The Complete Guide To Zero-Cost Credit Card Processing: What You Need To Know

• 16 comments
• Updated on: Feb 3, 2021
• Posted by: Frank Kehl

Free. Free as a bird. Free as in beer. Whatever saying you associate with the word “free,” the idea of getting something for nothing always has a special appeal. Of course, almost nothing advertised as being “free” truly comes without at least some cost. Whether it’s giving away your personal information to Facebook or just paying hidden fees on something that you thought was going to be free, there’s always a catch.

Services offering “free credit card transactions” are no different. Let’s face it: No merchant enjoys the hassle and expense of setting up a merchant account just so their customers can use credit cards. Having to pay credit card processing charges every time a customer uses a card makes it even worse. In an ideal world, paying with a credit card wouldn’t be different (or costlier) than paying with cash.

Unfortunately, this will never happen. Issuing banks essentially loan customers the money to cover their credit card charges, and this inevitably involves the risk that they won’t get paid back. The only guaranteed revenue they make on credit card transactions comes from the interchange fees they charge whenever their cards get used. Someone has to pay for credit card usage, and that someone is almost always you, the merchant.

Why is this so? Well, customers don’t want to have to pay extra to use their credit cards. To benefit from the additional sales that accepting credit cards will bring, absorbing the processing costs has been the trade-off. With credit card usage soaring and customers increasingly going cashless, this compromise can often work out in your favor. Nonetheless, it is possible to transfer the cost of credit card processing to your customers under some circumstances.

In this guide to free credit card processing for small businesses, we’ll discuss the various programs that allow you to pass credit card processing costs to your customers. You’ll often hear the terms “surcharging,” “cash discounts,” and “zero-fee processing” used to describe these programs. However, they’re not all the same thing. Knowing the subtle differences between one program and another is critically important, as not all programs are legal in all jurisdictions.

We’ll explain how these programs work and discuss the requirements you’ll need to meet if you choose to implement one of them. We’ll also recommend some top-notch merchant services providers that can set you up with one of these programs. Finally, we’ll show you how to tell if such a program is a good idea for your business in the first place.

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What Is Zero-Fee Credit Card Processing?

Zero-cost credit card processing (also known as zero-fee credit card processing or no-cost credit card processing) refers to payment processing systems that automatically pass the cost of credit card processing to your customers so that they pay the processing fees, not your business. Your merchant services provider can typically get you set up with credit card processing with no fees.

How Does Zero-Cost Credit Card Processing Work For Small Businesses?

Free credit card programs usually use software add-ons to allow your payment gateway, virtual terminal, countertop terminal, or point of sale (POS) system to detect when a credit card is used and automatically apply the appropriate charge to the purchase price. If you’re using a cash discount program, the same software can be used to apply the discount for customers using other payment methods.

Note that such programs will usually only pass on processing fees for credit card transactions. All additional fees associated with maintaining a merchant account, such as account fees, PCI compliance fees, credit card refund fees, are not typically covered. Additionally, there’s frequently a flat monthly fee that you’ll have to pay for the program itself. As usual, nothing in the credit card processing industry is truly free.

Cash Discounts VS Surcharges

Surcharging and cash discounts are simply methods for transferring the cost of credit card processing onto your customers in the form of an additional fee that’s added to their bill when they complete a transaction. The primary difference between these two methods boils down to when and how the additional charge is levied.

• With surcharging, the extra cost for credit card processing is added to the displayed price after the customer uses a credit card to make a purchase. With this method, prices displayed in your store or on your website reflect the lower price for an item if payment is made in cash, by check, or by debit card. Customers pay the additional fee upon checking out, although it shouldn’t be a complete surprise, as you are required to post signage indicating your surcharge policy for credit card purchases. For more details on surcharging, see our article, The Complete Guide To Credit Card Surcharging: Guidelines For Visa, Mastercard, American Express, & More.
• With a cash discount program, the advertised price is what customers will pay if they use a credit card. In other words, the surcharge is added before the customer chooses a payment method. Customers using any other payment method will receive a discount when they check out. This will come as a much more pleasant surprise to your customers than getting hit with a surcharge, although these programs require the same type of adequate notice to customers as surcharging programs.

It’s safe to assume that while the customer’s final price under either program is the same, cash discounting will be better received by customers than surcharging. State legislatures seem to agree, as cash discount programs are entirely legal everywhere in the US (although signage requirements vary between jurisdictions). Surcharging, on the other hand, is still illegal in some states. Again, see our surcharging guide for more information on the legal issues surcharging can present.

