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).
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Expert Analyst & Reviewer
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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.
A recent trend within the processing industry is the heavy marketing of so-called “free” or zero-cost credit card processing services. With interchange fees at an all-time high (and poised to go even higher in 2022), such offers 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. Unfortunately, these programs — as you might well suspect — aren’t really free. Instead, they simply transfer some (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 just 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. 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.
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. Most importantly, we’ll give you an honest discussion of the pros and cons of implementing these programs, so you can decide whether such a program will be a good idea for your business in the first place.
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Table of Contents
- What Is Zero-Fee Credit Card Processing?
- Don’t Fall For “Free Credit Card Processing” Scams
- The Best Free Credit Card Processors For Small Businesses
- Zero-Fee Credit Card Processing Programs To Avoid
- Other Ways To Offset Credit Card Processing Costs
- 3 Considerations For Implementing Zero-Fee Credit Card Processing
- Is Free Credit Card Processing Worth It?
- In Summary: The Best Free Credit Card Processors For Small Businesses
What Is Zero-Fee Credit Card Processing?
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 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, etc., 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.
While the idea of saving money on your processing costs is certainly appealing, there are many potential downsides to consider — downsides that processors trying to sell you a “free” processing program will either downplay or not mention at all. 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 and more companies are offering “free” credit card processing programs. 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% 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 onto 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 the surcharge to every purchase where a card is used, including debit cards. Doing so violates your processing agreement with the credit card associations and may be illegal in some jurisdictions.
The truth is that any credit card processor can set you up with a surcharging program, even though many of them don’t advertise this feature. Your best bet is to go 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 that 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, all 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:
1. PaymentCloud
PaymentCloud
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Best for high-risk and eCommerce businesses.
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
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 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.
2. Stax By Fattmerchant
Stax by Fattmerchant
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Best for high-volume businesses.
Pros
- Month-to-month billing with no long-term contracts
- Offers transparent membership pricing
- Includes support for meeting state and federal compliance requirements
Cons
- Expensive for low-volume businesses
- Not available to high-risk merchants
Stax by Fattmerchant is one of several innovative providers offering membership pricing, which eliminates the percentage-based markup from your transactions in exchange for a fixed monthly subscription payment. Account fees are also bundled into this subscription fee, making your monthly processing costs more predictable.
The company now advertises an optional surcharging program that works within its Stax Pay integrated payments platform. This program clearly breaks out the cost of the surcharge when a credit card is used, giving your customers ample notice of the additional charge and an opportunity to switch to a different payment method (debit card, gift card, or ACH transfer) if they’d prefer not to pay it. The program meets PCI Level 1 compliance requirements and also complies with federal law. Guidance on keeping your program compliant with state law in your jurisdiction is available through customer support.
While you’ll still have to pay your monthly subscription fee (which starts at $49) and some incidental fees, Stax by Fattmerchant’s surcharging program will save you 100% on interchange fees and per-transaction authorization fees. If you’re going to implement a surcharging program, Stax by Fattmerchant is an excellent example of how to do it correctly.
Get Started with Stax by Fattmerchant
3. VizyPay
VizyPay
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Best for merchants seeking flexible pricing options.
Pros
- 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
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 4.0% for credit card transactions, which the customer pays. Debit card processing is the merchant’s responsibility, with rates starting at 1.0% + $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.
4. Dharma Merchant Services
Dharma Merchant Services
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Best for nonprofits.
Pros
- 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
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 has recently introduced 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 add an additional monthly fee for surcharging or 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.
Get Started with Dharma Merchant Services
5. Shift Processing
Shift Processing
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Best for marijuana dispensaries and kratom sellers.
Pros
- Zero-fee processing specialist
- Also specializes in high-risk processing
- Custom offerings for cannabis dispensaries and kratom merchants
Cons
- Little publicly disclosed pricing information
- Relatively few user reviews
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.
Zero-Fee Credit Card Processing Programs To Avoid
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. eCommerce and mobile options are also available, but the company doesn’t disclose much information about them.
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 onto 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.
Other Ways To Offset Credit Card Processing Costs
If you’ve read this far, you probably realize that credit card surcharging may not save you as much money as you had hoped. In fact, it might actually cost you money in the long run if you lose enough sales and loyal customers. Here are some alternative methods to lower your overall credit card processing costs:
3 Considerations For Implementing Zero-Fee Credit Card Processing
If you’re seriously thinking about implementing a surcharging program, 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:
Is Free Credit Card Processing Worth It?
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 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 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 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 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.
Have you had any experience with any 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!
 Learn More | 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. |
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In Summary: The Best Free Credit Card Processors For Small Businesses
- PaymentCloud:
- High-risk specialist
- Free credit card terminal
- Excellent customer support
- Stax by Fattmerchant:
- No long-term contracts
- Offers membership pricing
- Includes legal compliance support
- VizyPay:
- Month-to-month billing
- Transparent pricing disclosures
- Excellent customer support
- Dharma Merchant Services:
- Month-to-month billing
- Discounted rates for nonprofits
- Outstanding sales transparency
- Shift Processing:
- Zero-fee processor
- High-risk specialist
- Month-to-month contracts
Frank Kehl
Expert Analyst & Reviewer at Merchant Maverick
Frank Kehl has been researching and analyzing merchant services, payment gateways, and international money transfer services since 2015. He has a Bachelor of Science degree from Penn State and a Juris Doctorate from the Ventura College of Law.
View Frank Kehl's professional experience on LinkedIn.
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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.
Hi Damion,
According to the SLICE website, Maine still prohibits surcharges:
This comment refers to an earlier version of this post and may be outdated.
How are you liking slice? I’m thinking about joining.
This comment refers to an earlier version of this post and may be outdated.
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 !
This comment refers to an earlier version of this post and may be outdated.
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.
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.
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.
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.
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.
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?
This comment refers to an earlier version of this post and may be outdated.
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.
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?
This comment refers to an earlier version of this post and may be outdated.
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.
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
This comment refers to an earlier version of this post and may be outdated.
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 🙂
This comment refers to an earlier version of this post and may be outdated.
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.