There’s No Such Thing as Free Credit Card Processing

Business owners who count on credit card processing to make their business happen are often frustrated with the fees and processes associated, especially when compared to alternative payment options. This is one of many reasons why businesses should think about using Stripe for all their transactions.

There is no such thing as “free credit card processing for small business.” There are different types of credit card processing and the type you need will depend on your company’s needs.

Every credit card transaction costs merchants an average of 2% to 3% in processing fees. Interchange costs are paid to the customer’s card-issuing bank, assessment fees are determined by credit organizations (Visa, MasterCard, and so on), and merchant services markups are paid to payment processors. Merchant service markups are the only element of credit card processing costs that may be negotiated, yet they account for just a tiny portion of the overall rates merchants pay. 

As credit cards become the most common form of payment in the United States, many retailers have accepted the unavoidable cost of processing fees, which is why many are looking for methods to get credit card processing for free. Businesses strive to reduce rates to zero by using cash discounting or credit surcharging (also known as zero cost credit card processing).

Unfortunately, there is no such thing as genuinely free credit card processing due to interchange fees levied by banks and assessment fees charged by credit card organizations. Even if you can avoid the costs as a merchant, you’ll almost certainly pass the cost on to your consumers. Let’s look at how “free” credit card processing works and whether it’s a good idea for your company.

What Is Credit Card Processing at No Cost?

The term “zero cost” or “zero-fee” credit card processing refers to the practice of transferring part or all of the expenses associated with payment processing on to your clients, thereby making payment processing “free.”

These expenses may be passed on in three ways by businesses:

1. When a business gives a discount to consumers who pay with cash, this is known as cash discounting. This is common at petrol stations, where credit card payments may result in a higher per-gallon pricing than cash transactions.
2. Convenience fee: This is when a merchant charges a fee to consumers who wish to pay with a credit card at the time of purchase. The convenience charge is generally a set sum, independent of the value of the transaction or the items purchased by the client.
3. Credit surcharging: When a merchant passes the credit card payment processing costs on to the consumer by including them in the transaction cost, this is known as credit surcharging. Many merchant account providers and payment processors, on the other hand, have regulations against this. Customers are supposed to be informed about merchants’ fee policies by posting signs in their physical or online stores. Surcharge costs often amount to less than 5% of the overall transaction.

Even if you can pass the cost on to clients, you’ll still have to pay for PCI compliance fees and other related account charges. You must also consider the effect on the customer—no one like being surprised by costs at the checkout.

Is ‘No Cost’ Processing a Good Fit for Your Company?

When Should You Use No-Fee Payment Processing?

We don’t propose that small companies employ “zero-fee” or “no-cost” payment processing solutions in general. Processing expenses, on the other hand, should be included into your entire firm pricing plan. If these costs are eating into your earnings too much, do some research to locate the lowest credit card firms. It’s also a good idea to always have cash on hand for your customers.

Is Cash Discounting and Credit Surcharging Legal in the United States?

There are no substantial rules or regulations prohibiting the practice of cash discounting. Cash discounting is permissible in all 50 states in the United States. One of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was approved in July 2010, permits shops to provide incentives to consumers who pay in cash.

Credit surcharging is, however, forbidden or restricted in the following ten states and Puerto Rico:

1. Retailers in California are only allowed to provide cash discounts.
2. Retailers in Colorado are only allowed to provide cash discounts.
3. Surcharges are not permitted in Connecticut. Credit card transactions, however, are subject to a minimum purchase amount set by state law.
4. Surcharges are forbidden in Florida, however some forms of “convenience fees” are permitted.
5. Surcharges are not permitted in Kansas.
6. Surcharges are not permitted in Maine.
7. Surcharges are allowed in Minnesota, but cash reductions are not. Surcharges on store-issued credit cards, on the other hand, are not permitted.
8. Surcharges are not permitted in New York.
9. Surcharges are not permitted in Oklahoma.
10. Surcharges are not permitted in Texas.
11. Cash discounts are allowed in Puerto Rico, however surcharges are not.