There are two significant limitations to keep in mind under either of the above programs. First, surcharges can only be applied to purchases made with a credit card. All other payment methods are exempt, including debit card purchases. While processing rates for debit cards are very low, you’ll still have to absorb this cost just as you would if you weren’t using a surcharging program.

Also, the surcharge (or discount for non-CC purchases) cannot exceed 4% of the total transaction. Depending on the rates charged by your merchant services provider, this may not be enough to cover processing costs in all cases. Purchases made with a rewards card, for example, carry higher interchange fees and may exceed 4% of the total in some cases. High-risk merchants, who pay higher processing rates than their low-risk counterparts, will also likely be unable to cover the entire cost of processing some transactions.

Convenience Fee Programs

Another means of recouping credit card processing costs are so-called convenience fee programs. Merchants using this type of program add a “convenience fee” at checkout but only to purchases made with a credit card. Unlike surcharging or cash discount programs, this fee is a fixed amount rather than a percentage of the total transaction. Customers will pay the same convenience fee for using a credit card whether their purchase is for $10 or $1,000.

Deciding on how much to charge as a convenience fee can be difficult. Naturally, you’ll want to charge enough to cover the processing costs for any transaction but without setting the fee too high and losing sales. Also, maximum limits on convenience fees vary from one jurisdiction to another, and each credit card brand has its own unique rules about how much you can charge. You’ll have to contact your merchant services provider to sort it all out.

For a great, in-depth discussion on convenience fees, please see our article, What Is A Convenience Fee & Can You Charge One To Your Customers?

Zero-Fee Processors

While just about any payment processor offers surcharging, a dedicated zero-fee processor will take care of all aspects of your surcharging program — something you would normally have to work with your processor to set up. A zero-fee processor will work with the credit card brands on your behalf and will typically preprogram your equipment for surcharging, all of which would otherwise be your responsibility.

The following table spells out the four means by which you can recoup the cost of credit card processing.

Free Online Credit Card Processing VS In-Store Transactions

Regardless of whether you’re selling online or in-person, you’ll have to disclose your surcharging/cash discounting/convenience fee policies before any purchases are made. For in-person retailers, this means posting adequate signage at the entrance to your store and at the register. You must include the surcharge on the customer’s receipt as well.

For eCommerce merchants looking to implement free online credit card processing, there isn’t a requirement that you post signage at the “entrance” to your store (i.e., at the top of your store’s homepage). However, you must include the disclosure in the checkout process, and the surcharge must appear on the receipt.

Brick-and-mortar retailers will have to configure their physical equipment to accommodate surcharges (or cash discounts or convenience fees); online sellers will just have to adjust their online payment system. But while online merchants may have an easier time with processing credit cards online for free with a surcharge system, they may also face a greater competitive disadvantage with surcharging in place due to the ease with which customers can find alternate sellers online.

If your direct competition (in terms of what you sell) is Amazon, eBay, and Walmart.com, a surcharge may drive your customers into the arms of your competitors. If, on the other hand, your store offers a unique value proposition, you may have more leeway with your customers in terms of passing on your processing costs. To an extent, this applies to physical businesses as well.

The Best Free Credit Card Processing Programs

Every merchant services provider offers a free credit card processing program. Of course, merchant account providers vary greatly in the quality and cost of their services. Our preferred providers pair honest, transparent pricing with excellent customer service while not requiring you to sign a long-term contract.

Here are brief profiles of five quality merchant account providers that offer surcharging programs, including PaymentCloud, National Processing, Host Merchant Services, and more.

1. PaymentCloud

PaymentCloud	Visit Site Read our Review

Best for high-risk and eCommerce businesses.

Surcharging programs can be an effective way for low-risk merchants to save money on credit card processing costs. High-risk merchants, who pay significantly higher processing rates than low-risk companies, have even more incentive to use them.

One of the best high-risk merchant account providers that we’ve found is PaymentCloud. This provider offers its surcharging programs for merchants in states where the practice is allowed. PaymentCloud can help you with the necessary signage and reprogram your equipment to automatically apply the surcharge whenever a credit card gets used for payment.

Unlike many high-risk providers, PaymentCloud doesn’t charge an application fee when you first set up your account. Contract terms and processing rates are all highly variable. You’ll have to contact the company and obtain a quote for your business to see what kind of deal the company can offer you. PaymentCloud also has a great reputation among its merchants for top-notch customer service and technical support. Read our PaymentCloud review to learn more.

Get Started with PaymentCloud

Read our in-depth review

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2. National Processing

National Processing	Visit Site Read our Review

Best for brick-and-mortar businesses.

