Credit card processing is essential for many businesses, but it can be expensive due to the fees charged by card companies and payment processors. Zero fee credit card processing, also known as surcharging, is a way for businesses to offset these fees by adding a surcharge to credit card transactions.
Surcharging is becoming more popular in the US and can be a good option for businesses looking to increase their revenue. However, it is important to be aware of the laws and regulations surrounding surcharging and to choose a reputable merchant services provider. Surcharging can have both benefits and drawbacks for businesses. On the one hand, it can allow businesses to recover some of the costs associated with credit card processing, which can increase profitability. On the other hand, it may also be perceived as inconvenient or unattractive to customers, which could lead to a decrease in sales. Certain industries, such as service-based businesses with high ticket prices, may be more suited to surcharging than others. It’s important for businesses to carefully evaluate their own needs and circumstances before deciding whether surcharging is a good fit for them.
What Is Credit Card Surcharging?
Credit card surcharging is the practice of adding an additional fee, called a surcharge, to the price of a product or service when a customer pays with a credit card. This fee is intended to cover the cost of credit card processing fees that the merchant pays to the payment processor. Surcharging is different from a cash discount, which is a reduction in the price of a product or service offered to customers who pay with cash rather than a credit card. Surcharging is allowed in some states in the US, but it is subject to certain rules and regulations. For example, merchants may only be allowed to surcharge certain types of credit cards, and the surcharge may be limited to a certain percentage of the transaction amount.
Is it really free processing?
Zero fee credit card processing, also known as surcharging, is not technically free for the merchant. Instead, it is a way for merchants to recover some of the costs associated with accepting credit card payments by adding a surcharge to credit card transactions. Surcharging allows merchants to pass on a portion of their credit card processing fees to the customer, typically in the form of an additional fee of 2-4% added to the price of the product or service. While this may help merchants offset some of the costs of credit card processing, it is important to note that the customer will ultimately be paying for the credit card processing fees through the surcharge. It is also worth noting that while surcharging may help merchants recover some of their credit card processing costs, it may also be perceived as inconvenient or unattractive to customers, which could potentially lead to a decrease in sales. However, it is free for your company. When a customer pays you with a credit card, the credit card associations (Visa/ MasterCard/Euro Pay) charge a wholesale price plus an “interchange fee,” which is calculated based on a company’s potential risk, monthly volume, and a variety of other factors. These fees are simply passed on to the customer through surcharging. If you want to investigate this payment processing model, you should first learn about the laws that govern it (because it might actually be illegal in your state). Contact Xccept.com to get started
The Legality
Surcharging is currently prohibited in the following eight states:
- Colorado
- Connecticut
- Florida
- Kansas
- Maine
- Massachusetts
- Oklahoma
- Texas
Furthermore, its legality is still up in the air in New York and California, where merchants have claimed that prohibiting surcharging violates their First Amendment rights. Believe it or not, the United States Supreme Court agreed that this is a matter of “free speech,” and that businesses are permitted to challenge anti-surcharge laws in state courts.
If your state isn’t listed above and you run a strictly brick-and-mortar operation, you’re in good shape to implement a free credit card processing strategy. However, if you run an eCommerce business and sell to customers from any of the aforementioned states, you should be cautious because their anti-surcharge laws are likely to apply to such eCommerce transactions.
It’s also worth noting that “cash discounts” have been legal in states like California since the inception of surcharge laws. Surcharging has been the sole target of public scorn despite operating in essentially the same way (encouraging customers to use physical money by making a product cheaper). It appears that psychology is at work here.
Pros & Cons of Free Credit Card Processing
There are three primary benefits to using a free credit card processing payment strategy, as well as two significant reasons why it is not as effective as billed.
The Pros
Saves your business money
Although it may appear obvious, this is the most significant advantage on paper. If your customers accept the change, you could save hundreds, thousands, or even tens of thousands of dollars over the life of your company. The revenue saved by using this payment strategy will allow you to grow and expand your business more quickly than if you were paying processing fees. Surcharging can save you a lot of money if you need to process a lot of money; if you only need to process a small amount of money, it can help you keep valuable cash that would otherwise be spent on transaction processing.
Pushes customers to use cash or debit
Although it is becoming increasingly obsolete, cash is still the best deal for merchants, which is why many small businesses continue to refuse card payments. Debit card transactions are also significantly less expensive to process than credit card transactions (thanks to the highly regulated and user-friendly ACH transfer system), making them a better overall deal for both parties.
Not to mention that the fees you’re charging your customers aren’t suddenly flowing into your account – they’re still being taken from you by the same people. Although it is in your best interest for customers not to pay with credit cards, you must still make them available if you want to survive in 2023. If this describes how you feel, zero fee processing could be ideal for you.
Creates a more informed consumer base
Many customers are simply unaware of how credit cards work. Most of the time, businesses happily absorb the cost because they are still paid, albeit for less than the actual price.
To surcharge, Visa and MasterCard require that you notify customers – typically through signage at the checkout counter or at various points during the online checkout process. You must also separate the charge from the item’s price on the receipt. While this may irritate some people, it will teach them that credit cards are simply unfavorable to businesses. If your customers genuinely care about your company and the products/services it offers, they will know to use a different payment method or accept the surcharge.
The Cons
Rubs some customers the wrong way (and may lose your business) It’s easy to see why “free credit card processing” irritates customers: it’s not free for them. Nobody wants to be charged more than the item’s listed price. Unfortunately for you, it is required that you disclose this additional cost at multiple points throughout the payment process. Some merchants are concerned that this will have an impact on their bottom line, and it very well may. Consider this ramification before committing to surcharging.
Laws are still being ironed out in the courts
While it is already legal in the majority of states, there is some risk involved until it is declared completely legal at both the federal and state levels. Fortunately, any qualified payment processor willing to work with you will understand these laws and will assist you in thoroughly navigating them.
Whether or not zero fee credit card processing, also known as surcharging, is the right choice for your business depends on a variety of factors. It is important to consider your business’s specific needs, such as your processing volume and the price sensitivity of your customers, as well as the laws and regulations surrounding surcharging in your state.
If you are interested in using surcharging as a payment method, it may be helpful to consider the pros and cons discussed above and to work with a reputable merchant services provider like Xccept.com. They can help you determine whether surcharging is a good fit for your business and assist you in implementing a surcharging program that is compliant with relevant laws and regulations.
