When you see the words “free credit card processing”, you probably have one of two reactions: “That sounds great!”, or “That sounds too good to be true”. Either way, it’s worth learning more. Here, we discuss what zero-fee credit card processing is, how it’s possible, and why it could make sense for your small business.
What is Free Credit Card Processing?
Free Credit Card Processing Table of Contents
Free credit card processing refers to a service offered by some companies that allows merchants to process credit card transactions without paying any fees for the service. This can include no monthly fees, no transaction fees, and no setup costs. In lieu of charging processing fees to the merchant, the processor will instead add a small surcharge to each customer’s transaction. In essence, the customer pays the processing fees instead of the merchant. It’s safe to assume that nothing in business is actually free. As a merchant, the free processing method might be perfect for your business, if the other fees and charges are acceptable to you. In most cases, additional fees will be charged for other things in order to keep the processing portion of the contract “free”.
How do Merchants Pay Zero Processing Fees?
Some merchants find that a zero-fee processing model works well for their business. Instead of paying the per-transaction fees that are typically charged, they pay no transaction fees and pass that cost on to their customers. This is a legitimate model, but has some parameters around it.For example, in most states where this processing model is accepted, a merchant cannot add a surcharge of more than 4% to their customers’ transactions. In Colorado, that number is 2%. This helps deter merchants and zero-fee processor from gouging consumers on processing fees.When a merchant opts for a free credit card processing model, it’s in their best interest to do some research first. As mentioned previously, nothing is actually free. Instead, the fees and charges are just allocated differently. It’s important to carefully read the terms and conditions of any free credit card processing service to understand all the costs associated with it.If you opt not to use a “zero fee” processing company, you may look at companies that offer an “interchange-plus” pricing model, where the merchant pays a small markup on top of the actual cost of the transaction (known as the “interchange rate”). This can make it possible for merchants to pay very low or even zero processing fees.Another way to pay zero processing fees is through the use of a flat-rate pricing model, where the merchant pays a fixed percentage of each transaction regardless of the type of card used. This can also make it possible for merchants to pay very low or zero processing fees, particularly if they have a high volume of transactions.Are Interchange Fees Unavoidable?
Interchange fees are unavoidable fees that are charged by card issuers, such as Visa and Mastercard, to merchants for the use of their payment network. These fees are typically a percentage of the transaction amount, plus a fixed amount, and they are meant to cover the costs of issuing and maintaining the card as well as the risks of fraud.
Interchange fees are generally required for merchants who accept credit and debit card payments. These fees are set by the card networks, and merchants must pay them in order to accept payments from customers who use those networks. However, the fees can be reduced by using pricing models such as the “interchange-plus” pricing model, where the merchant pays a small markup on top of the actual cost of the transaction (known as the “interchange rate”).
Another way to reduce the cost of interchange fees is by using a flat-rate pricing model, where the merchant pays a fixed percentage of each transaction regardless of the type of card used. This can also make it possible for merchants to pay very low or zero processing fees, particularly if they have a high volume of transactions.
It’s also worth noting that some payment service providers or processors may negotiate with the card networks to get lower interchange rates for their merchants. So, it’s always good to shop around and compare the fees and services of different payment service providers to find the best deal.
What is Credit Card Surcharging?
Credit card surcharging is the practice of adding an additional fee to the cost of a product or service when a customer pays with a credit card. This fee is meant to compensate merchants for the cost of accepting credit card payments, which can include interchange fees, card association fees, and processing costs. Surcharging is typically a fixed dollar amount or a percentage of the total transaction amount.
Credit card surcharging is banned in some states and countries. In the United States, the practice is prohibited in 10 states, while the rest of the states have different regulations. In some states where it’s legal, merchants are allowed to surcharge. However, these states impose limits on those surcharges, such as the 4% limit discussed earlier.
On the other hand, in the European Union, surcharging is banned as per the EU Interchange Fee Regulation (IFR) which went into effect in December 2015. It’s important for merchants to be aware of the laws and regulations regarding surcharging in their state or country before implementing this practice.
How is Credit Card Surcharging Setup?
- Make sure that you are aware of the laws and regulations regarding surcharging in your state or country.
- Choose a payment processor or merchant services provider that supports surcharging.
- Work with your payment processor or merchant services provider to set the surcharge rate. This may involve determining your business’s acceptance cost and calculating a surcharge rate based on that information.
- Integrate the surcharge rate into your point-of-sale system or shopping cart.
- Communicate the surcharge policy clearly to your customers, including posting signs or the surcharge in advertised prices.
Other Payment Processing Fees
There are several other types of credit card processing fees that merchants may be charged when accepting credit card payments. Some of the most common include:
- Assessment fees: These are fees charged by card networks, such as Visa and Mastercard, to merchants for access to their payment network. Assessment fees are usually a fixed amount per transaction.
- Markup fees: These are fees charged by payment processors or merchant services providers on top of interchange and assessment fees. Markup fees can include transaction fees, monthly fees, and other costs associated with processing credit card payments.
- Chargeback fees: These are fees charged to merchants when a customer disputes a charge and requests a refund. Chargeback fees can include fees for investigating and resolving the dispute, as well as fines for excessive chargebacks.
- PCI Compliance fee: This is a fee charged to merchants to cover the cost of compliance with the Payment Card Industry Data Security Standards (PCI DSS). This fee is mandatory and charged to maintain the security of the cardholder data.
- Equipment fees: If you have equipment that was supplied by your payment processor, they may charge you for equipment. Some processors charge a flat fee at the beginning and others charge a monthly lease fee for their equipment.
- Service/Monthly fees: Some processors also charge a flat monthly fee that is similar to a retainer or a subscription. The merchant must pay the monthly fee to keep their account active and in good standing.
Knowing the different types of fees you may be charged will help you make an informed decision about what type of processing you need for your business. We also highly recommend you carefully read the terms and conditions of your merchant account to understand all the costs associated with accepting credit card payments and what additional fees may be involved.
