No Fee Payment Processing: Everything You Need to Know

A 2022 survey by the Pew Research Centre found that 41% of consumers don’t use cash for weekly purchases like gas, meals, and groceries. This figure used to be 24% in 2015 which makes it evidently clear that card usage is on the rise. This may be concerning for certain types of businesses as they need to spend more to process credit and debit card payments as compared to cash.

Buying and setting up hardware (POS systems, card readers, or payment terminals) and identifying the right merchant services provider that offers the cheapest credit card processing fees can be quite daunting. Moreover, you must watch out for hidden service fees and/or long-term contracts your provider may try to lock you into.

Clearly, the monthly fees that businesses typically pay to accept card payments can eat away a significant portion of their revenue and overall profits. This is where the concept of no-fee payment processing (also known as no-cost, zero-fee, zero-cost, or free credit card processing) comes into play. It’s one of the many ways that businesses can reduce the cost of processing card payments.

TL;DR

• The processing fees that businesses typically pay to accept card payments can eat away a significant portion of their revenue and overall profits. This is where the concept of no-fee payment processing (also known as no-cost, zero-fee, zero-cost, or free credit card processing) comes in. 
• Zero-fee credit card processing essentially boils down to credit card surcharging whereby businesses transfer some or all of their processing fees to customers who pay by credit cards. The practice is allowed throughout the US barring two states, Connecticut and Massachusetts and one US territory, Puerto Rico. 
• Businesses using CardX as their no fee payment processing platform can rest assured that all their compliance requirements have been automated, which saves them a lot of time and money. CardX also offers great customer service that makes them a reliable processing partner for your business.

Zero-cost Credit Card Processing

Zero-fee credit card processing essentially boils down to credit card surcharging. This is why the terms no fee payment processing and surcharging are often used interchangeably, although there is a slight difference between the two. 

Through credit card surcharging, businesses transfer some or all of their processing fees to customers who pay by credit cards. The practice is allowed throughout the US barring two states (Connecticut and Massachusetts) and one US territory (PuertoRico).

You can opt for surcharging regardless of the payment processor you’ve partnered with. Even if they don’t explicitly advertise it, they can set up the surcharging component if you make a request. 

On the other hand, some credit card processing companies use the term no fee payment processing to advertise the fact that they will set up a surcharge processing program for your business. 

Just be mindful that “no fee” credit card processing isn’t quite accurate, as there will always be fees involved in accepting credit cards. While you can pass on interchange rates through surcharging, not all fees can be passed on and there is a limit to how much you can charge. 

What’s more, there are also costs associated with using a surcharging service, so it’s important to be aware of those fees. 

So when a provider says they specialize in “no-fee payment processing” it simply means they can provide you with the ability to surcharge. It doesn’t mean that you’ll be able to process credit cards with absolutely zero fees.  

As such, the term “0% processing” is a more accurate way to describe surcharging. That’s because it acknowledges that there are still costs associated with accepting credit cards, even if the merchant is not paying them directly. The merchant is simply passing those costs on to the customer, up to a certain limit.

It is important to note that surcharging does not apply to debit cards even if they are run as credit. Your business still has to incur all processing costs when a customer pays by debit card.

Also, surcharging must not be confused with cash discount programs. The latter is simply another solution that some merchants use to lower their card processing costs. In this method, a certain discount (equivalent to the cost of card processing) is applied at checkout if a customer pays by cash.

The Burden of Traditional Processing Fees

There are a whole bunch of fees that businesses need to pay to accept credit card transactions. While some of these are unavoidable, businesses need to research various fees and pricing models (e.g., flat-rate, tiered, or interchange-plus pricing) before choosing a credit card processor as these may vary across different processors. 

