STRATEGIC PARTNERS
January 14, 2003
INDIANAPOLIS, Ind. -- Indianapolis-based Steak n Shake is among a growing group of fast-food eateries -- including McDonald's, Burger King and Wendy's -- testing debit card acceptance.
By the end of 2003, an estimated 40 percent of quick-service restaurants are expected to accept plastic, according to a report in the Indianapolis Star.
"If you're buying a burger, milkshake and onion rings, why not do it on credit?" said Barbara Span, vice president for the Star network, a leader in PIN-based debit transactions. "You're out, you're buying gas, buying groceries on credit. You gotta go through the drive-through, right?"
Nearly 30 percent of fast-food restaurants accepted cards in 2002, up from 5 percent in 1999, according to Credit Card Management magazine. Retailers nationwide are trying to grab a bite of the estimated $110 billion consumers spend each year at fast-food restaurants.
"Over time, we've really become much more of a cashless society. From gas pumps to convenience stores, there are very few cash-only places left," said Vic Yeandel, Steak n Shake's vice president of marketing. "It was an inconvenience for people who tended to carry less cash."
Steak n Shake's decision to accept credit came after consumer research laid it out: A refusal to accept cards could mean fewer visits by customers, or could deter them completely. "It was just becoming a veto reason not to come to the restaurant," Yeandel said.
As of early December, Steak n Shake accepts Visa and MasterCard at all 406 of its restaurants.
National research supports Steak n Shake's decision. Forty percent of consumers in the United States agree that if a fast-food restaurant offered credit, they would use it, according to a survey by the National Restaurant Association.
Technology that speeds the credit process, such as IP networks and dedicated lines, is convincing restaurants that used to worry about slow transactions to give plastic a try.
"We want to make sure we're not slowing down speed of service," said Bob Bertini, spokesman for Wendy's International, which is testing the concept in a few of its 5,400 locations. The company hasn't set a target date to begin offering the service nationwide because it has yet to decide if that will happen, Bertini said.
"Right now we want to see if it's something customers will even look for in a quick-service environment," he said. "See whether we can do it."
Consumers likely will embrace the concept if the speed is right, said Rob Borucki, president of Fast Food Source.com, a fast-food fan site and source of fast-food information.
"The obstacles have always been processing time and transaction fees," said Borucki. "As technology improves -- and it has improved -- the time and cost factors become less of an issue."
PIN-based debit -- which is generally quicker than signature-based transactions -- is emerging as the transaction of choice in fast-food restaurants, said Star's Span. Star is processing McDonald's transactions as it tests credit-card acceptance in Oregon, Colorado, northern California, Washington and Arizona. Star's other fast-food clients include Subway, Dairy Queen and Chick Fil-A.
To encourage more fast-food chains to sign up, Star began offering a flat fee of 12.5 cents per transaction to fast-food businesses. Other retail merchants pay fees ranging from 0.45 percent to 0.55 percent of the sale, plus a transaction fee.
"Quick-service restaurants have a lower-average ticket. It might be $10," Span said. "So the rate is lower than it would be for retailers whose average ticket would be $40 or $100."
For card issuers, it all adds up to more credit.
"(There will) be a greater volume of business in a greater number of retail settings where charge transactions don't typically happen today," said Jim Donahue, a spokesman for MBNA Corp., the second-largest card issuer in the world.
For retailers, accepting credit produces more money.
"People spend more with credit cards. People are more likely to spend. People spend more quickly," said Richard Feinberg, professor of retailing at Purdue University, who has researched the topic. "This means more revenue more quickly."
Steak n Shake's Yeandel agrees that's one reason his company began accepting cards.
"We've got a lot of great desserts and hand-dipped milkshakes," said Yeandel. "Maybe, they'll go for that, too," in addition to the burger and fries.
