No-Fee Credit Card Processing
Is anything really free these days? If that's a no, the same goes for free credit card processing. Read on to learn what "no fee" really means.
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Credit card processing fees take a toll on your budget, we feel you. Sometimes, you might even question if it's worth it.
Then you come across the idea of free credit card processing (cue sigh of relief).
BUT the truth is, you'll want to pause before you apply for anything. There's a catch with these no-fee processors.
So let's take a step back and talk about how it actually works. And if you still want to explore this option, we'll recommend legit companies you can trust. Read on.
These companies offer a no-fee processing option:
What is Free Credit Card Processing?
Free credit card processing is a strategy that passes the processing fees to your customers through surcharges. That way, you're not paying for the processing fees out of your pocket. Instead, customers will pay more for their purchases.
But it doesn't mean it's all free. Surcharges are only allowed for credit cards, so you'll still pay processing fees for debit card payments.
And your processor might have other fees. These could be monthly fees, PCI compliance fees, chargeback fees, etc. But you will save on the processing fees since that is usually the biggest cost.
There are also many rules to legally do "free credit card processing". Like you must have clear signage and inform the card brands. We'll go over the rules in a bit.
A surcharge is an additional fee your customers pay if they use a credit card to make the purchase. It's legal in most states. But there are rules to follow if you plan to surcharge.
Pros:
- You keep more profits
- Lower or no payments for processing fees
- Encourage opportunities for smaller businesses
Cons:
- Can drive away customers
- Competitors without surcharges gain an edge
- Need to meet legal requirements
Okay, now that you know the "what," let's get on with the "how."
How Does Free Credit Card Processing Work?
Free credit card processing companies will handle most of the requirements for surcharges. The credit card terminal they'll provide will already be set up for it. This is unlike using traditional credit card processors, where terminals still need to be reprogrammed to allow surcharging.
They'll also notify card brands of the surcharges, so you won't need to inform Visa and Mastercard yourself.
Of course, you're responsible for displaying surcharge signages or posting them on your eCommerce store. But some companies even print out these signs for you.
There's really no such thing as zero-fee processing. Zero credit card processors simply let you pass these fees to your customers. These fees, now "surcharges," are paid by your customers whenever they pay with credit cards.
Now let's go over the rules in detail:
Rules for Free Credit Card Processing
To correctly set up free credit card processing, there are rules you must follow in order to comply:
- Must be clearly displayed and communicated to customers.
- Maximum 4% of the transaction or the cost of the processing fee, whichever is lower.
- Debit card transactions cannot have surcharges.
- Shown on the receipt as a separate item.
- Card brands must be notified.
Surcharges must be clearly communicated
Surcharges must be clearly displayed at checkout (whether online or in-store) and communicated to the customer. Card brands have their requirements on where to place the disclosure.
- Mastercard: It should be displayed at your point of store entry. For eCommerce stores, it should be on the first page referencing credit card brands.[1]
- Visa: It should be displayed at the POS in person and online. It should also be found on all receipts.[2]
Surcharges should also be clearly shown on the receipt as a separate item.
Surcharge can't go over limit
Surcharges cannot exceed 4% of the transaction amount (depending on your state) or the cost of the processing fee, whichever is lower.[3] It's meant to only cover processing costs, nothing more.
Debit cards can't be surcharged
Surcharges can only be allowed for credit cards. Debit and prepaid debit card transactions cannot have surcharges.
Notify card brands
You need to tell the card brands that you intend to surcharge. Each card brand has its own due date. Visa and Mastercard require you to inform them at least 30 days before imposing surcharges.
Not all states allow for surcharges
Surcharges were legalized on January 27, 2013 [4]. But there are still states that prohibit them. Make sure you know your state's specific rules.
However, some states have more limitations regarding surcharging. These are: California, Florida, Kansas, Maine, New York, Oklahoma, Texas, and Utah.
Choose product-level or brand-level surcharge
Decide at what level you will surcharge. You can't have both.
A product-level surcharge applies to a specific type of credit card (for example, World Elite Mastercard). A brand-level surcharge, would apply to all the credit cards of a particular card brand (e.g., all Mastercard credit cards).
Are all these rules worth it? Let's see if it could be worth it for your business.
Do You Need Zero-Fee Processing?
It may be tempting to get credit card processing fees covered. But customers view surcharges as penalties for using cards to pay. So it could actually hurt you. Do you really need it?
Small independent businesses could benefit from free credit card processing because you'll keep more profits. You can use the money you'll save to expand. Customers can also be more forgiving with surcharges if you offer something unique.