Here are some of the most common processing fees you’ll come across:

• Interchange fee – The interchange fee makes up the largest portion of the credit card processing fees that a business incurs. It’s charged by credit card networks and credit card processors have no control over the rates. The type of card directly affects the interchange rate with the fee being higher for credit cards than debit cards. 
• Markup fee – This is charged by credit card processors based on a number of variables. By understanding what goes into the markup fees of different processors, you can not only identify the best processor for you but also negotiate the fee to your advantage.  
• Assessment fee – Assessment fees are charged by credit card networks and make up a very small percentage (around 0.1%) of the overall processing fee. Card brands fix flat-rate assessment fees based on the monthly sales volume via credit and debit cards. A business can see the assessment fee as a separate line item on their statement (usually called “Dues” or “Assessments”).

These aren’t the only fees businesses must pay. Several processors charge multiple additional fees like PCI compliance fees, setup fees, convenience fees, termination fees, and equipment fees—and these costs cannot be passed on 

Surcharging is the closest you can get to  no-fee payment processing, you can transfer credit card processing costs to your customers. Also keep an eye out for extra fees for network access, foreign transactions, etc. that can be tacked onto individual transactions. 

As you see, processing payments via credit cards can become a burden for small businesses where profit margins are already slimmer than those of large corporations. With the price of goods remaining the same—regardless of the payment method used—small business owners often have to absorb all the credit card processing fees, which can have a huge negative impact on their overall profits.

Even with high sales volumes, if you process a large number of credit card transactions, profits can be low if you don’t opt for no-fee payment processing. 

The Rise of No Fee Payment Processing

In the 1990s and early 2000s, card brands fought against surcharging as they believed customers would move away from credit cards if surcharges were applied. On the other hand, businesses wanted the option to surcharge to be able to offset some of the exorbitant fees they were being charged by card networks.

In fact, the first ban on surcharging was placed in 1974 but through various lengthy litigations, since 2013, surcharging bans have been dropping across the United States. Currently, only two states still have anti-surcharge laws (as mentioned earlier). For many decades, card brands have been earning huge profits from the fees they collect from businesses. It’s only in the last decade that no fee payment processing or surcharging has not only been legalized but also widely adopted.  

The most obvious advantage of no-fee payment processing is that a business can automatically transfer at least some of the transaction fees for accepting card payments to a cardholder. This helps increase revenue and decrease operating costs. Even if surcharge rates are capped at 3% in the US, surcharging can be a boon for small businesses.

Additionally, if customers are discouraged by credit card surcharges and opt to pay by cash, it completely eliminates transaction fees on their payments, which is another benefit for businesses. By informing customers about credit card surcharges and allowing them to pay by cash instead, you can improve your relationship with them as you have helped lower their bill amount. 

How No Fee Payment Processing Works

Payment processors offering no fee payment processing must ensure that their payment terminals are already set up to apply surcharges. They must also inform credit card networks about surcharging on behalf of their merchants.

The only exception is that such companies are not responsible for informing your customers that you are now surcharging card payments. All signage in-store and online, informing customers about surcharges, have to be set up by merchants themselves. Some providers may help you print the signages though.

No fee payment processing providers will also help your business adhere to federal and state-level surcharging laws and the rules and guidelines set by credit card networks. Businesses must also keep in mind that a surcharge cannot exceed 3% of the total bill amount and this limit is even lower in some states.

The surcharge can only be applied to credit cards—no other payment options—and cannot exceed the processing fee. Plus, businesses cannot make a profit from surcharges and can only offset their processing rates. When issuing refunds, surcharges must also be refunded, even for partial refunds. 

Ensuring Compliance and Transparency

As mentioned earlier, some no fee payment processing providers may help their clients with signage. This is because every business that surcharges is bound by law to inform their customers about it.

Credit card networks and state laws require businesses to add signs at all main entrances and POS (point of sale) that inform customers about the fact that surcharges will be applied and the surcharge rate. eCommerce stores should have surcharge information on their first web page. The surcharge also needs to be listed as a new line item in a customer’s bill so that they can easily identify how much they paid as a surcharge. 

