Will QSRs Kill the Cash Cow?

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Will QSRs Kill the Cash Cow?

By George Koroneos, Contributing Editor - 01/01/2005

For quick-service restaurants speed is imperative, and the implementation of credit-card readers has been a painfully slow process. However, with the increase of affordable high-speed services, more and more QSRs are moving over to credit transaction systems.

Traditional credit-card authorization systems incorporate dial-up modems with speed rates of up to 56 kilobits per second, resulting in transactions that can take up to 30 seconds to approve through a telephone call to an outside processing system. If the phone lines were ever to go down, all transactions would have to be performed manually over the phone taking much needed time.

Using high-speed Internet services such as digital subscriber lines (DSL), satellite or cable, QSRs can drop authorization time down to less than five seconds. The connection is always on and is routed over Internet protocol (IP) to the authorization company.

New technology, old castle
White Castle has taken advantage of the technology, rolling out an enterprise-wide high-speed credit-card transaction system that offers DSL service to all but 65 of its 395 locations. The company decided to move away from an off-line, dial-up credit-card authorization system, and compete against other QSRs like Wendy's, which implemented a high-speed EPay system last year.

"The Castles that have the dial-up really know it; 30 seconds really puts a cramp in the business," explains Don Long, senior director of information services and technology at White Castle. "When we designed our new credit card system the goal was to make credit faster than cash, and I believe we have."
The company has installed an integrated POS system that runs across its existing VPN connection using Southern Datacomm (protobase.com) as a gateway into the credit card processor. The VPN is using DSL for Internet access, allowing for credit card authorization at the rate of almost five seconds per transaction. The approximate total cost for the system was $1 million.
For speed and security reasons, the customer swipes his or her own card--even at the drive thru. White Castle had custom-made Delphi environmental cases installed that securely hold a card-swipe unit without fear of being damaged by vandals or the elements. "It was a challenge to get the unit positioned right, but it only took a couple of hours," Long says.

The high-speed challenge
The challenge with high-speed Internet is that not all regions can receive the technology. According to DSL provider Verizon (verizon.com), DSL is only available to customers residing within three •wire-run' miles (up to 18,000 feet) from their Verizon Central Office. In addition, Verizon customers must be served over copper wires. Some wires may be capable of handling DSL and others may not, even in the same area.
Additionally, while high-speed connections are more stable than dial-up, there is still a chance that the VPN network might fail. In the event of an emergency, some QSRs have a backup dial-up network that the POS system can switch to if the VPN network is ever damaged. Another option is to authorize credit card transactions locally by hand and batch-confirm them later.
A national QSR must also source dozens of different high-speed Internet companies throughout the country, because different areas are handled by different providers. The lack of universal carriers can cause difficulties, but once the system is set-up, the advantages of high-speed versus dial-up are numerous. According to VeriSign, payment service provider benefits include:

- Decreased customer wait time
- Reduction in phone lines
- Locked-in card-present rates
- Detailed, real-time transaction reporting from any Web browser
- Easier reconciliation process
- Transfer of transaction data directly into back-office applications
- Additional terminals installed quickly and inexpensively
- Leverage in-store Wi-Fi connection
- Connection to a wide selection of processors

Time for change
None of those concerns, however, stopped Wendy's International from announcing a major credit card push last year. Fifth Third Bank Processing Solutions (53.com) is currently processing Visa, MasterCard, American Express and Discover credit-card transactions for more than 4,200 Wendy's restaurants in the United States. In addition, Wendy's announced it is making available Hypercom (hypercom.com) high-speed card payment terminals and technology is being made available to Wendy's(R) franchisee restaurant locations in the United States.

As Wendy's franchisee Scott McClenahan notes, the move was a long time in coming. McClenahan has offered credit-card processing at his Redwood City, California restaurant for years. "This is what our guests want," McClenahan notes. McClenahan offers credit at the restaurant's front desk and the drive thru.

At Mazzio's Italian Eatery, every time an aging Hypercom dial-up terminal would fail at one of the company's 200 locations, it would cost approximately $200 for used replacement equipment. Additionally, the extra phone line required to use the dial-up connection was setting Mazzio's back $40,000 a year. In 2003, Pat Patterson, Mazzio's vice president of information technology, began the process of installing VeriFone's Omni 3750s (verifone.com) in some of the company's high traffic restaurants. The installation was a success, and the company began rolling out units to 45 additional locations.

"The credit card terminal in the restaurant connects to our local-area network (LAN) in the restaurant which in turn is connected to our wide area network (WAN)," Patterson says. "The credit card transaction travels through the LAN to the WAN, then through a router that connects directly to our credit-card processor through a leased frame relay connection. By utilizing our network instead of dialing over a POTS (plain old telephone service) line, the time to get the transaction to the processor and back to the restaurant is reduced drastically."

The installation process took about two months to complete. Most of the installs took less than thirty minutes per restaurant. "First our network administrator changed our network to allow a path from the restaurants to Paymentech (paymentech.com), our credit card processor," Patterson explains. "We already had a local area network in our restaurants so all we had to do was attach the VeriFone terminal to the network." Some locations were more difficult than others because of the need to relocate terminals due to lack of network access or the need for an electrical outlet. Typically, all that was needed to perform the install in the restaurants were two Ethernet patch cables, a four-port hub and a power strip.

According to Patterson, response times went from 20 to 30 seconds using the dial-up terminals, to three seconds using the terminal attached to the private network. "When customers are backed up to the entrance, the reduced time to verify credit card transactions can make a significant impact on service."

Down the IP pike
As credit card authorization via high-speed Internet connections continues to permeate the QSR industry, companies are taking advantage of the technologies' advanced features. By installing a wireless network to the existing high-speed network, QSRs can add mobile WiFi-enabled payment terminals for peak hours. Waiters can use handheld units with card readers to take orders and process payments over the Internet.
In addition, restaurants have the option of integrating debit- and gift-card authorization into their high-speed Internet credit-card processing system. Long says that White Castle will be installing both options by the end of the year.