PYMNTS Intelligence, The Clearing House
July 2024
Real-Time Payments Tracker® Series

Real-Time Payments: The Cash Flow Spice Every Restaurant Needs

Real-time payments are a natural fit for restaurants, both for making seamless payments to staff and vendors and for processing payments from diners. As inflation and other economic hardships force many establishments to close their doors, real-time payments could provide crucial support in improving restaurants’ prospects for survival and success.

Real-time payments are a natural fit for restaurants and could provide crucial support in improving their prospects for survival and success.
  • Real-time payment systems have proven effective at driving profits for small restaurants, both by increasing customer spend and by reducing business-to-business (B2B) payment headaches. Some lingering problems are preventing more widespread adoption, however.
  • Cash flow presents a perpetual challenge for restaurants, often leading to budget shortfalls and missed payments that may threaten establishments’ survival. Adopting instant payments can address these cash flow issues, helping prevent closures.
  • Today’s restaurant patrons demand faster and more convenient service and actively seek out establishments that fulfill their expectations. Implementing real-time payments could be a vital step toward meeting customers where they are.

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    Since the pandemic’s onset, the restaurant industry has been navigating turbulent waters. Just as social distancing and stay-at-home orders receded, in swept inflation and other economic hardships. Restaurant sales are expected to grow only 3.8% in 2024, down from earlier forecasts of 5.3% growth, as rising prices and reduced consumer spending take their toll.

    Restaurants need every tool at their disposal to overcome these challenges, and real-time payments could be an asset in their efforts. Implementing instant transaction rails for both back-end and front-end transactions could improve cash flow and even encourage customers to spend more by providing them with their preferred payment options.

    Restaurants Heat Up Profits With Faster Payments

    Real-time payment systems have proven effective at driving profits for small restaurants, both by increasing customer spend and by reducing business-to-business (B2B) payment headaches. Some lingering problems are preventing more widespread adoption, however.

    Small restaurants are seeing profits rise with real-time payments.

    According to PYMNTS Intelligence research, small to mid-sized businesses (SMBs) in the restaurant sector that utilized PayPal and instant account-to-account (A2A) payments had the highest proportions of net profit margins exceeding 50%. In contrast, those relying on automated clearing house (ACH) transfers and checks were the most likely to have the lowest net profit margins. Additionally, one-third of restaurant SMBs sending checks showed slim profit margins of less than 10%.

    40%

    of independent restaurants in the U.S. generating $10 million or less annually utilize instant payment rails.

    This clear divide has spurred many restaurants to adopt instant payments. Forty percent of independent restaurants in the United States generating $10 million or less annually now use instant payment rails as their primary method for sending funds. Almost 70% appreciate the ease of using instant payments, while roughly 68% value the speed of processing.

    Restaurants resisting real-time payments perceive several challenges to their adoption.

    For restaurant SMBs, the biggest barrier to adopting real-time payments is the misconception that these payments are difficult to use or implement. Thirty-four percent of restaurants that did not use instant payments in the last 12 months cited this as an important reason, and 19% named it as the most important factor. Additionally, 32% of restaurants believed that instant payments carry an increased risk of fraud, which experts argue is a significant misperception. In both cases, the underlying issue is a lack of familiarity with instant payments, which providers must address to win over more restaurant SMBs.

    Instant Payments Improve Restaurants’ Cash Flow

    Cash flow presents a perpetual challenge for restaurants, often leading to budget shortfalls and missed payments that may threaten establishments’ survival. Adopting instant payments can address these cash flow issues, helping prevent closures.

    68%

    of restaurant SMBs using real-time payments as their go-to payment method report robust financial health.

    Cash flow woes have forced small restaurant chains to seek bankruptcy protection.

    Among the latest casualties of these cash flow troubles is Ohio-based Melt Bar & Grilled, which filed for Chapter 11 bankruptcy protection in June. Open since 2006, the grilled cheese-focused eatery, once featured on both the Food Network and the Travel Channel, operates from five locations across the state. Lingering economic effects of the pandemic have severely impacted the restaurant’s cash flow, contributing to its current financial struggles.

