Hidden Costs of Order and Pay Apps - What you need to know

Hidden Costs of Order and Pay Apps - What you need to know

The Covid-19 pandemic has caused disruptive social measures affecting the hospitality industry, which in turn has seen an influx of order and pay apps flood the market. They’re all the rage right now, whether a downloadable app or progressive web app (PWA) in a browser.

Mobile order and pay apps can be extremely beneficial to your business, pandemic or not, which we have previously discussed here as well as what to look for in a solution, but there are still a few stones left unturned.

A quick look on the web and undoubtedly some solution providers claim:

IT’S FREE!

How often do you read that in adverts: no commission, no charges, no transaction fees, FREE? Unless you’re buying from a charity or a benevolent society, you can be sure it’s not actually free! So where do these companies make their money if it’s not from charging system fees or commissions? Welcome to the world of payment processing….

What to ask when looking at quotes

When you’re researching for a mobile order and pay solution, the question to ask is “what will it cost to accept card payments via the app?”. The reality is that there will be a charge for this and it’s fairly unavoidable. For every transaction, the card issuer (usually the cardholder’s bank) charges a fee AND the card scheme (Visa, Mastercard, American Express at al) charges a fee AND the acquiring bank charges a fee, so these costs are going to be recovered one way or another. The amount of settlement you receive in your bank account will be after these costs have been deducted. Your order and pay app provider should be able to accurately tell you how much these deductions are going to be from the start.

Where do the app providers make their money?

Method One – the sales agent model: the app provider helps you to obtain a merchant ID from their chosen payment processor. The payment processor pays your transaction settlements directly into your bank account, net of fees. You don’t realise it, but the app provider receives a commission for that, either in the form of an upfront introduction fee and/or an ongoing residual of the payment processing charges that are being deducted from your settlements. It’s no wonder the sales agents are being so helpful!

Method Two – the payment facilitator model: the app provider has an aggregator merchant ID, through which your transactions flow, along with all their other clients (hence the term aggregator). The app provider receives the money from their payment processor, then makes payment into your bank account, less all their fees, of course. The app provider has to recover the payment processing costs and then adds a mark-up to the charges. It’s from this mark-up that they make their money.

Other charges you should look out for

Now that we’ve revealed that some deals really are just too good to be true, what should you look for when researching costs? Honesty and transparency in their pricing would be nice but, in the absence of that, here are the main categories of charges you should look out for (and definitely ask about if it’s not obvious in the pricing documentation):

Payment processing fees – almost always a combination of a percentage of the transaction value PLUS a per-transaction charge. If the provider claims they don’t charge them, your payment processor will be instead as they’re almost certainly using Method One. Keep digging until you uncover the truth!

Commission – this is usually in addition to any of the payment processing charges discussed above and can be in the form of either a percentage of transaction value or a fixed per-transaction fee. A word of warning, beware of minimum commissions!

System or platform fees – typically a fixed weekly or monthly recurring charge for licencing of the software service.

Support fees – just part of the service, right? Don’t bank on it – they’re often not! Ask what happens if the system malfunctions at 11pm on a Saturday night, or what if you need to update your menu? Hospitality is never just 9 to 5 so you should check if the support team is 24/7 and how long you will expect to wait for a response.

Setup or upfront fees – one-time charges for sign-up, content build and configuration. Generally when it comes to apps, most of the work is in the upfront setup, so providers often look for a sign of commitment from you. Of course, some apps are more bespoke than others, so you’ll typically pay more for greater individuality and tailoring for your brand or set up requirements.

Hardware costs – you’ll need a device on which to receive orders; and you may wish to print them as well. Can you use your existing equipment, do you need to source your own, or is it provided (and if so what does it cost)?

If only there was a price comparison website for order and pay apps. Well, sadly there’s not! But if you want a refreshingly honest and transparent discussion about pricing, please drop us a line and talk to our friendly team. And if you’ve already taken the plunge but are unsure if you’re getting a good deal with your current mobile order and pay solution, contact us and we’ll gladly give you a comparative quote.