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Paying for Dinner Needs to Be Easier. Does Cover Help?

Welcome to Suttonomics, where each week Eater Data Lead Ryan Sutton looks at facts, figures, and data across the restaurant industry. This week, he delves into the workings of Cover, an mobile payment app that lets diners settle their restaurant bills by using an iPhone or Android device.

The act of paying is currently one of the least hospitable things about the hospitality industry. Not too long ago I was sitting at The Breslin's bar, saying a quiet prayer to "Madame Micros", a fictional albeit auspicious restaurant deity I'd summoned in hopes of expediting the complicated series of maneuvers that would eventually result in me being allowed to view the check and pay my bill. I'd already tried the polite head nodding thing (didn't work). I tried making eye contact (no dice). In the end, I simply handed my debit card to the bartender when he looked in my direction. "You can just run this," I said.

Now make no mistake; The Breslin is a great place to eat; I awarded it three stars in my Eater review earlier this summer. But sometimes paying up can be painful even at an excellent establishment. Equally as frustrating is when you can't just lay down cash and ditch a crowded dive because you've already surrendered your card as collateral to "start a tab." So there you stand, waiting to get a staffer's attention, while your American Express is held hostage in a clear glass jar next to the register. Not cool.

So in an effort to counteract this un-coolness are Cover, Dash, TabbedOut, OpenTable and a slew of other mobile payment platforms that have the potential to eliminate the ignominy of having to wait around for the check — as well as that awkward moment when, through the lens of alcohol, diners are expected to add 20 percent to the bill, a mental calculation upon which the livelihood of the wait staff depends.

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OpenTable, the leading provider of online reservations, is a big dog in this nascent field; the San Francisco-based company has shrewdly transformed its existing app into a platform for mobile payments. It currently works in about 50 restaurants in New York (and at 25 in San Francisco), with 20 more cities coming on line by the end of the year. That app of course got a nice jolt of publicity when OpenTable announced earlier this month that it was partnering with Apple to use the iPhone's Touch ID fingerprint sensor to verify payments. But OpenTable, with 32,000 restaurants subscribing to its reservations service, doesn't dominate the mobile payments space the way it does online bookings.

So that brings us to the case of Cover Pay, whose $7.5 million in startup capital has made it an increasingly formidable presence, letting guests pay for meals with its mobile app at 97 restaurants in New York and 32 in San Francisco, including at high-end establishments such Coi, a tasting menu spot that operates on the Nick Kokonas ticketing system -- Coi diners can use Cover to pay for beverage pairings at the restaurant.

Mark Egerman, who co-founded the company with fellow Carnegie Mellon grad Andrew Cove, says Cover averages 75 seated tables a night in New York, with that number growing about 30% per month, and with diners having spent over $1.4 million using the app since its debut last October (OpenTable, whose New York payment system launched in August, hasn't yet released usage or spending data).

Cover is simple. You download it. You enter in your credit card info and your default tip, which starts at 18% and goes up to 30%. You tell the waiter you're paying with Cover and when you're done, you simply leave the restaurant at your own accord and the bill, charged to your card, magically appears in your email inbox not too long afterward. No buttons to push, no checks to view or approve before departing the restaurant. "It's a very old fashioned "we'll put it on your tab mentality," says Egerman.

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Unlike with OpenTable's payments app, where reservations are required to active the payment process, walk-ins can use Cover. The service also allows for split checks; OpenTable will bring that functionality soon. And while Cover doesn't yet accept Apple Pay, Egerman says he's "very excited" to work with that system once it launches publicly to help "reduce friction" in singing up (it will also help allow for a wider choice of credit cards; Cover currently only holds two at a time).

What's even more interesting is how mobile payments as a sector might have the potential to raise consumer spending. "The pain of handing over money is more than the pain of handing over a credit card. And not handing over anything at all is the least painful," says Egerman, adding that his check averages are 7-12% higher than America Express'.

He also attributes the higher check averages to the fact that Cover doesn't show a running tab of what you're spending during the course of the meal. "Your phone stays in your pocket the whole time. Out of side. Out of mind." (Some guests, including this critic, will prefer the OpenTable check feature, which shows you how much you're spending during the course of the meal).

The service is more or less free for everyone involved, acting as an intermediary between the merchants and credit card companies. Cover, thanks to the power of volume and a low fraud risk, negotiates for lower fees than what restaurants normally pay, sometimes by up to a full percentage point. But those fees are nonetheless higher than what it ends up costing Cover to process the cards, allowing it to profit off the difference. "It's a pure arbitrage play," says Egerman. And because Cover handles the entire credit card process, it typically disburses funds back to the restaurants within a day or after the given transaction, acting as an escrow account of sorts while waiting for reimbursement from say, Visa or MasterCard.

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Taking full control of payments also means that Cover is "on the hook" for disputes and declines, of which there are 2-3 every night, says Egerman. And that's a good thing for both the consumer and the restaurant. In the event that a charge doesn't go through, Cover still reimburses the venue, plus gratuities, and contacts the diner the next day to update his or her credit card information. The result is that Cover users won't experience that miserable situation where a manager approaches the table and says, "Sorry, do you have another card we could try?"

So how does Cover work in real life? Perfectly. During a trial run at Parm last night, I walked in, ordered, ate, drank, and walked out like a gangster. The experience is like Uber mixed with Seamless, and the lack of an itemized check (or any check) at the end of the meal makes you feel very good about not knowing precisely how much you spent. Then you wake up in the morning and there's the bill waiting in your inbox, like an email from your boss. It's a better way to dine, mostly.

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