    Melt Bar & Grilled isn’t the only restaurant chain facing dire straits. That same week, Chicago’s Kuma’s Corner, a popular burger-and-beer concept with four locations, also sought bankruptcy protection, attributing its financial troubles to “general economic conditions [for restaurants]” and “ongoing cash flow problems.”

    Implementing real-time payments can significantly improve restaurant cash flow.

    While real-time payments may not save every struggling small restaurant chain, they can certainly help the prospects of many by improving cash flow, reducing transaction fees and boosting customer satisfaction through faster and more convenient payment options.

    According to PYMNTS Intelligence, 76% of restaurant SMBs using instant bank A2A payments as their primary method of sending payments report having very or extremely healthy balance sheets. In addition, 68% of restaurants favoring real-time payment options show healthy balance sheets, compared to 58% that do not use instant payments. Among the restaurants leveraging real-time payments, half cite better cash flow management as a key benefit, while 57% report reduced risk.

    Restaurants Respond to Diners’ Demands for Faster Payments

    Today’s restaurant patrons demand faster and more convenient service and actively seek out establishments that fulfill their expectations. Implementing real-time payments could be a vital step toward meeting customers where they are.

    Restaurant patrons enjoy digital integration for payments but not for much else.

    The pandemic saw the introduction of numerous digital restaurant features designed to limit contact between patrons and staff, but not all were well received. A PYMNTS Intelligence survey revealed that just 23% of restaurant-goers liked viewing menus via QR codes, but they greatly enjoyed the time savings of using the codes to pay the bill at the end of the meal. One payments company reported that its QR code payment solution shortens the average restaurant visit by 15 minutes and boosts tips by 10%. Adding real-time rails to this system could potentially make the restaurant experience even more efficient.

    15

    minutes could be shaved off restaurant visits with the adoption of digital payments.

    Restaurants are investing in new technologies to satisfy customer demand for faster payments.

    A recent study shows that restaurants are gearing up to invest in new payments technology in 2024. Among these investments, 52% of restaurant operators are earmarking funds for back-office technology, 41% for contactless ordering and payments, and 25% for self-order tablets or kiosks. All these improvements could be significantly enhanced with the implementation of instant payments technology, thereby accelerating customer payments and resulting in a more satisfying experience.

    Leveraging Real-Time Payments to Improve Restaurant Financials

    Real-time payments can significantly improve restaurants’ financial health and enhance their ability to satisfy consumers’ hunger for faster, more flexible digital payment options.

    With instant fund transfers, restaurants can access their earnings immediately, improving their capacity to manage day-to-day expenses, pay suppliers and handle unexpected costs. This enhanced liquidity can be crucial for restaurant SMBs, which often operate on razor-thin margins. For restaurant staff, real-time payments offer instant access to tips and wages, potentially improving employee satisfaction and retention, especially in an industry known for its high turnover rates.

    Real-time payments also align with evolving consumer preferences. Customers increasingly expect instant transactions in all aspects of their lives. Offering real-time payment options can enhance the dining experience and boost customer satisfaction, encouraging greater customer loyalty and potentially leading to higher sales. By adopting this technology, restaurants can gain a competitive edge in the fiercely competitive culinary landscape.

    About

    The Clearing House operates U.S.-based payments networks that clear and settle funds through ACH, check image, the RTP® network and wire transfers. The RTP network supports the immediate clearing and settlement of payments along with the ability to exchange related payment information across the same secure channel. Learn more at www.theclearinghouse.org.

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists includes leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:

    Managing Director: Aitor Ortiz
    Senior Writer: Andrew Rathkopf
    Senior Writer: Randall Brown
    Senior Content Editor: Alexandra Redmond
    Senior Content Editor: Joe Ehrbar

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