The Truth About No-Fee & Zero-Cost Credit Card Processing
Charging customers extra to cover the cost of credit card processing is gaining steam. Find out if it's right for your business (and why customers don't like it).
Frank has been writing about payment processing and business services since 2015. He is a retired Air Force officer and a former practicing attorney. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law, and currently resides in Paso Robles, California.
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Frank KehlFrank has been writing about payment processing and business services since 2015. He is a retired Air Force officer and a former practicing attorney. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law, and currently resides in Paso Robles, California.
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Chris has been writing about small business topics since 2003. In 2015, he joined Merchant Maverick, where he writes about business financing, payment processing, and demographic trends in entrepreneurship. Chris has been featured in Fox Business, ABC News, Yahoo Finance, GoBankingRates, Newsweek, BizJournals, and other publications. He has a Bachelor’s of Arts in English Writing Arts from SUNY Oswego, and a Masters of Science in Interactive Media from the University of Central Florida. He currently resides in the Hudson Valley region of New York.
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Chris MotolaChris has been writing about small business topics since 2003. In 2015, he joined Merchant Maverick, where he writes about business financing, payment processing, and demographic trends in entrepreneurship. Chris has been featured in Fox Business, ABC News, Yahoo Finance, GoBankingRates, Newsweek, BizJournals, and other publications. He has a Bachelor’s of Arts in English Writing Arts from SUNY Oswego, and a Masters of Science in Interactive Media from the University of Central Florida. He currently resides in the Hudson Valley region of New York.
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Advertiser Disclosure: Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity.
In recent years, no-fee and zero-cost credit card processing has become popular in the payments industry due to steadily rising interchange fees and a relaxation of laws that formerly prohibited the practice. These services can be very tempting to a cash-strapped business that pays hundreds or even thousands of dollars every month to be able to accept credit cards from even the best credit card processing companies.
Unfortunately, these programs — as you might well suspect — aren’t really free.
Instead, they transfer some (usually not all) of the cost of accepting credit cards onto your credit card-using customers. This arrangement would work great if your customers gladly accepted having to pay an extra 3-4% on every credit card purchase to use their card. That’s not going to be the case.
In this guide to “no-fee” credit card processing for small businesses, we’ll discuss the various programs that allow you to pass credit card processing costs to your customers. We’ll also profile several of the top credit card processing companies that offer the best zero-cost (or nearly zero-cost) credit card processing programs for small businesses.
Note: You’ll often hear the terms “surcharging” 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.
Zero-fee credit card processing is a pricing strategy that passes most (or all) of the cost of credit card processing onto your customers so that they pay the processing fees, not you. Zero-fee processing can involve either surcharging credit card payments or offering a discount for customers paying in cash.
Why Consider A No-Cost Credit Card Processing Program?
Free credit card processing usually uses 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 discounting program, the same software can be used to apply the discount for customers using other payment methods.
Note that such programs 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, etc., are not 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.
While the idea of saving money on your processing costs is certainly appealing, there are many potential downsides to consider. Credit card surcharging, in particular, is likely to depress sales as customers who don’t want to pay the surcharge will take their business elsewhere. Customers who are unhappy about paying extra and believe that you’ve implemented the surcharge incorrectly may even file a complaint with the office of their state’s Attorney General or report your business to their credit card association.
Here’s a summary of the benefits and risks of credit card surcharging:
Pros
Eliminates some or all processing costs
Improves predictability of cash flow forecasts
Cons
May require an additional monthly fee
Does not eliminate incidental fees (chargebacks, etc.)
Requires adequate signage and notice to customers
Likely to lower overall sales volume
May result in legal liability if not implemented properly
May result in account closure if not implemented correctly
Don’t Fall For “Free Credit Card Processing” Scams
As legal restrictions on surcharging have fallen, more companies are offering “free” credit card processing programs. In fact, any credit card processor can set you up with a surcharging or cash discounting program, even if it’s not advertised.
As with any product or service that sounds too good to be true, many of these programs tend to overpromise and underdeliver. Be on the lookout for the following warning signs of a potential scam:
Flat-rate pricing plans that charge the full 4% (3% for Visa) allowed for all transactions. Unless you’re in a high-risk industry, this is much higher than the industry average. Companies are betting that you won’t care about the high rates since they are passed on to your customers. Needless to say, your customers will care, and you’ll lose sales.
