What is Preauthorization for Bars and Restaurants?

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What is preauthorization for restaurants and bars? In this post, we define preauth and talk about how it benefits bars and nightclubs.

If you own a bar (or have a bar in your restaurant), you understand that there are so many factors contributing to the overall success of your business.

Today, exceptional customer service rests on the incorporation of technology to increase guest satisfaction. After all, 73% of diners say technology improves their experience.

When it comes to bar businesses, there is one kind of technological advancement for bar POS systems that is becoming increasingly indispensable to high-level customer service: preauthorization.

To fully understand the importance of preauthorization for bar businesses, in this article we will examine the following:

  • What is Preauthorization?
  • 5 Ways Bar Businesses Benefit From Preauthorization
  • Common Preauthorization Myths Debunked
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What is Preauthorization?

Credit and debit card preauthorization (or "preauth") allows bartenders to:

  • Swipe a customer's credit card.
  • Securely save that information as their bar tab
  • Verify that the card is real
  • Make sure it has a preconfigured amount of funds on it.

Why is this important? The most common question bartenders ask – aside from "What are you having?" – is “Do you want to start a tab?”

Having the ability to set up a tab is convenient for your staff and the customer. It also incentivizes guests to stay longer and spend more during their visits. Additionally, without preauthorization, there is the risk that the customer’s card could be invalid or unable to cover the bill they have rung up.

How Does Preauth Help my Bar?

Preauthorization has the potential to streamline your operation and improve the guest experience.

Here are five ways preauth is important to your restaurant or bar business.

1) Preauth Limits Fraud From Fake or Stolen Cards

In addition to the hunt for fake IDs, bars and nightclubs should also be on the lookout for fake or stolen credit cards. The consequences of a customer racking up a bill on a stolen or fraudulent credit card are extremely undesirable as well.

When it comes to credit card fraud, there are significant consumer protections in place. Provided the fraud was not perpetuated with a debit card, the rightful cardholder can usually rest easy that the bank will not dip their hands into the consumers' pockets for reimbursement.

Merchants, however, do not enjoy these same protections. This means that the restaurant at which the “hot” card was used can be left with significant losses.

With preauthorization enabled, swiping the card automatically checks that the card is valid, that there’s a bank account attached to it, and that the card isn’t fake or listed as lost or stolen. Problem solved!

2) It Covers Insufficient Funds

The “I can’t pay my bill” conversation is awkward, embarrassing, and totally uncomfortable for all parties involved.

With preauthorization, however, this unpleasant scenario can be avoided altogether. Preauth checks the card for a preset amount of funds – usually the average cost of a drink at your bar – which limits the chance that someone with a real card, but no funds on it, will rack up a large tab at the bar’s expense.

3) Preauth Increases Speed of Workflow

A bartender’s job in not easy. Customers demand that their wacky concoctions be made perfectly to order and be delivered in a timely manner. It's critical that technology enable, not hinder, a bartender’s job.

Preauthorization helps bartenders move faster. A credit card can be preauthorized with a single swipe and no additional screen taps. This also saves the card as the customer’s bar tab, cutting down close-out times, as the bartender doesn’t have to search through a stack of cards when the bar is busy.

4) It Keeps Everything Organized

With a single preauthorized swipe, the bartender can save the customer’s card as an open tab and hand the card right back to the customer. Every time the cardholder orders another round, the bartender can add the drinks to the saved credit card on file and will not need the physical card back in order to close out the check.

Ezra Star, General Manager of high-volume bar Drink in Boston, attributes the ability to open a tab and immediately return the credit card to the guest as a key way to create a better customer experience:

"We can't physically hold onto credit cards because there are so many people and two terminals. Credit card preauthorization allows us to hold the guest information without keeping their physical card. Any of the bartenders can find the tab and close it out without requiring the guest to hunt down their credit card or running the risk of us losing their card."

5) Preauthorization Keeps Your Establishment Competitive

Out with the old and in with the new!

In the same way that modern restaurant POS systems have displaced the traditional cash register as the industry’s standard operating system, so will bars that offer preauth continue to outshine establishments that abide by more rudimentary methods of achieving high levels of guest satisfaction. Since preauth keeps everything moving faster, patrons won't have to sit around and wait for their drink, check, card, or receipt.

Preauthorization Myths Debunked

New to the concept of restaurant preauthorization? Let's address what may be some of your biggest concerns.

Myth #1: “Saving Customer Credit Card Information is Dangerous!”

Mhmm...not quite.

The saved credit card data is immediately encrypted in the cloud when the card is swiped. There is no sensitive information stored on any terminal or device.

Anyone who has ever participated in online banking has knowingly (or unknowingly) relied on the powers of encryption to keep their data safe.

Myth #2: “Customers Will Think They’ve Been Charged Twice!”

The way credit card preauthorization appears in online bank statements will vary depending on the cardholder’s bank.

It’s common to see what appears to be more than one charge on the account when preauthorization takes place, though only one charge for the final amount will remain after credit card batching has occurred. The holds typically disappear one to two business days after the transaction.

The pictures below illustrate the variations in online banking statements. The left column shows the transactions the day preauthorization occurred and the right column shows how they will appear on the following day.

It is possible that consumers will be surprised, and perhaps a bit confused, by the way a preauthorization hold may resemble a second charge on their bank statement – at least for the first few times they encounter it. However, as time goes on and preauthorization is more widely adopted across the restaurant industry, consumers will quickly come to accept this variance as the status quo.

Myth #3: “Preauth Will Complicate My Day-to-Day Procedures!”

Preauthorization will not radically change your operation. For example, with preauth you can still:

  • Take alternate forms of payment to close out a check (cash, gift card, or even a different credit card)
  • Split checks upon payment
  • Run sales reports
  • Close out checks at end-of day

The only real changes owner/operators will experience by adopting preauthorization are increased levels in both staff efficiency and guest satisfaction. Who doesn’t love that?

Is Preauthorization Here to Stay?

Any feature that helps give consumers more control over their experience while simultaneously making bars and restaurants more efficient should not be overlooked, and preauthorization certainly checks both of those boxes.

Do you think preauthorization will positively impact your bar business?

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