Zero-Cost Credit Card Processing
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As credit card processing continues to be the most popular form of payment for businesses throughout the United States, it's critical to find an affordable payment processing platform. While most payment service providers charge a range of processing fees, zero-cost credit card processing is an option for entrepreneurs who want to offset the cost of processing payments.
What Is Zero-Fee Credit Card Processing?
Zero-cost processing is a program that doesn't charge the business for all of the transactions that are accepted through the pos system. As credit card processing fees can eat into an enterprise's bottom line, many small businesses now choose to work with credit card processors that offer zero-fee options.
It would be inaccurate to deny the fact that there are costs associated with processing credit card transactions (interchange fees, monthly fees and chargeback fees to name a few), but with zero-fee programs these costs are absorbed by the cardholder through what’s known as a surcharging. Customers will have a choice to pay with a credit card at a slightly higher price (known as a surcharge) or pay with cash at the original price.
Similarly, merchants can implement a cash discount program, where customers receive a discount on their purchases if they pay with cash, while paying the original price when using a card. While these two methods of zero-cost processing sound similar, there are some key differences worth noting.
Fees for debit card payments may be eliminated depending on if you’re using a surcharge or cash discount program. Cash discounts will eliminate processing fees for debit payments, but surcharges will not.
Benefits of No Fee Credit Card Processing
Reduce Exposure to Credit Card Payment Processing Fees
When you use zero-cost credit card processing, your customers pay your processing fees - this helps lower your costs.
Receive Original Prices for Products and Services
When your business pays for merchant account expenses, it leaves itself exposed to a mixed bag of fees and costs. This can make it difficult to price your products and services accurately. However, with this program, you will always know the exact price you're receiving for a specific good or service.
Encourage Cash Payments from Customers
If you want to reduce your exposure to credit card fees, charging a higher price for credit card transactions will make customers think twice about their payment method.
How to Offset Fees with Zero-Cost Processing
Zero-cost credit card processing automatically adds a surcharge to the transactions. Most states within the US have a 4% surcharge limit on each transaction. So for example, if a customer pays for a $10 drink the merchant would tack on an additional $0.40 so the total charge to the customer would be $10.40. If a customer pays with a credit card the terminal would automatically add this surcharge to the final amount. It is worth noting that debit card transactions cannot be surcharged (the plus side, debit card transactions carry the lowest interchange fees of all card types).
While there are other types of surcharging, they're often manual, which can cause operational issues for your staff members and slow down payments.
What to Consider Before Passing on Credit Card Fees to Customers
If you're considering a zero-cost program, it's essential to remember a few downsides.
Firstly, customers may not be happy about paying a premium to use their credit cards. As most businesses in the United States now allow credit card payments, passing on card fees to customers can be seen as a competitive disadvantage. If you're in a competitive niche, passing on fees may cause customers to look elsewhere. People have grown to rely on credit card rewards.
Secondly, each state has rules about zero-fee credit card transactions, surcharging, and other similar fees. So it's critical to understand your state's laws before proceeding.