But if you're already a large business, you probably don't need it. Some payment processors offer lower rates if you have high volume, so you can save that way. You don't need to risk losing customers from surcharges.
It's also important to see if your competitors are surcharging. If not, you could lose customers to them.
That said, there are some types of businesses that it could work for. Let's go over them next.
What Type of Business Makes Sense for Free Credit Card Processing?
Customers generally don't like surcharges, but here are some examples of businesses that might get away with it:
- Common cash-only businesses
Let's say most of the taco vendors in your area are cash-only. If you allow for credit cards, customers may be willing to pay a surcharge for convenience. - Niche businesses
If you're a general merchandise store, there may be tons more that customers can go to. But if you offer unique niche services or products, then customers may be willing to pay a surcharge, since they don't have many other options. - Small local businesses with loyal customers
Let's say you're a dog groomer and customers love you (yay!). If you decide to surcharge, they may understand that you're just trying to survive. Plus, they already love you and are less likely to switch. - Professional services
A lot of professional services (like legal or financial) traditionally use bank transfers to accept payment. Customers may be willing to pay a surcharge to be able to charge on their card instead.
Another point: customers often use credit cards for rewards. For example, they could earn points for dining in restaurants. Then paying a surcharge can be worth it for them because they'll get more rewards.
Now, if it sounds like it could make sense for your business, the next step is choosing the best processing company to work with.
What to Consider When Choosing Free Credit Card Processing?
Here are some criteria you can use when shopping around for a processor:
- Contract
Many payment processors offer month-to-month contracts. There's no reason to tie yourself to a long-term contract unless it helps you save money. The downside is that you might end up not liking their service. Long-term contracts often have early termination fees. - Number of credit card transactions
Some payment processors require a minimum volume of transactions. Make sure that your current number of credit card sales can fit that requirement. - Debit card processing fees
Unfortunately, you're not off the hook with all processing costs. Debit card purchases will still cost your business. Be sure to check how much debit card processing fees are and if your business can work with them. - Additional fees
Is there a monthly fee? What about batch fees? Incidental fees? There are many other fees your processor might have. Avoid hidden fees and choose a processor that offers transparent pricing. - Exceptional customer service
You can test a company's customer service by inquiring about what they offer before applying. Unfortunately, even if a company's well-known, it can still have its shortcomings.
Both companies help you accept credit cards as payment. The difference is, with a merchant services provider, you get your own merchant account. PSPs combine different merchants (you) under one umbrella account.
If you're not sure whether you should pass fees to your customers, here are some alternatives.
Free Credit Card Processing Alternatives
Your customers won't be a fan of surcharges. Some of them might even stop shopping with you.
And to avoid that last bit, here's what you can do instead:
Lower credit card processing fees
Many credit card processors are willing to negotiate processing rates. That's as long as your business can still help them profit. So the higher your sales volume, the more you can negotiate.
There are different steps to do this. First, learn the types of fees to know what you can negotiate. Basically anything charged by the processor company is fair game - transaction markups, monthly fee, etc.
Next, know your effective rate. It's the true percentage of how much you pay per credit card transaction. It'll help you figure out if you're paying too much and how much room you have for negotiation.
Here's a calculator to help you out.
If you can't negotiate, a different pricing model can often help you cut down costs. For example, if you have over $10,000 a month in card sales, switching to a subscription pricing plan can be big savings.
Implement cash discount programs
This is kind of the opposite of surcharging. Your posted prices should be the price for using credit cards (you can budget the processing fee into that). And customers get a discount if they pay in cash instead.
Structuring your pricing this way reframes the fee to your customers' minds. They'll see it as saving money if they use cash. With surcharges, they'll view themselves as being "punished" for using cards.
Set up a convenience fee
A convenience fee seems similar to a surcharge but they're not exactly the same. You charge a convenience fee if a customer pays with a method you don't typically accept with your business.
Unlike surcharges, convenience fees are legal in all states. But you'll still need to communicate these fees at your POS. And it's only allowed if there's another form of payment available (what you typically accept in your business).
Convenience fees are typically 1% to 3%, and are used to cover the cost of processing fees. Credit card networks will also have their rules regarding these fees.
Okay, say you're convinced that you need zero-fee processing. Be sure to select a reputable and trusted company. Read on.
Best Free Credit Card Processing Companies
There are pros and cons to these free credit card processing companies. Let's discuss some of your options.
1. PaymentCloud
PaymentCloud works with many types of businesses. There are no hard requirements for processing history or business size.
They also work with high-risk merchants. However, just note that not all types of high-risk businesses can be accepted.
