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’s experience in business and finance led her to work for a US risk mitigation company in Singapore. She has contributed to POS and payments topics in the Retail section across Fit Small Business.
This article is part of a larger series on Payments.
Merchants pay an average 2%–3% in processing fees for every credit card transaction. And as credit cards are becoming the most popular payment method in the US, many merchants have accepted the necessary evil of processing fees, which is also why many seek ways to find free credit card processing. By implementing cash discounting or credit surcharging, businesses try to get rates down to zero.
Below, we explain the different types of free credit card processing, state laws around it, who it’s best for, and how to implement it. However, if you’re looking for a quick solution, Stax is one of our recommended merchant services that also offers automated credit card surcharging that’s fully compliant. Visit Stax to learn more.
What Is Free Credit Card Processing?
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.
Even if you find a way out of the fees as a merchant, you’re likely passing the buck onto your customers. Let’s take a look at how it works and when it makes sense for you.
Types of Free Credit Card Processing
Businesses can pass along these costs in three ways:
Although you might be able to pass the cost along to customers, you’ll still have to bear the cost of 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.
In-person Credit Surcharging vs Cash Discounting: What’s the Difference?
Of the three methods, only credit surcharging and cash discounting can be applied for in-person transactions. 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.
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 make sure that credit surcharging is legal for both your state and that of your customer.
Free Credit Card Processing: Types, Legality & Solutions
It’s also against the law to add surcharges for credit card purchases in the UK.
In Australia, businesses are allowed to charge payment surcharges as long as they aren’t excessive. It doesn’t have specific parameters around what qualifies as “excessive,” though it will investigate consumer complaints to determine if there’s a violation. As a reference point, it lists average surcharge fees at anywhere between 0.5% and 2% of the transaction value, depending on the payment type.
In China, businesses are legally allowed to add surcharges to cover processing costs imposed by banks.
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.
Is “No-cost” Processing Right for Your Business?
| 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 |
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. Consider your monthly sales volume and the way most of your customers prefer to pay. If these fees cut into your profits too much, you may want to opt for traditional payment processors with low fees. It’s also a good idea to always offer cash as a payment option for your shoppers.
How to Lower Credit Card Processing
If you decide that zero-fee payment processing is not right for you, there are other ways to lower your credit card processing fees. If your business is just starting and you are still in the market for a payment processor, the best thing to do is shop around for quotes, prepare a comparison table that you can present to the sales representatives of each of your options, and ask if they can match the best offer.
This is a quick comparison table of the cheapest credit card processors in the market today.
Monthly Fee | Card-present Transaction Fee | Online Transaction Fee | |
|---|---|---|---|
 | $0 | Interchange plus 10 cents–30 cents + 5–8 cents | Interchange plus 0.2%–0.5% + 10–25 cents |
 | $79–$199 | Interchange plus 7–15 cents | Interchange plus 7–15 cents |
 | $0 | 2.6% + 10 cents | 2.9% + 30 cents |
 | $0 | 2.7% + 5 cents | 2.9% + 30 cents |
 | $0 | 2.29% + 9 cents | 3.49% + 49 cents |
 | $99–$199+ | Interchange plus 8 cents | Interchange plus 15 cents |
 | $25 | Interchange plus 0.15% + 8 cents | Interchange plus 0.2% + 11 cents |
You can also find the effective rate of each provider, which tells approximately how much you spend for transaction fees based on your sales volume. Note that the ideal effective rate should not be more than 3.5%.
(Total merchant fees / Total monthly sales) x 100 = Effective Rate %
The effective rate is the total of all fees associated with accepting credit card payments (interchange fee, assessment fee, and your processor’s markup, along with other monthly and incidental fees).
Check out our recommendations for the cheapest credit card companies plus more tips on how to get the lowest rates.
How To Implement 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. Though the list above may serve as a good starting point for your research, it’s best to do your 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:
- Stax: Offers credit surcharging program applicable to its in-person, digital invoicing, keyed-in, online, and mobile payments solutions. Offers wholesale rates with pay-as-you-go plans for traditional payment methods.
- PaymentCloud: Merchant services provider ideal for high-risk businesses. PaymentCloud doesn’t have standardized pricing, but you can expect reasonable rates and fees depending on your business type.
- National Processing: Merchant service provider for small and medium-sized businesses.
- Shift Processing: Month-to-month contract term, zero-fee processing for high-risk merchants.
- AND processing: Flat-rate membership-pricing and zero-cost programs that reduce your processing fees. AND processing is great for high-volume merchants.
Click through the tabs below for more information on each of these providers:
Best for growing businesses that require secure surcharging for online and invoicing payments
- Offers credit surcharging
- Up to 4% surcharge fee only
- Charges 10–15 cents per transaction
- Month-to-month, membership-based pricing
- For digital invoicing, keyed-in, online, and mobile payments
- PCI-compliant surcharge-enabled terminals
- Automatically detects debit card payments and voids surcharge fees
- Regularly updates system to ensure compliance with state laws
- Chargeback cost of $25, reject or failed transaction cost of 10–15 cents
- Recently acquired CardX—popular name in credit surcharging services for its built-in compliance features
Best for medium- and high-risk merchants looking for traditional and zero-cost fee payment solutions
- Offers both credit surcharging and cash discounting
- Credit surcharging for card-present and card-not-present transactions
- Cash discount program with or without monthly fees, with or without contract, depending on your business profile
- Credit surcharging program with two- or three-year contracts with monthly fee (monthly fee waived for merchants processing over $50,000/mo.
- Cash discounts and surcharge between 3% and 4%. Or item fee of 5–15 cents only for merchants with an average transaction is below $15.
- Chargeback fee of $25 or $45 depending on program.
- Cash discounting and surcharge programs for high-risk merchants with similar rates as low-risk merchants
- Offers cash discount program
- Cash discount rate of 3.99%
- Monthly minimum requirement of $3,000 per month
- Fee for not meeting the monthly minimum $30
Visit National Processing or Read our full National Processing review
Best for midsize businesses with storefronts looking for low-cost cash discounting program
- Offers cash discount program
- Free terminals and point-of-sale (POS) systems based on monthly sales volume and business type
- Month-to-month contracts only
- Next-day funding
- Minimum volume requirement depending on business type
- Provides you with the signage for your establishment as required by law
Best for midsize storefronts looking for affordable credit surcharge payment solutions
- Offers credit surcharging
- Monthly fee of $50 per month
- Unlimited monthly processing
- Available for virtual terminal, mobile, and email invoicing transactions
- PCI-compliant smart terminals from $249
- Next-day funding
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 such as the cheapest credit card processing companies we highlighted earlier in the article.
What to Look for in a Zero-fee Payment Processor
As you can see, there are a growing number of payment processing companies that offer zero-fee payment processing, 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 offers 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 transaction, or fee for not meeting minimum monthly transaction volume.
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.
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.