If a cardholder feels that a business has violated surcharge laws, they can report the business to the attorney general’s office of the state. The attorney general’s office can then investigate and prosecute the business if lapses have occurred. Even breaking surcharging rules set by credit networks can have dire consequences. The credit card network can terminate the offending business’ merchant account. 

CardX: Leading the Charge in No Percentage Fee Processing

Compliance with surcharging laws and rules is crucial as highlighted in the previous section. CardX, which was acquired by Stax in 2021, has an automated surcharging platform. Businesses using CardX as their no percentage fee payment processing platform can rest assured that all their compliance requirements have been automated, which saves them a lot of time and money.

With CardX, your customers will be charged only 3% of their total bill as a surcharge. However, you will be charged 2.91% on debit card transactions (that cannot be surcharged). CardX also offers great customer service that makes them a reliable processing partner for your business.  

Features and Benefits of CardX

Following are some of the most notable benefits of using CardX:

• Flexibility – CardX offers credit card processing solutions that can be used online, in-office, and in-person. The online terminal comes with Lightbox which allows customers to pay online without being redirected. Their online terminal is also PCI level 1 compliant, providing excellent security. The in-office terminal is a virtual terminal so there is no need for additional equipment or software. In just a few clicks, the terminal will be ready for use.
• Automated compliance – CardX systems conduct automated compliance checks, which comes as a huge relief for businesses. Small business owners don’t have to worry about the paperwork, minute details about laws and regulations, or remember to carry out complicated compliance checks on their own. 
• Clear messaging to customers – CardX is a no percentage fee payment processing company that provides signage options to merchants to help them keep their customers informed about surcharges. 

Final Words

As credit card usage rises, there is no doubt that small businesses stand to benefit from not only accepting credit card payments but also surcharging customers. With CardX, businesses can apply the appropriate surcharges so as to not drive away customers. CardX is an expert in no percentage fee payment processing so they can take care of all your compliance requirements and make your business more transparent to your customers. To learn more about how CardX can help your business, contact us today.

FAQs about No Fee Payment Processing

Q: What is no fee payment processing?

No fee payment processing essentially boils down to credit card surcharging whereby businesses transfer some or all of their processing fees to customers who pay by credit cards. The practice is allowed throughout the US barring two states, Connecticut and Massachusetts and one US territory, Puerto Rico. 

Q: Is there a catch to no fee payment processing?

It’s important to note that “no fee” payment processing isn’t entirely accurate, because there will always be costs associated with accepting credit cards. While you can pass on certain processing fees to customers (up to 3%), costs like PCI compliance fees, setup fees, convenience fees, etc. cannot be passed. 

And remember that surcharging solution providers also charge for their services, so you will pay some fees one way or another. 

Saying “0% processing” is a more accurate way to describe surcharging because it acknowledges that there are still costs associated with accepting credit cards, even if the merchant is not paying them directly. The merchant is simply passing those costs on to the customer, up to a certain limit.

Q: Why should merchants consider no fee payment processing?

The primary benefit of no-fee payment processing is that it allows businesses to shift a portion of the transaction costs for card payments onto the cardholder. This leads to enhanced revenue and reduced operational expenses.  Even if surcharge rates are capped at 3% in the US, surcharging can be a boon for small businesses.

Q: How does no fee payment processing work?

The primary concept behind no-fee payment processing is shifting the the processing fee from the merchant to the customer  if the consumer chooses to use credit cards. Instead of the business absorbing all the costs associated with a credit card transaction, those costs are passed on to the cardholder in the form of a surcharge or service fee.

One common method used is credit card surcharging. When a customer chooses to pay with a credit card, a small fee (surcharge) is added to their total, effectively covering the processing cost. 

Q: How do you implement no fee payment processing (aka 0% processing)?

If you’re planning to implement no fee payment processing (in the form of a surcharging policy), you can do so by using a solution like CardX, which enables you to accept credit cards at 0% cost while achieving automated compliance.