Payment Processing

No Fee Credit Card Processing: Advantages and Alternatives

Derek Abram
CEO of Prio
5 min read

Credit cards are a must-have for any business. But credit card processing fees can eat into your profits, and for small businesses or those with razor-thin margins, this can be a real problem. Hence the age-old debate: should we pass those costs onto our customers, and if so, how do we do it without getting on the wrong side of the law? Enter "no fee" credit card processing, a solution that's been gaining traction, and for good reason: It allows merchants to pass processing costs directly to the customer, making transactions "fee-free" for the business. Before you implement no-fee credit card processing in your business, let’s skim through the basics - what are credit card fees, and what are the advantages and disadvantages of “no fee” processing?

Breaking Down Credit Card Processing Fees 

Before we delve deeper into "no fee" credit card processing, let’s assess the usual suspects: traditional credit card processing fees. These fees are made up of several distinct layers:

  • Interchange Fees: The card-issuing bank (e.g., Chase, Bank of America) charges these for each transaction. It’s usually a percentage of the transaction amount plus a fixed fee, and it varies based on factors like the type of card used, the method of acceptance, and the type of business.
  • Assessment Fees: The credit card networks (e.g., Visa, MasterCard) charge these for using their infrastructure to process the transaction. They’re usually a lot smaller than interchange fees and are typically a fixed percentage of the total transaction volume.
  • Payment Processor's Markup: This is the fee charged by the payment processor (the company providing the service and technology for processing credit card transactions) for their services. It can include various charges like transaction fees, monthly fees, terminal rental fees, and other miscellaneous charges. 

Together, these fees form the total cost incurred by a business for accepting credit card payments. And as you can imagine, they can stack up pretty quickly, especially for businesses with high volumes of credit card transactions. This has led businesses to explore alternatives like "no fee" credit card processing.

Cash-Pay Discounts vs. “No-Fee” Credit Card Processing

"No fee" credit card processing allows businesses to pass on the costs of credit card processing directly to the customer. It’s not quite the same as offering a cash-pay discount, for several reasons.

  • Cash-pay discounts: One way to avoid paying credit card fees is to simply set your listed prices high enough to offset the fees you’ll  incur when customers pay by card, and then offer a discount to customers who choose to pay in cash. This option is less popular than it used to be, simply because it’s less and less common for people to carry cash.
  • No-fee credit card processing (i.e. surcharging): Surcharging is the process of adding a small fee to transactions made with a credit card, effectively covering the processing cost. Although many businesses charge a flat percentage of the transaction amount, the recommended way to surcharge is to only pass on the exact amount of your credit card processing fees, which will help keep you in compliance with both federal and state guidelines.

Advantages of “No-Fee” Credit Card Processing

Adopting a "no fee" credit card processing system can yield multiple benefits for businesses, particularly for those with a high volume of credit card transactions or narrow profit margins. Key advantages include:

  • Cost Savings: Arguably the most significant advantage. Credit card processing fees accumulate quickly when you’re running multiple transactions per day.
  • Predictable Expenses: Conventional credit card processing fees can fluctuate, depending on transaction volume and amounts, card types used, and other factors, complicating your business’s ability to accurately predict expenses. Passing the processing fees on to the customer balances out that unpredictability.
  • Competitive Pricing: Businesses that absorb credit card processing fees often have to increase their prices to compensate (see the section on “Cash-pay discounts” above). No-fee processing lets you offer more competitive pricing - as long as you’re willing and able to provide alternatives to the customers who prefer not to pay a credit card fee. 

Disadvantages of “No-Fee” Credit Card Processing

Before implementing a no-fee credit card processing solution for your business, here are some of the common challenges - and solutions:

  • Customer Perception: Some customers may perceive surcharges as a penalty for using a credit card and react negatively. To avoid this negative perception, make sure you communicate clearly (for example: “Our business passes on a small surcharge for credit card transactions - just enough to cover our costs.”) and offer convenient alternatives to credit card payments, such as one-tap bank transfers (more on that in the next section).
  • Implementation: Implementing a "no fee" processing system involves initial setup costs and may require modifications to the point-of-sale system, pricing structure, and signage. The easiest solution here is to hire an experienced no-fee processing company to set up and implement your surcharging program - it’ll save you far more than it costs, in both dollars and headaches.
  • Regulations: We’ve actually written a whole article on the laws surrounding surcharging - you can check that out here. Again, our recommendation here is to do your research on your state’s regulations and hire a company that specializes in implementing no-fee solutions. The most important thing to remember is that it is not legal to make a profit on surcharging. You must never pass on more than the exact amount of the credit card processing fees to your customer. 

Convenient Alternatives to “No-Fee” Credit Card Processing

The important word here is convenient. Cash and checks, while still fee-less options, are less convenient than they used to be. Many people have moved away from carrying cash and expect an electronic method of payment to be available. Many businesses have moved away from taking checks, due to fraud concerns, although some still take checks out of necessity for large transactions and trusted clients. By far the most convenient and modern solution to avoid credit card processing fees, however, is one-tap bank payments. After a short setup, customers can pay at the register faster than using a credit card, and with zero credit card fees for you or them. One-tap bank transfers are an excellent, convenient option to offer your customers - especially those engaged in high-dollar, high-relationship transactions as in the education, service, or construction industries. They get the convenience of paying as easily as they could with a credit card, and you both get the benefit of not losing a substantial portion of a large payment to credit card fees.

Have Your Credit Cards - And Convenient Bank Payments Too

We designed Prio to solve the problem of credit card fees for businesses - in as many convenient ways as possible. Prio’s no-fee credit card processing setup takes care of passing on the exact amounts of credit card fees to your customers who prefer to pay by card, and provides an easy one-tap bank transfer alternative for customers who prefer to avoid credit card fees entirely. It’s your one-stop solution for customer-convenient payment options that save your business money. Try Prio to eliminate your business’s credit card fees today.

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