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 Kehl 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.

  Expert Analyst & Reviewer

• 
  Feb 16, 2023

  UPDATED

Many small businesses seek “free” or zero-cost credit card processing services.

Zero-cost credit card processors have become very popular in the payments industry due to steadily rising interchange fees and a relaxation of laws that formerly prohibited the practice. And 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.

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.

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Company	Highlights	Next StepsHighlights
Read More	Variable contract length Variable monthly account fee Variable monthly fee for surcharging program	Variable contract length Variable monthly account fee Variable monthly fee for surcharging program Visit Site Read More
Read More	Month-to-month billing $25 monthly account fee ($20 for nonprofits) $0/month fee for surcharging program	Month-to-month billing $25 monthly account fee ($20 for nonprofits) $0/month fee for surcharging program Visit Site Read More
Read More	Month-to-month billing $14.99 monthly account fee $19.99/month fee for surcharging program (under $5K/month processing volume only)	Month-to-month billing $14.99 monthly account fee $19.99/month fee for surcharging program (under $5K/month processing volume only) Visit Site Read More
Read More	Month-to-month billing $0.00 monthly account fee (with cash discounting, $15/month for traditional program) $25-$100/month fee for cash discounting program	Month-to-month billing $0.00 monthly account fee (with cash discounting, $15/month for traditional program) $25-$100/month fee for cash discounting program Visit Site Read More
Read More	Month-to-month billing $0 monthly fee (zero-fee processing) Undisclosed monthly fee for cash discounting	Month-to-month billing $0 monthly fee (zero-fee processing) Undisclosed monthly fee for cash discounting Visit Site Read More
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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 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:

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% 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:

1. PaymentCloud: Best For High-Risk Businesses

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2. Dharma Merchant Services: Best For Nonprofits

Dharma Merchant Services	Visit Site Read our Review

Get Started With Dharma Merchant Services

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3. Host Merchant Services: Best For Mid-Sized High & Low-Risk Businesses

Host Merchant Services	Visit Site Read our Review

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4. VizyPay: Best For Merchants Seeking Flexible Pricing Options

VizyPay	Visit Site Read our Review

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5. Shift Processing: Best For CBD & Kratom Merchants

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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. 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.

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:

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:

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 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.

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. 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  Details (click to expand)

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In Summary: The Best Free Credit Card Processors For Small Businesses

1. PaymentCloud:
   • Variable contract length
   • Variable monthly account fee
   • Variable monthly fee for surcharging program
2. Dharma Merchant Services:
   • Month-to-month billing
   • $25 monthly account fee ($20 for nonprofits)
   • $0/month fee for surcharging program
3. Host Merchant Services:
   • Month-to-month billing
   • $14.99 monthly account fee
   • $19.99/month fee for surcharging program (under $5K/month processing volume only)
4. VizyPay:
   • Month-to-month billing
   • $0.00 monthly account fee (with cash discounting, $15/month for traditional program)
   • $25-$100/month fee for cash discounting program
5. Shift Processing:
   • Month-to-month billing
   • $0 monthly fee (zero-fee processing)
   • Undisclosed monthly fee for cash discounting

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Frank Kehl

Expert Analyst & Reviewer at Merchant Maverick

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.

@fjkehl2

View Frank Kehl's professional experience on LinkedIn.

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