Promises to eliminate 100% of your processing costs. For most merchants, even a properly run surcharging program will only eliminate some of the cost of accepting credit cards, not all of it. Surcharging will not reduce the cost of processing equipment, processing fees for debit cards, or incidental fees, such as chargebacks, returns, etc. Also, high-risk merchants typically pay processing rates above 4%, so they’ll still have to pay the difference.
Improper surcharging program implementation. Surcharging programs typically rely on a modification to your payment gateway or the software load on your terminal/POS that automatically applies the surcharge and breaks it out as a separate line item on the customer’s receipt. Unfortunately, some companies are selling systems that apply a surcharge to every purchase where a card is used, including debit cards. Adding a surcharge to a debit card transaction violates your processing agreement with the credit card associations and federal law.
We highly recommend that you sign up with a reputable, established provider (maybe the one you’re already using) that will implement the program correctly and provide other benefits, such as excellent customer support. Avoid the temptation to switch to a new company you know nothing about, and be very suspicious of offers to eliminate your credit card processing costs.
The Best Free Credit Card Processors For Small Businesses
Any merchant services provider can offer you a “free” credit card processing (or surcharging) program. Of course, merchant account providers vary greatly in the quality and cost of their services. Our preferred providers offer honest, transparent pricing and excellent customer service while not requiring you to sign a long-term contract.
Here are brief profiles of the best free credit card processors that offer surcharging programs.
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Pros
High-risk specialist
Reasonable rates and fees
Free credit card terminal with each account
Cons
No publicly disclosed pricing
A long-term contract required for some high-risk industries
Why We Chose PaymentCloud For Zero-Cost Credit Card Processing
One of the best high-risk merchant account providers that we’ve found is PaymentCloud. This provider offers its surcharging programs for merchants in all 48 states where the practice is currently 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.
PaymentCloud Features
PaymentCloud serves both low-risk and high-risk businesses but specializes in getting merchant accounts approved for a wide variety of high-risk industries. The company offers the following primary features:
“Free” credit card terminal available with each account
Month-to-month billing with no early termination fees
Discounted pricing for qualified nonprofits
Outstanding sales transparency and highly ethical business practices
Cons
Not recommended for businesses processing less than $10,000 per month
No support for high-risk or international merchants
Why We Chose Dharma Merchant Services For Zero-Cost Credit Card Processing
Dharma Merchant Services has long been one of our favorite providers due to the company’s remarkable transparency and commitment to sustainability and social responsibility. Dharma offers a surcharging program called MX Advantage for Surcharging, which comes included as an optional feature with its MX Merchant integrated payments platform.
Unlike other providers offering “free” credit card processing, Dharma doesn’t impose inflated processing rates for the service. Your customers will pay the same reasonable interchange-plus rates that you were previously paying for using their credit cards and nothing more. Nonprofits can particularly benefit from this program, as the company already offers discounted processing rates to qualifying organizations. Customers will be more understanding about paying a surcharge when they know that more of their donation will actually go to the cause they’re supporting rather than covering operating expenses.
Dharma Merchant Services Features
In addition to being one of the most ethical and transparent providers in the processing industry, Dharma Merchant Services offers a complete line of services for small and large businesses. Here are the highlights:
Full-service merchant accounts through Fiserv or TSYS
MX Merchant integrated payment platform
Choice of Authorize.Net or MX Merchant payment gateways
QuickPay virtual terminal
Full line of credit card terminals, including Verifone Engage V200c, Fiserv FD-150, Ingenico Desk/5000, and Dejavoo Z11 models
No monthly fee for cash discounting (over $5K/month processing volume)
Cons
Can be expensive for low-volume merchants
US-based businesses only
Why We Chose Host Merchant Services For Zero-Cost Credit Card Processing
A former web hosting company, Host Merchant Services is ideally suited for eCommerce merchants. Retail merchants can choose from various terminals for sale, as HMS does not lease equipment. Mobile processing is also supported through either Vital or SwipeSimple, which are third-party products. The company offers a variety of POS systems as well. eCommerce merchants can choose between the company’s proprietary Transaction Express gateway, Authorize.Net, or one of several third-party gateways.
