Free Credit Card Processing: Types, Legality & Solutions
Meaghan has provided content and guidance for indie retailers as the editor for a number of retail publications and a speaker at trade shows. She is Fit Small Business’s authority on retail and ecommerce.
Anna is a retail expert writer for Fit Small Business with over six years of evaluating dozens of software for small business. She holds a double degree in Accountancy and Financial Management and is currently pursuing further education in financial and payment technology.
This article is part of a larger series on Payments.
Free credit card processing, also known as “zero-fee” or “zero-cost” processing, typically refers to the process of passing some or all of the fees associated with payment processing along to your customers, so your business is essentially paying nothing to process payments.
Unfortunately, there’s no such thing as truly free credit card processing. Card networks and issuing banks will always charge for their services.
Types of Free Credit Card Processing
Businesses can pass costs along in three ways:
- Cash Discounting: This is when the merchant offers a discounted price for customers paying in cash. You see this often at gas stations, which might charge a higher per-gallon price for credit card payments than cash purchases.
- Convenience Fee: This is when merchants add a fee at checkout for customers wanting to purchase items remotely with a credit card. The convenience fee is usually a fixed amount, regardless of the transaction amount and the products the customer purchases.
- Credit Surcharging: This is when the merchant passes the credit card payment processing fees onto the customer by adding them to the transaction cost. However, many merchant account providers and payment processors have policies against this. Merchants are expected to post signages in their physical or online store to let customers know of their surcharge policy. Most surcharge fees amount to less than 5% of the total transaction.
Although you might be able to pass the cost along to customers, you’ll still have to bear the Payment Card Industry (PCI) compliance fees and other associated account costs. You’ll also need to consider the impact on the customer—no one likes unexpected fees at checkout.
How to Get Free Credit Card Processing in 3 Steps
If you decide “no-cost” credit card processing is right for your business, here’s how to set it up.
Step 1: Research the Fine Print
Before you do anything, ensure it’s legal within your local jurisdiction. It’s crucial that you do due diligence and check official government websites and references. Remember to ensure it’s legal both where you operate your business and where your customers are located.
If it’s illegal for you, you can consider alternative ways to set up low-cost online payments. Beyond legalities, it’s important to ensure you’re not going against any contractual agreements with payment processing companies and financial institutions you currently use in your business.
Step 2: Choose a Provider
If your current payment processor or POS system doesn’t support zero-cost credit card processing, you’ll need to research alternatives. Some providers have programs that pass the charges along to your customers. Examples of credit card processors offering these kinds of programs include:
Zero Cost Processing Features | Full Reviews | |
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Because there aren’t as many options out there, some businesses get creative. You can use cash incentives and cash discounting with many “traditional” payment processors that are known for their affordable rates, which we highlight in our guide to the cheapest credit card processing companies.
What to Look for in a Zero-fee Payment Processor
As you can see, there is a growing number of payment processing companies that offer zero-fee payment processing, so it may become difficult to choose. You might overlook important features, pricing, and service agreement details that cause you to miss the best available terms or red flags before signing up for a contract.
When choosing a zero fee payment processor:
- Make sure that it supports your chosen zero-cost processing method as not all options available offer both credit surcharging and cash discount programs.
- Confirm that the provider supports PCI-compliant payment terminals.
- Look for providers that automatically update its software with the latest state law compliance.
- Remember that depending on your chosen zero-cost processing method and business type, providers may offer month-to-month or long-term contracts and free or paid monthly fees.
- Research for customer feedback for each alternative on top of comparing terms and fees.
- Look for a payment processor that has chargeback management tools if you want to sign up for a credit surcharging program.
Watch out for zero-fee payment processors that
- Require you to rent hardware, as this may result in long-term contracts and hefty early termination fees.
- Do not support automatic computation of surcharge fees built into its software.
- Do not provide traditional credit card processing methods as this might cause you to shift to a different provider if you no longer wish to use a zero-fee payment processing method.
- Offer tiered-pricing transaction fees for traditional payment methods as not all customers will opt for credit card or cash transactions.
- Impose high monthly fees (or do not offer custom pricing based on volume), minimum monthly transactions, or fees for not meeting minimum monthly transaction volumes.
Step 3: Tell Your Customers
If you’re making any changes to store policies, it’s always important to communicate that to your customers. These are a few key touchpoints to consider:
- Website: Place a banner announcement at the top of your site (allow customers to close it so that it doesn’t interfere with their experience), and update your store policy page. You might also consider making a note next to pricing information on product pages and include it on your FAQ page.
- Email: Let your subscribers know what’s going on with your business and how it impacts them. Try to focus on the benefits they get (discounts) rather than the benefits to your business.
- In-store: When customers make an in-store purchase, train associates to inform them of the change and entice them to take advantage of cash discounts and incentives. Prepare them with canned responses to anticipated questions.
Where Is Cash Discounting & Credit Surcharging Legal?
There aren’t any significant laws or regulations against cash discounting. In the US, cash discounting is legal in all 50 states. The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July 2010, and one of its stipulations allows merchants to provide incentives for all-cash payments from customers.
Credit surcharging, however, is not legal in every state. This interactive map shows the statutes around credit surcharging per state. Set your mouse pointer on a specific state for details. Note that you will need to ensure that credit surcharging is legal in both your state and your customer’s.
Free Credit Card Processing: Types, Legality & Solutions
While it may not technically be against the law where you do business, credit surcharging might violate the terms of service you’ve agreed to with your payment processing providers and related companies. Visa limits surcharges to no more than 4%, and American Express doesn’t ban them but strongly believes merchants shouldn’t use surcharges.
Free Credit Card Processing Frequently Asked Questions (FAQs)
Generally speaking, we don’t recommend small businesses use “zero-fee” or “no-cost” payment processing strategies because of the poor customer experience it creates. However, you want to account for processing costs in your overall business pricing strategy.
| PROS | CONS |
|---|---|
| Cost savings | Poor customer experience |
| Easier to forecast expenses | May be against providers’ terms of service |
| Greater profit margin | Difficult to streamline with so many varying rates and factors to consider |
Here is a quick illustration to differentiate between the two.
Credit Surcharging | Cash Discounting | |
|---|---|---|
Registration w/ card brands | Required | Not required |
Payment method | For credit card payments | For cash payments |
Payment type | In person and online | In person only |
Fee implementation | Added at the point of sale | Added to the unit price |
Effect to unit pricing | Additional fee | Item discount |
Acceptability | Majority of US states | In all 50 states |
Customer notification | Signs at entrances and registers required | Signs at entrances and registers required |
Based on the table above, it’s clear that the advantage of cash discounts is that it minimizes your merchant account fees and risk of chargebacks. On the other hand, credit card surcharging allows you to recover your merchant account fees by passing it on to your customers. Credit surcharging is also subject to card network (Visa and Mastercard) compliance.
While there is no way to avoid credit card processing fees, choosing a low-cost merchant service provider like Helcim or Payment Depot can save you hundreds of dollars or more per month. Check out our lists of the cheapest credit card processing companies and best free merchant accounts to find the cheapest option for you.
Bottom Line
Free credit card processing sounds like a great idea and, in most cases, it’s exactly that—an idea. However, merchants can get creative with cash discounts, cash incentives, and even their pricing strategy to ensure profitability and a positive customer experience. If you still need to cut costs, switch to a cheaper credit card processing company.