Meanwhile, the following five states have legislation prohibiting the use of convenience fees and cash discounts:

1. Georgia: Convenience fees are legal provided the store provides a sufficient number of payment methods.
2. In Nevada, card issuers are not allowed to prevent retailers from giving cash discounts.
3. Merchants may not be prohibited from giving cash discounts by card issuers, according to Washington.
4. Wisconsin: Card issuers are not allowed to prevent retailers from giving cash discounts.
5. Cash discounts in Wyoming are limited at 5%.

In the United Kingdom, it is likewise illegal to levy fees for credit card transactions.

Businesses in Australia are permitted to levy payment fees as long as they are not exorbitant. It doesn’t have defined guidelines for what constitutes “excessive,” but it will look into consumer complaints to see whether there’s been a violation. It cites typical surcharge costs as ranging between 0.5 percent and 2 percent of the transaction amount, depending on the payment method.

Businesses in China are legally permitted to apply surcharges to cover bank processing fees.

Credit surcharging may contravene the terms of service you’ve agreed to with your payment processing providers and linked firms, even if it isn’t strictly illegal where you conduct business. Surcharges are limited to 4% on Visa, and although American Express does not prohibit them, it thinks merchants should not utilize them.

In three easy steps, you’ll be able to implement zero-cost credit card processing.

Here’s how to set it up if you feel “no cost” credit card processing is perfect for your company:

1. Read the small print

Before you do anything, double-check that it’s legal in your jurisdiction. Though the list above might be an excellent place to start your research, it’s always a good idea to complete your homework and verify official government websites and sources. Always check to see whether your company and your clients are legal in the area where you operate.

If it’s prohibited for you, there are other options for making low-cost internet payments. Aside from the legalities, be sure you’re not violating any contractual agreements with payment processing firms and financial institutions you now utilize.

2. Select a Service Provider

You’ll need to look into alternatives if your present payment processor or POS system doesn’t enable zero-cost credit card processing. Some service providers provide programs that allow you to pass the costs on to your clients. These are some of the credit card processors that provide these kind of programs:

Because there aren’t many choices, many firms have to be creative. Many “conventional” payment processors that are recognized for their low rates allow you to employ cash incentives and cash discounting. The following are some of the cheapest credit card processing companies:

• Square: A cost-effective cloud-based point-of-sale and credit card payment processor with company management tools.
• Payment Depot is a monthly subscription payment processor that provides wholesale rates at a discount.
• Fattmerchant is a merchant services and payment processor that works on a subscription basis.
• Dharma Merchant Services is a payment processing company that offers a virtual terminal for in-person transactions.
• Helcim: No monthly cost, interchange-plus pricing for shops and companies of all sizes.

3. Inform Your Clients

If you’re making any modifications to your store’s rules, be sure to let your consumers know. Consider the following essential touchpoints:

• Website: Update your shop policy page and place a banner notification at the top of your site (enable consumers to close it if it interferes with their experience). Consider creating a note next to price information on product pages and adding it to your FAQs page.
• Email: Keep your subscribers up to date on what’s going on in your company and how it affects them. Instead of focusing on the advantages to your company, try to concentrate on the benefits they get (discounts).
• In-store: Train employees to tell consumers of the change and tempt them to take advantage of cash discounts and incentives when they make an in-store purchase. Prepare prefabricated replies to often asked questions.

Conclusion

Credit card processing for no cost seems like a fantastic concept, and in most circumstances, it is just that. To guarantee profitability and a great customer experience, retailers may be creative with cash discounts, cash incentives, and even their pricing strategy. Switch to a less expensive credit card processing firm if you still need to save money.

The “credit card processing comparison chart” is a helpful chart that compares the fees of different credit card processors. It breaks down the cost for every type of transaction and gives an overall percentage.

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