HMS offers an optional cash discounting program in lieu of traditional interchange-plus pricing for merchants who want it. There is no fee for this program if your business processes over $5,000/month (it’s just $19.99/month if your processing volume is below this limit). The company provides 24/7 customer service and has an excellent reputation in this area.
Host Merchant Services Features
Host Merchant Services specializes in serving eCommerce businesses, but also provides full support to retail merchants. Available features include the following:
Full-service merchant accounts
Full line of countertop and mobile credit card terminals
Free terminal available to merchants processing over $20,000/month
Vital and SwipeSimple mobile processing solutions
Choice of Vital or Bonsai (proprietary) POS system
Choice of Authorize.Net or Transaction Express (proprietary) payment gateway
Virtual terminal included
Web hosting service included with each account
Cash discounting program available
Host Merchant Services Pricing
No application or setup fees
$19.99/month cash discounting program fee (under $5K/month processing volume)
$0.00/month cash discounting program fee (over $5K/month processing volume)
Variable processing rates for cash discounting program
Month-to-month billing with no long-term contracts
Fully transparent pricing
Excellent customer support
Cons
Accepts US-based merchants only
Not available to high-risk merchants
Why We Chose VizyPay For Zero-Cost Credit Card Processing
VizyPay offers both traditional interchange-plus pricing and “free” programs that pass the cost of credit card processing onto your customers. The company mainly focuses on cash discounting to accomplish this task. VizyPay also offers a “hybrid” program that imposes a surcharge on credit card payments while leaving the merchant responsible for debit card processing charges.
VizyPay’s hybrid program charges a flat 3.0% for credit card transactions, which the customer pays. Debit card processing is the merchant’s responsibility, with rates starting at 1.5% + $0.25 per qualified transaction. It’s important to note that mid-qualified and non-qualified debit transactions will cost you 2.50% and 3.50%, respectively. Refreshingly, VizyPay admits that its hybrid program will only save you 40-60% of your overall processing costs. That’s still a significant amount, however, and with the company’s choice of cash discounting and traditional merchant-funded processing programs, you’ll have plenty of options if surcharging doesn’t work well for your business.
VizyPay Features
Offers full-service merchant accounts
Month-to-month billing with no long-term contracts
Offers SwipeSimple mobile card processing app & card reader
Offers BLogic, and Clover POS systems
Virtual terminal included with each account
Offers choice of Traditional, Cash discounting, or Hybrid pricing plans
VizyPay Pricing
Cash Discounting monthly fees:
$25/month for merchants processing less than $5,000/month
$50/month for merchants processing $5,000 to $10,000/month
$99/month for merchants processing over $10,000/month
Month-to-month billing with no long-term contracts
Cons
Little publicly disclosed pricing information
Relatively few user reviews
Why We Chose Shift Processing For Zero-Cost Credit Card Processing
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 CBD, adult entertainment, and other high-risk 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. Low-risk businesses should be able to eliminate most — or even all — of their credit card processing costs with Shift Processing. However, the company is very upfront that high-risk businesses usually won’t be able to pass on 100% of their costs due to the high processing rates that the high-risk sector has to pay.
Shift Processing Features
Offers full-service merchant accounts
Accepts CBD and other high-risk industries
Month-to-month billing with no long-term contracts
Offers a variety of EMV-compliant countertop terminals
The recent surge in interest in credit card surcharging and cash discounting has resulted in a large number of new credit card processing companies looking to cash in on this trend. As a result, there are a lot of new companies trying to lure merchants in with the promise of “free” credit card processing. While this list is far from inclusive, the following companies should be approached with caution:
Nadapayments
New York-based Nadapayments was founded in 2018 and only offers a surcharging program for credit card acceptance. Your customers will pay a flat 3.5% for credit cards, and you’ll pay 1.0% + $0.25 per transaction for debit cards. While there’s no monthly account fee, there is a $35/month rental fee for the proprietary smart terminal you’ll need to accept in-store payments. If you need a virtual terminal, it will set you back a whopping $29 per month. Most credit card processors today provide this basic feature for free.