For small and medium-sized businesses that fall in the low-risk category, National Processing is one of the best merchant services providers in the industry. National Processing offers secure, stable, full-service merchant accounts with interchange-plus pricing as a standard feature.

If you already have your own processing equipment or are willing to buy it, National Processing will set you up with a month-to-month contract that doesn’t come with an expensive early termination fee (ETF). However, if you want to take advantage of its free credit card terminal offer, you’ll have to accept a standard long-term contract. Even then, National Processing is much more flexible about waiving the ETF under certain circumstances than most providers.

National Processing offers surcharging programs but doesn’t advertise them very heavily. You’ll need to discuss this with your sales representative if you’re interested in trying out this feature. Additionally, National Processing has a first-rate reputation among merchants for providing great customer support. Check out our National Processing review if you’re interested.

Get Started with National Processing

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3. Host Merchant Services

Host Merchant Services	Visit Site Read our Review

Best for large businesses and businesses requiring excellent customer support.

Host Merchant Services, or HMS, is one of our highest-rated merchant account providers. It exclusively offers interchange-plus pricing — our preferred pricing scheme for merchant accounts and payment processing. What’s more, HMS is one of the few merchant services providers that publicizes its processing rates on its website.

From accepting high-risk merchants to offering a free EMV card terminal upon signup if you process over $20K per month, HMS does it all — and with a public reputation that’s nearly spotless. That is not the norm in this industry. Read our Host Merchant Services review to learn more about the company’s services.

HMS proudly offers a free payment processing program that it refers to as a “No-Cost account.” It’s a cash discount program, so it’s legal in all 50 states and doesn’t carry the stigma of a surcharging program. It’s free for merchants processing at least $5,000/month. If you’re processing less than that, you can still use the program for a flat cost of $20/month. However, businesses such as restaurants that require tip adjustments are not eligible to use a No-Cost account.

Get Started with Host Merchant Services

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4. AND Processing

AND Processing	Visit Site

Best for businesses seeking smart terminals pre-programmed for zero-cost processing.

AND Processing may have just about the worst name possible from an SEO perspective. Nonetheless, this merchant services provider offers competitive flat-rate membership pricing, a range of Clover POS devices, a well-featured payment gateway with a virtual terminal, and more.

Businesses seeking to pass the cost of credit card processing on to their customers will find that AND offers zero-cost credit card processing. AND lets you implement either surcharging or cash discounts, and it offers smart terminals that come preprogrammed with zero-cost software. These smart terminals dispense receipts preconfigured to display any surcharges or cash discounts and start at $249.

The zero-cost processing program is offered for $50/month, regardless of your processing volume. It’s a great deal for high-volume merchants — less so for low-volume sellers.

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5. Shift Processing

Shift Processing	Visit Site

Best for marijuana dispensaries and kratom sellers.

The appropriately-named Shift Processing is a zero-fee processing specialist, giving merchants an easy way to shift (get it?) the cost of payment processing onto their customers. Shift Processing is also a high-risk processor, offering customized packages to such businesses as marijuana dispensaries and kratom merchants.

Shift Processing offers month-to-month contracts with no batch fees, statement fees, or PCI fees. While a “free payment processor” is never truly free, Shift Processing won’t nickel-and-dime you with extra fees.

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5 Considerations For Implementing Zero-Fee Credit Card Processing

From a merchant’s perspective, surcharging makes perfect sense. Why should you have to pay a fee each time a customer uses a credit card? Credit card processing is expensive and can seriously cut into your profit margins.

Of course, customers don’t see it this way. From their perspective, it shouldn’t cost extra to use one payment method instead of another. Many of them are already paying expensive annual fees just to have a credit card that offers lucrative incentives for its use. Most consumers, having no compelling reason to study the issue, are only vaguely aware that merchants cover the costs of credit card processing in the first place. Zero-fee processing reviews may not always reflect this fact if they aren’t written from the consumer’s perspective.

Until recently, surcharging wasn’t much of an issue. Most merchants quietly accepted the costs of credit card processing, knowing that doing so would lead to increased sales and higher overall profits. So what changed to cause merchants to look for ways to have no processing fees for accepting credit cards?

In our view, the major factor that has led to the growing popularity of surcharging is the widespread use of rewards cards by consumers. Earning frequent flier miles and cash back rewards has proven quite popular, incentivizing consumers to prefer them over other payment methods. Naturally, someone has to pay for those perks, and it’s not the issuing banks that advertise them. Instead, merchants have had to subsidize these credit card perks through higher interchange fees.

This, in turn, has led merchants to seek out ways to save money on their credit card processing. Passing these costs onto their customers is often the simplest and easiest way to do so.

