO of F&P Group of McAllen.

Lozano said he thinks technology will be an important part of the restaurant industry’s path forward, including the adoption of AI. He said F&P identified $200,000 annually in software he intends to eliminate and replace with AI that’s significantly cheaper.

“We’re very pro-tech at F&P,” Lozano said. “We believe in technology, we believe that it’s a necessary way to do business for the future.”

Newer technology might drive business, but that doesn’t mean it will be easy for restaurants.

Lozano said traffic in his restaurants has been up for the past 36 months and that a bulk of that increase is because of third-party delivery services.

“We shifted from 1-2% [third-party delivery] to double-digits,” he said. “And so as our business shifts, what does that translate to in our business? It’s more labor hours, it’s more transactions, it’s more work because there’s more transactions — but there’s less profitability at the bottom line.”