While Nadapayments does a better job than many of its competitors at explaining the rules and restrictions regarding surcharging, the lack of a traditional, merchant-funded option means that you’ll have to switch providers entirely if the company’s surcharging program doesn’t work well for your business.
Swipe4Free
Swipe4Free is a DBA of a provider called Merchant Industry that markets a surcharging-only program. Despite the numerous claims on the company’s website about how much money you’ll save by using its program, Swipe4Free charges a high ($49/month) account fee and numerous other recurring fees that you won’t be able to pass on to your customers. The company also uses long-term contracts with expensive early termination fees and offers wildly overpriced equipment leases.
With so many better options available today, we recommend that you pass on Swipe4Free and other companies like it.
Bankcard USA
Surcharging programs have become so popular (among providers, at least) in recent years that many traditional providers are now offering them. Bankcard USA is about as old-school as they come, and not in a good way. With tiered pricing plans, long-term contracts, early termination fees, and leased equipment, the company will be very expensive for the average small business owner.
Switching to surcharging will eliminate a fair amount of these costs, but not all of them. Restrictive contract terms also make the company a poor choice at a time when so many of its competitors have switched to month-to-month billing.
Our Methodology For Choosing The Best Zero-Cost Credit Card Processing Companies
In choosing the best credit card processing for surcharging, we looked at the same criteria that apply when choosing a credit card processor in general: fair prices, flexible contract terms, a full range of products and services, and top-notch customer support. Additionally, we evaluated each company’s pricing and terms for its surcharging programs.
Ideally, credit card surcharging should be offered as an optional program with no additional monthly fee required. However, relatively few providers are willing to do this. For very small businesses, the extra fee for a surcharging program may exceed any savings from passing transaction processing costs onto your customers.
Another major consideration was the ease with which a business could revert to a standard, merchant-funded processing model in the event that surcharging doesn’t work out financially. Unfortunately, not all surcharging providers offer this option.
Other Ways To Offset Credit Card Processing Costs
By now, you probably realize that credit card surcharging may not save you as much money as you had hoped. In fact, it could even cost you money in the long run if you lose enough sales and loyal customers. Offsetting credit card processing fees is not about implementing a “one size fits all” solution.
Here are some alternative methods to lower your overall credit card processing costs:
Factor In Processing Costs When Setting Your Prices
For years, merchants have simply raised their prices over what they would otherwise charge to account for credit card processing costs. This is the easiest way to recoup processing costs without having to surcharge, but it doesn’t give a discount to customers using other payment methods.
Implement A Cash Discounting Program
With cash discounting, your advertised prices include a small extra amount to cover credit card processing costs. However, customers paying with a different form of payment, such as debit cards, cash, checks, or ACH transfers, will receive a “cash discount” or refund of this extra amount when they check out. Unlike surcharging, cash discounting is perfectly legal in all 50 states and very easy to implement with any provider. While it may not seem much different from surcharging, customers paying with something other than a credit card really like it when they get a small refund at checkout.
Add A Convenience Fee
A convenience fee is simply a small fee added to the customer’s bill to help defray the costs of credit card processing. Unlike surcharges, convenience fees are always a fixed amount, not a percentage of the sale. While convenience fees aren’t terribly popular with consumers, they’re legal in all jurisdictions and easily implemented. Be sure to check your processing agreements with the major credit card associations for other limitations that apply before you start charging convenience fees.
Switch To A Less Expensive Provider
The sad truth is that most small business owners in the US pay too much for credit card processing. They’re stuck in long-term contracts and pay inflated prices under tiered pricing plans, all while losing money every month through expensive equipment leases and “hidden” fees that they weren’t expecting. If you’re concerned that surcharging will hurt your business, you can still save a significant amount of money by switching to a better, more affordable provider. Our article on the cheapest credit card processing companies can help you find one.
