Is Zero-Cost Credit Card Processing Really Free?

The growing adoption of mobile and digital payments in recent years reflects our steady migration to a cashless economy. With consumers increasingly choosing electronic and digital payment methods in stores and online, card checkouts surged to $9.4 trillion in 2021, according to the Nilson Report. In addition, Mastercard and Visa are also planning to raise the interchange rates merchants pay for credit card transactions. These two trends have motivated many retailers to consider implementing zero-cost credit card processing programs.

While no-fee credit card processing is appealing, it’s essential to understand the legal ramifications and functionality of available solutions and how they offset traditional fee structures. The following considerations will help you explore credit card processing programs and find the right fit for your retail business.

What is Zero-Cost Credit Card Processing?

Zero-cost credit card processing goes by several names: no-fee credit card processing, free credit card processing, etc. It’s worth noting, however, that zero-cost processing by any name is not actually free. Instead, it’s a pricing strategy that allows merchants to transfer the cost of accepting credit cards onto their credit-card-paying customers. This can be done in the form of a cash discount or a credit card surcharge. Cash discount and credit card surcharge programs are designed to reduce credit card fees but are subject to different regulatory guidelines.

Cash discount programs reduce prices for customers who pay for goods and services with cash, eChecks, prepaid or debit card products. Moreover, these programs are legal in all 50 states. Credit card surcharge programs, by contrast, are prohibited in some states and heavily regulated in other states. In addition, some states have recently repealed their anti-surcharge laws; therefore, it’s best to check with your payment processor or attorney for up-to-date information.

While compliance guidelines vary by state, card brand rules require surcharge program fees to be equivalent to processing fees. Furthermore, surcharge program policies need to be clearly displayed in visible signage. Ecommerce merchants must display surcharge fees in pop-up banners on their websites and digital receipts. Brick-and-mortar retailers are required to post surcharge fee signs at their store’s entrance, checkout counter, and customer receipts.

Pros of Zero-Cost Credit Card Processing

Zero-cost credit card processing, when properly implemented, can eliminate some credit card processing costs. How? By awarding discounts to customers who pay with cash, prepaid products, or direct debit at the point of sale (POS) system. These programs enable merchants to discount the final price of their products and services. As a result, this passes savings along to their customers.

Merchants who have pivoted to no-fee credit card processing have reportedly boosted cash, debit, and prepaid acceptance in-store. This increase in cash acceptance has lowered processing fees while significantly enhancing daily sales outstanding (DSO). Furthermore, participating merchants have found that they have simplified cash flow forecasting.

Cons of Zero-Cost Credit Card Processing

When evaluating zero-cast credit card processing options, it is crucial to recognize these programs will offset payment processing fees. You’ll reward customers for using debit cards at the POS system but still pay processing fees for debit transactions. Additionally, you’ll continue to pay recurring charges, where applicable, such as risk mitigation, PCI compliance, chargeback management, convenience fees, and monthly minimums. It’s also advisable to anticipate how your customers will react to a credit card surcharge fee or cash discount program by weighing potential savings against the threat of customer attrition.

No-fee credit card processing will offset interchange fees, but participating merchants will continue to pay for POS equipment, chargebacks, and returns. They may also face penalties and legal fees for not fully complying with their no-fee credit card processing programs. In fact, an unintentional employee misstep, such as not posting adequate signage or mistakenly surcharging a debit or prepaid card, may result in legal liability or potential account closure.

Other Ways to Offset Credit Card Processing Costs

If you’re looking to offset the high costs of credit card acceptance without burdening your customers or risking non-compliance, consider implementing a cash discount program that is fully integrated with your POS and payment processing systems. Cash discounting incentivizes cash-paying customers without penalizing those who prefer to pay with credit cards. These intelligent, integrated solutions automatically apply discounts to eligible transactions, eliminating inventory markups and the risk of human error.

You and your customers will appreciate the cash savings and ease of use of cash discount programs, which are simple to implement. With inflation at historic levels, merchants are seeing processors enforce stricter penalties for PCI non-compliance and risk assessment. A retail POS partner that offers free processing assessments, like The General Store, can review your merchant statement for free to ensure you’re not paying unnecessary fees.

Find a Credit Card Processing Partner You Can Trust

While most retail POS providers offer zero-cost credit card processing or surcharging programs, finding a partner you can trust is essential. At The General Store, our preferred processing provider, BlockChyp, offers honest, transparent pricing and excellent customer service. You can count on us to deliver cost-effective hardware and software bundles that are easy to implement, with flexible options for credit card processing. By tailoring a credit card processing program to your specific needs and integrating it directly into your POS, we’ll deliver the tools you need to drive agile, secure, compliant transactions while avoiding unnecessary fees.