If you’re seriously considering adopting a surcharging program to cut down on the costs you pay for accepting credit cards, first consider these pros and cons:

Is Free Credit Card Processing Worth It?

Whether you call it “zero-fee credit card processing,” “free credit card processing,” or simply “surcharging,” the practice of charging customers extra to cover the cost of credit card processing is gaining steam. While it’s never going to be popular with customers, more and more merchants are adopting the practice as the legal barriers against it have fallen in recent years.

If you’re tempted to implement a zero-fee processing program in your business, consider whether such a program will have a net positive effect on your cash flow. You’ll want to balance the savings in credit card processing fees against the potential for lost sales and alienating your customers. Unfortunately, the only way to know for sure whether a surcharging program will benefit you is to try it out and see what happens.

The effectiveness of surcharging programs varies widely from one industry to another. Major retailers such as Amazon and Walmart don’t use surcharging. If you’re in the unfortunate position of having to compete against these companies (or the sellers that use their marketplaces), you’ll want to stay far away from surcharging.

On the other hand, if your business specializes in selling niche products unavailable in big-box stores, you might be able to benefit from surcharging with minimal lost sales. Watch your competitors’ behavior before you start charging your customers extra for using their credit cards. If the majority of your direct competitors already use surcharging, then you should be able to get away with it. But if none of your competitors use surcharging, you probably don’t want to be the first in your industry to try it.

If you’ve decided to shift credit card processing costs to your customers, we recommend that you implement a cash discount program rather than charging credit card users extra. While the net effect of either program is identical, cash discounting programs don’t have the legal complications of surcharging, and they’re more palatable for your customers.

We also recommend that you approach your current merchant services provider for help if you want to start surcharging. Any provider can set you up with surcharging, so going through your current provider will make the process as smooth and painless as possible. And if you’re not happy with your current provider, it may be time to switch processors.

One segment of the market where surcharging is going to be more palatable to customers is if you’re running a nonprofit organization. If this is you, then you’re already well aware that, yes, nonprofits have to pay for credit card processing, too. While some providers offer discounted rates to nonprofits, it’s still an expensive proposition for an organization that’s trying to run on a shoestring budget. Your donors will be much more understanding about being charged a surcharge when they learn that it allows more of their money to go to whatever cause your charity is supporting.

Have you had any experience with either of the companies profiled in this article? Have you had any experience with surcharging or cash discount programs? If so, please drop us a comment and let us know!

Looking for an affordable payment processor without necessarily adding a surcharge program? Check out our list of the cheapest credit card processors instead!

In Summary: The Best Free Credit Card Processing Programs

1. PaymentCloud:
   • High-risk specialist
   • Free credit card terminal
   • Excellent customer support
2. National Processing:
   • Month-to-month billing with no long-term contract
   • Full line of Clover terminals and POS systems
   • A good option for budget-conscious merchants
3. Host Merchant Services:
   • Transparent interchange-plus pricing
   • Offers a cash discount program
   • Cash discount program is free for high-volume merchants
4. AND Processing:
   • Flat-rate membership pricing
   • Discounted interchange-plus pricing for high-volume merchants
   • Free credit card processing program with preprogrammed terminals
5. Shift Processing:
   • Zero-fee processor
   • High-risk specialist
   • Month-to-month contracts

Sources

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16 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

Damion April 20, 2019 at 5:42 am

Great article ! I’ve been selling SLICE zero fee processing for a few months. . Your article says Maine does not allow surcharging is that still the case?

This comment refers to an earlier version of this post and may be outdated.

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Jessica Dinsmore April 24, 2019 at 1:53 pm

Hi Damion,

According to the SLICE website, Maine still prohibits surcharges:

Me. Rev. Stat. Ann. tit. 9-A, §8-509

1. Surcharge prohibited. A seller in a sales transaction may not impose a surcharge on a cardholder who elects to use a credit card or debit card in lieu of payment by cash, check or similar means. For purposes of this section, “surcharge” means any means of increasing the regular price to a cardholder that is not imposed on a customer paying by cash, check or similar means. A discount or reduction from the regular price is not a surcharge.

This comment refers to an earlier version of this post and may be outdated.

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Pete May 15, 2019 at 11:50 pm

How are you liking slice? I’m thinking about joining.

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Glenn C. Johnson November 4, 2019 at 2:10 pm

Is Slice working out for you, I’m just trying to find out if they are really as good as I was told. Please let me know, thanks !