3 Considerations For Implementing Zero-Fee Credit Card Processing
If you’ve come to the conclusion that implementing a surcharging program is the best choice for your business, there are several issues to consider before making the switch. Below are three of the main considerations that you’ll need to take into account before you start surcharging:
Notice Requirements & Signage
You can’t have a surcharging program without providing adequate notice to your customers that they’ll have to pay extra for using their credit cards. Meeting these requirements will entail some cost and effort on your part, although your merchant account provider can usually help you. For eCommerce merchants, “signage” will usually take the form of a banner or popup on your website that explains how the surcharge works.
Local (State-Level) Compliance Requirements
Because many states’ anti-surcharging laws have been overturned by judicial decisions but not formally repealed, figuring out the current state of the law in your jurisdiction can be difficult and confusing. Your processor — or an attorney specializing in small business law — can help.
Anticipated Customer Reception
The worst potential downside to surcharging is that some of your customers will walk out of your store or abandon your website upon realizing it will cost them extra to use their credit cards. Examine what your competitors are doing before implementing surcharging. If they aren’t surcharging, you’ll put yourself at a competitive disadvantage that can ultimately cost you more money in lost sales than what you save through surcharging. Surcharging is an accepted practice in some industries (taxi cabs, for example) but rare in others.
Which Zero-Cost Credit Card Processing Company Is Best For My Business?
Whether you call it “zero-fee credit card processing,” “free credit card payment 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 merchants are adopting the practice as the legal barriers against it have fallen in recent years.
If you’re tempted to implement a free credit card processing program for your small business, carefully 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 will vary quite a bit from one industry to the next. Major retailers such as Amazon and Walmart don’t use surcharging at all, but 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 most of your direct competitors already use surcharging, 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 one 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. You’ll want a program that automatically breaks out the surcharge and only applies it when permissible. Trying to add a manual surcharge to every transaction is a recipe for disaster.
Tired of credit card processing fees? Paymentcloud specializes in payment processing services where you pass the transaction fee on to the customer when they choose to pay with a credit card.
Surcharging customers is an excellent solution for many businesses to eliminate their processing fees, but you will need to talk to one of the experts at Paymentcloud to find out if it is right for your industry. Find out if you qualify
Processing fees must be paid anytime a credit or debit card is used to make a purchase. Traditionally, merchants have had to absorb this cost. However, it is possible to pass the cost of card acceptance onto your customers through either a credit card surcharging or cash discounting program.
What is zero cost credit card processing?
“Zero cost” credit card processing is a misleading term that implies that a merchant can accept credit cards without having to pay anything. In reality, surcharging and cash discounting programs merely pass the cost of card acceptance onto customers who choose to pay with a credit card. The amount they pay may or may not cover 100% of the actual cost to process a credit card transaction, and do not cover additional costs such as recurring account fees, chargebacks, etc. Moreover, merchants frequently have to pay a monthly fee for use of one of these programs.
What states do not allow credit card surcharging?
As of this writing, credit card surcharging is allowed in 48 states, although some states impose their own limits on the practice. Connecticut and Massachusetts are currently the only states that do not allow surcharging. Cash discounting, on the other hand, is legal in all 50 states.
What is the maximum amount I can charge as a credit card surcharge?
In general, no more than 4% of the cost of the purchase may be added as a credit card surcharge. However, Visa now restricts surcharges to a maximum of 3%, and the state of Colorado allows only a 2% surcharge.
Can I apply a surcharge to debit card payments?
No. The Durbin Amendment makes it illegal to add a surcharge to any debit card payment. This restriction applies whether the transaction is authenticated with the customer’s PIN or “run as a credit card” (i.e., without a PIN being entered).
In Summary: The Best Free Credit Card Processors For Small Businesses
Frank has been writing about payment processing and business services since 2015. He is a retired Air Force officer and a former practicing attorney. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law, and currently resides in Paso Robles, California.
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The vendors that appear on this list were chosen by subject matter experts on the basis of product quality, wide usage and availability, and positive reputation.
Merchant Maverick’s ratings are editorial in nature, and are not aggregated from user reviews. Each staff reviewer at Merchant Maverick is a subject matter expert with experience researching, testing, and evaluating small business software and services. The rating of this company or service is based on the author’s expert opinion and analysis of the product, and assessed and seconded by another subject matter expert on staff before publication. Merchant Maverick’s ratings are not influenced by affiliate partnerships.
Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity. The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.
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