Small companies looking for a credit card online will almost definitely come across companies providing free or low-cost processing, doesn’t it seem appealing? There are no out-of-pocket expenses. Some even don’t charge for terminals, and there are no annoying monthly fees.
That is appealing. However, the adage “nothing ever comes for free” is undoubtedly playing in your head, and you may be wondering, “What’s the catch?”
Commercial firms cannot exist only to provide excellent service. Every payment processing solution provider must cover its costs and generate revenues in some way. So, how can you accept credit card payments without incurring credit card fees?
Let’s break down the notion of no-fee processing, how it works, and where the catch can be.
An Overview Of Free Credit Card Processing
No-fee, no-cost, zero-fee
All of the above is about the “free credit card processing” message that many companies use to attract business owners who are careful with their money.
This solution is not at all novel. Instead, it’s a marketing update on a product that most credit card processors already provide: credit card surcharging.
It doesn’t have the same ring to it as “free,” but credit card surcharging allows retailers to pass on credit card processing fees to customers. Instead of paying the interchange costs on the business account, the consumer who uses their credit card is charged a premium.
What Is The Process Of Free Credit Card Processing?
Surcharges are applied to clients who use zero-fee processing. Some will be able to incorporate fees, even those over and beyond the standard credit card processing fees, into the customer’s premium. Even though the business often doesn’t have to pay for the processing, there are other costs, such as terminal fees.
Charges Vs. Free Credit Card Processing
Essentially the same thing, free credit card processing may be viewed as a marketable bundle that capitalizes on the surcharge processing option that all suppliers previously possessed.
Surcharging may potentially be set up with any regular CPU. However, there will be certain setup activities that you must complete. Your processor will reconfigure the terminal so that surcharges appear as a distinct line item in invoicing applications. They will also ensure that this extra is exclusively applied to credit card transactions.
Then, it will be up to the businesses to tell Visa, Mastercard, American Express, and Discover about the change and put up signs telling customers about the fees.
Credit card processors with no fees take the notion a step further. They handle everything, including all of the setup, POS system programming, credit card brand communication, and onerous paperwork. The only thing left for businesses to do is put up their signs.
Legal Concerns Regarding Zero-Fee Processing
Surcharging is a touchy subject in several states. It used to be banned in many places, but these prohibitions have been lifted in several places in recent years.
However, several restrictions must be met. It is also helpful to know about the legal cases that have been brought up in this area of payment processing.
Should “No-Fee” Processing Be Used By Small Businesses?
While “no-fee” processing may seem appealing to most small company owners, it is not a great bargain for customers, and several states have been involved in legal fights to support or oppose this payment option.
The question isn’t so much whether it’s proper or wrong to charge these fees to customers. The problem is that fewer regulatory limitations allow less-than-honorable suppliers to attract businesses into long-term contracts without fully understanding what they “pay” in return for this “free” service.
What You Should Know Before Looking For A Free Credit Card Processor
There are trade-offs, as with any free service, and they should be carefully considered before entering into a no-fee arrangement.
- Debit Cards Are Not Included In The Free Credit Card Payment Processing
One important element that has yet to be stated is that “free processing” only applies to credit cards because debit cards cannot be surcharged, the enticing no-fee processing is limited to one method of payment. The firm will incur processing fees for POS debit card transactions, prepaid cards, and gift cards. Some retailers believed there was a way around this by accepting debit cards as credit; however, this is not the case.
- All Of Those Free Credit Card Processing Services Might Add Up
Free credit card processing is sometimes the most enticing option since it encourages business owners to consider all of the benefits they may get for free. Who wouldn’t want a free credit card processing terminal and a free setup? It’s a dream, but it comes at a price.
Keep in mind that any savings you make will be passed on to your clients, so if a provider provides no-cost credit card processing with free setup fees, equipment, and other perks, they will almost certainly charge a larger markup, which your clients may wind up paying through their transaction fee.
Final Thoughts
There are several ways to reduce credit card processing costs. That may be a no-fee credit card solution, or it could be looking around for the cheapest rates with standard processors.