Is No-Fee Credit Card Processing Really Free? What You Need to Know

As a merchant, you’re likely fully aware that you’re paying an interchange fee every time a customer pays with a credit card. These fees are non-negotiable, and they tend to be the most expensive part of your processing costs. As a result, many credit card processors try to get you to sign up for their services by promising “no-fee” credit card processing.

In reality, of course, no-fee processing isn’t quite as good as it sounds. Here are the main things you should know about these programs and whether they’re the right fit for your business.

What Is No-Fee Credit Card Processing?

No-fee processing is also known by many other names, such as “zero-fee” or “free” processing. The truth is, however, that these are all different names for surcharging. Surcharging Involves passing your processing costs to customers, which is something you can already do with any processor. This practice is allowed in all states except Connecticut and Massachusetts.

The legality of no-fee processing is a bit of a controversial topic. Banks tend to be against this practice due to the implications it has on credit card payments. Simply put, if merchants pass more fees to their customers, they’ll be less inclined to use credit cards. This dispute has led to several legal cases regarding no-fee processing.

How No-Fee Processing Works

When you set up your credit card processing station, you need to program your terminals to process these payments. With no-fee processing active, your terminals will add a markup on all relevant credit card purchases. Depending on the state you operate in, there’s a limit to how much a surcharge markup can consist of, which is usually roughly 4%.

Though no-fee processing means your customers will cover most of your fees, you’ll still face certain costs. These include monthly fees, PCI compliance fees, equipment charges, and so on.

Should You Use No-Fee Processing?

Credit card processing isn’t cheap, so the idea of no-fee processing is obviously appealing. Before you decide to go down this route, though, you’ll want to consider your target market. If your competitors aren’t surcharging, how will you entice customers to spend 3-4% more at your business? Will your competitors be able to use your surcharging tactic against you?

Another thing you should keep in mind is the availability of your goods and services. These days, the internet makes it easy to buy from anywhere. If they can purchase the same goods and services you offer with little or no inconvenience, they’ll likely do it. Keep in mind that some major brick-and-mortar retailers like Target and Walmart don’t surcharge.

If you would like to learn if  No-Fee Processing is a right fit for your business get in touch with our office today!

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