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How Does Free Credit Card Processing Work, and What's the Catch?

Updated: 2 days ago

Small companies looking for credit card processors will almost probably come across vendors offering no-fee or low-fee processing. Doesn't it seem appealing? There are no up-front expenses. Some even don't charge for terminals, and there are no annoying monthly fees.

That is really appealing. However, the old adage "nothing ever comes for free" is undoubtedly playing in your head, and it's reasonable to think, "What's the catch?"

Commercial firms cannot exist only for the purpose of providing excellent service. Every payment processing solution provider must cover its costs, and profits must be generated in some way. So, how can you take 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.

What is the definition of free credit card processing?

All of the preceding addresses the free credit card processing messaging that many firms are advertising in order to entice fiscally conservative company owners. 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.

The processing is frequently free of charge to the firm, but there are additional expenses to consider, such as terminal charges, monthly service fees, and PCI compliance fees.

Surcharges vs. No-Fee Credit Card Processing

Essentially the same thing, free credit card processing may be viewed as a marketable bundle that capitalizes on the surcharging 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.

Businesses will then be responsible for notifying credit card companies—Visa, MasterCard, American Express, and Discover—of the change and securing signs informing customers of your company levies.

Credit card processors with no fees take the notion a step further. They handle everything, including the setup, programming of the POS system, contacting credit card companies, and completing all the onerous paperwork. The only thing left for businesses to do is hang their signage in the store.

Credit card processing costs and surcharges are disclosed

The essential requirements are that clients be aware you are adding surcharge fees, and that they display as a distinct item on their receipts. Both MasterCard and Visa have signage requirements for retailers. This should be placed at all main entrances and checkout locations. Customers will be informed via the entry signs that your business charges surcharge fees, and the point of sale signage must state how much such costs are each transaction.

Similar restrictions apply to e-commerce enterprises and their virtual terminals. Customers must be informed that surcharge costs apply when using a credit card for online payments on a website that includes credit card brands.

Red Flags of a No-Fee Payment Processor

There are some dishonest no-fee payment processors on the market, but they are not all. They appear to be the most attractive on the surface, but if it seems too good to be true, you're probably dealing with a shady source.

Final Verdict

There are several methods for reducing credit card processing costs. That may be a no-fee credit card solution, such as Stax surcharging, or it could be looking around for the cheapest rates with standard processors. Consider both alternatives, and no matter what you choose, NoFeePro has you covered. To fulfill all of your payment processing needs, we offer transparent, fair, regulatory, and legally compliant solutions.

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