What's great about PaymentCloud, however, is that contracts are month-to-month. It's easy to start and the setup is smooth. Terminals are also surcharge compliant.
High Risk? No Problem
- Competitive Options for Payment Processing at All Risk Levels
- Fast Funding
- No Setup/Hidden Fees
- No Minimum Credit Score
- All Industries Accepted
2. Stax
Like PaymentCloud, Stax provides terminals that are already surcharge-compliant. They also offer more payment methods, such as digital invoicing, gift cards, and keyed-in payments.
They'll help you with the signage to make it easier for you. There's also a mobile app (for Android and iOS) you can use to take payments. It's handy for doing business on the floor.
Unfortunately, Stax has other fees (e.g., chargeback fees). And they don't have the best customer service.
Save Up to 40%
- Flat Monthly Subscription Price, Starting at $99
- 0% Markup on Direct-Cost Interchange
- 24/7 Support
3. CardX
Speaking of Stax, it acquired CardX last 2021. CardX is an automated surcharging platform that can help you surcharge and not worry about compliance. They have great customer service, so you know you can rely on your processor when you need to.
They charge your customers 3% for credit card payments. And they provide signage you can use to keep them informed of surcharges.
Debit card payments can cost you 2.91% per transaction (depending on your agreement) and 3.38% on commercial debit card transactions. Keyed-in debit transactions do not qualify for the 2.91% rate.[9]
The custom terminal already has CardX installed. Unfortunately, you can only lease it for $35/mo. The virtual terminal starts at $29/mo and comes with a Lightbox for your website.
Eliminate Credit Card Processing Fees With Surcharging
Accept Credit Cards at 0% Cost and Increase Your Margins Instantly
4. Nada Payments
With Nada Payments, you also get surcharge-compliant terminals and help with signage. Add to that the benefits of 24/7 support, no setup costs, and no early termination fees.
They'll charge your customers 3.00% for credit card payments. Debit cards will cost you 1.50% + $0.25 per transaction.[10] Just like with Stax, there's also a mobile app you can use.
The major downside is that you only get to lease terminals. The smart terminal costs $35/mo while the virtual terminal costs $29/mo. This can get expensive compared to if you can purchase your own equipment.
5. Shift Processing
Shift Processing is a free credit card processor that works with any type of business. You could be in retail, technology, marketing, etc. You could even be a high-risk business.
They have month-to-month contracts with no monthly fees. They also provide free terminals. You could also qualify for a free POS system.
The downside is that there are minimum volume requirements. So it could be harder to get approved if you're a small business just starting out.
You'll want to read the fine print before signing any contract. Ensure that the equipment only applies surcharges to credit cards and not all types of card payments. You wouldn't want to violate any law or processing agreement.
Also, be wary of those who promise to remove 100% of the fees. Take it with a grain of salt. There are other fees you could end up paying. It's always best to work with reputable and trusted companies.
These options aren't necessarily the best processors. They're only the ones that offer "free" processing. But if you're looking for top-notch choices, check out our list of best credit card processing companies.
The Bottom Line
Free credit card processing isn't really free. If it's not you, somebody else has to pay. And this time, it's your customers.
Eliminate Credit Card Processing Fees With Surcharging
Accept Credit Cards at 0% Cost and Increase Your Margins Instantly
There are pros and cons to this. Of course it'll help you keep more profits, which can make a big difference for small businesses.
However, customers wouldn't be so stoked with surcharges or extra fees. You'll have to carefully think about if it makes sense for your business.
Save Up to 40%
- Flat Monthly Subscription Price, Starting at $99
- 0% Markup on Direct-Cost Interchange
- 24/7 Support
References
- ^ Mastercard. Merchant Surcharge FAQ, Retrieved 4/16/2023
- ^ Visa. Merchant Surcharging Considerations and Requirements, Retrieved 4/16/2023
- ^ National Merchants Association. Surcharging FAQs, Retrieved 4/16/2023
- ^ Visa. Surcharging Credit Cards, Retrieved 03/04/2023
- ^ Connecticut State Department of Consumer Protection. Credit Card Surcharges, Retrieved 4/16/2023
- ^ The General Court of the Commonwealth of Massachusetts. General Law - Part I, Title XX, Chapter 140D, Section 28A, Retrieved 4/16/2023
- ^ AMEX. Merchant Reference Guide, Retrieved 03/04/2023
- ^ IRS. Publication 535 (2022), Business Expenses, Retrieved 03/04/2023
- ^ CardX. Pricing, Retrieved 4/16/2023
- ^ Nada Payments. Pricing, Retrieved 4/16/2023
Write to Karen Eloriaga at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.
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