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Deni A Celley March 7, 2019 at 9:53 pm

I was wondering if you’ve ever heard of ReversePOS and Virtual Merchant Solutions? I’ve signed up as a rep but getting worried, especially after reading this. 😬

This comment refers to an earlier version of this post and may be outdated.

Reply

Jessica Dinsmore March 8, 2019 at 3:42 pm

Hi Deni,

Unfortunately we haven’t yet reviewed either one of those providers, so we can’t confidently give an assessment one way or another. But we wish you the best in your decision!

This comment refers to an earlier version of this post and may be outdated.

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Landon Stewart July 23, 2019 at 7:45 pm

I also just signed with reverse pos. How has your experience been so far, Deni? Articles like this have got me worried, too.

This comment refers to an earlier version of this post and may be outdated.

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Greg Narez December 8, 2018 at 11:16 am

The local bar in Illinois just started these surcharges. (4%) My question is, they ad the surcharge, instead of advertising a cash discount. The receipt says cash price and cc price. But the menus are supposedly the cash price. I though they were suppose to advertise the regular price with 4% added, then give you a 4% discount. They also charge this fee on debit cards. The Company set this up for them is KrullStone Partners LLC (251) 270-7173 Do you know which system they sell? With all the litigation going on, hard to tell what is legal. Doesn’t your merchant agreement prevail since the legal aspect is in limbo? Or are they operating from the consent agreement, not to charge debit cards a fee, and/or over 4% or actual cost which ever is less etc.

This comment refers to an earlier version of this post and may be outdated.

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Jessica Dinsmore December 18, 2018 at 2:30 pm

Hi Greg,

Thanks for writing! Merchants in Illinois are generally allowed to add surcharges of up to 4% for credit card purchases. However, there are a lot of caveats and procedures they have to follow. I’d recommend consulting with an Illinois attorney for the latest legal requirements. A merchant agreement would never take precedence over the law, even if it is a little unsettled. While the legal basis for surcharging appears to be solidifying in favor of allowing the practice, we still don’t recommend it for most merchants due to the potential for lost sales from customers who don’t want to pay extra just to use their credit cards. I hope that helps answer your query!

This comment refers to an earlier version of this post and may be outdated.

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Tod June 6, 2018 at 7:19 am

What is the law regarding signage?
How big is the sign , where is it placed, do you have to point it out, do you have to verbalize the text of the signage?

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Jessica Dinsmore June 27, 2018 at 11:45 am

Hi Tod,

The legal requirements for signage are going to vary by jurisdiction, so you’ll have to either look up the law for your state online or consult an attorney for specific requirements.

This comment refers to an earlier version of this post and may be outdated.

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Mike Ryan February 27, 2018 at 11:18 am

Very informative thanks! Any updates forthcoming? We heard that in NY State it’s legal now. We also heard it’s for credit cards only not debit cards. Any info on that?

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Frank Kehl March 1, 2018 at 3:26 pm

Mike;

New York’s state law banning surcharging is still on the books, but it took a serious blow at the US Supreme Court last year. That decision and other, more recent ones from several Courts of Appeal suggest that anti-surcharging laws are probably going to be barred on constitutional grounds sometime in the near future. We’ll update the article when the issue is settled. While a decision on anti-surcharging laws affects both credit and debit cards, the fees for processing debit transactions are usually so low that they’re treated the same as paying with checks or cash. I expect that even if these laws are eventually thrown out, most merchants will choose to “adjust” their prices rather than impose a surcharge on their customers directly.

This comment refers to an earlier version of this post and may be outdated.

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Dujeluri May 18, 2018 at 2:27 pm

Raising your prices just raises your processing fees leaving a gap between the “increase” from sales and the actual fee which would still be paid by the merchant . Raising prices doesn’t seem to be a great solution…rather just more fees

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Jason Perry July 2, 2018 at 12:38 pm

Dujeluri, how right you are. Not to mention that with ‘price adjustment’, my customers all pay the same amount whether cash, credit or debit, which penalizes my cash customers. They will have to ‘share’ the cost of my credit card customers. I like CardX’s ZeroCost solution but I never see a review for them. It’s almost as if Merchant Maverick is ‘in bed’ with it’s reviewees/partners. I’m not too sure on the validity of the reviews when the company who went before the US Supreme court on behalf of merchants everywhere is not even mentioned. Hmmm, I will keep checking. P.S. It’s okay to have a credit card fee in Florida too, FYI 🙂

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Dennis August 18, 2019 at 10:17 pm

Just a question on how surcharging and cash discount differ? I mean it sounds like it is splitting hairs legally, but in theory a state would allow cash discounting, which would get around surcharging, yes?

This comment refers to an earlier version of this post and may be outdated.

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