There’s a ton of credit card processors offering it nowadays. But, how can they really do that? Is anything really ever free?
Is there actually such a thing as free credit card processing?
There is no such thing as free credit card processing. Unfortunately, there is just no way the card issuing companies, (Visa, MasterCard, Amex) are going to process the transactions for free. Somebody has to pay for the use of the Interchange for processing financial transactions. So how can some processors offer “free” processing? Most likely when Merchant Service Providers offer ‘free” or “no cost” processing it is really them offering a credit card surcharge program with your merchant account. With this type of program what is really happening is that a surcharge is being added to each credit card transaction effectively passing the fees on to your customers. This is a little bit sneaky. A lot of processors like to use this verbiage to make it sound like they offer you processing without charging you any fees like other processors do and it sounds really tempting to merchants. But that is not actually what is happening.
And it really couldn’t possibly be completely free anyway. Often times there are monthly maintenance fees and PCI compliance fees, chargebacks, Address Verification Service (AVS) fees, all costs that you as the merchant are still responsible for. Also, many businesses that are considered higher risk may have pretty significant fees. The laws surrounding this type of program carry specific limitations, one being a cap at 4% on what you are allowed to pass on to your customers. So for many, this may not actually cover all of the business’s processing costs. For this reason it is very misleading to reel in merchants by offering “free” processing.
The goal here is not to be greedy but to effectively, more equally bear the cost of accepting credit cards with the consumers who want the convenience of being able to use them.
The problem is that there are a lot a rules and regulations set by the card brands that come along with credit card processing. On top of that, the rules will also vary from state to state.
What is the deal with credit card surcharges?
In a nutshell, here is what is going on with the laws surrounding the credit card surcharge debate. In 2005 a class-action lawsuit was brought against Visa and MasterCard, alleging that the card associations were “charging unreasonably high interchange fees” and preventing merchants from passing any of this cost onto consumers. Since then the lawsuit has bounced around between the Federal District Court to the United States Court of Appeals to the United States Supreme Court and as of March 2017 back down to the District Court level. But regardless of the current state of the lawsuit, several states have taken matters into their own hands and decided to ban the practice of surcharging in the state. 11 states currently ban the practice so when a processor talks about credit card surcharge program make sure you are actually in a state that allows for it. But what if you don’t operate in one of those states? Are you just left out in the cold? What if it is allowed in your state, is there a better way?
Listen, here’s the thing, where there is a will….there is a way, and where there is legal shaky ground there is usually a loophole to get around it. In comes the Cash Discount Program. This is a program that is legal in all of the lower 48 states. It allows those states where credit card surcharging is banned to still employ a way to offset some of the costs associated with accepting credit cards, but it also gives more options for every business, in any state, to take a softer approach to lowering their processing fees. Customers tend to be much more receptive to a discount than they are to excess charges.
The cash discount program is a program that is offered by all processors, and can be offered to all merchants. These companies that are only marketing “free credit card processing” do not always have your best interest in mind. Their goal isn’t necessarily to offer you fair merchant account pricing and a way for you to help offset those costs effectively as much as it is to keep fees as high as they can, since you aren’t paying them anyway, and make the most money on your account that they can. This does not have your best interest in mind. What happens if this program does not work for you or your customers? Or, the state you are operating in changes the law and decides to ban? Where does that leave you except locked into high credit card processing fees that you have to pay. WE prefer to be transparent about our pricing models and strive to additionally offer our merchants programs that are available to them to ensure the most success for their business.
The cash discount works a lot like a credit card surcharge program except that instead of adding a surcharge to those sales where a credit card will be used to complete the purchase, there is a discount offered when a customer chooses to pay cash. There are still rules and regulations around implementing this program so don’t go running out and start offering people a cash discount without doing your due diligence!
There are regulations regarding signage educating customers, notifying the card brands of your intent, as well as minimum time frames that must be met. There are also requirements for your printed receipts and reporting to the acquiring bank. But once all of this is taken care of it is very easy to set in motion. While you don’t need to Fully understand the legality and logistics or regulations around implementing this type of program, your processor must. You will want to make sure you are choosing a processor who is not only knowledgeable, but also possesses integrity. Don’t be fooled by those processors who are offering zero cost processing just to make their own dime. Make sure you partner with a processor that will ensure your business is set up in a way that promotes long term success for you and your customers.
At the end of the day, the biggest decision would be: Is it right for your business, and if you decide to implement the program, to what extent?
You don’t have to aim for 100% free credit card processing by passing all of the fees off to your customers. It may behoove you to come up with a percentage that helps to offset your fees somewhat while still making your customers happy. Bankcard Brokers likes to work with each individual merchant to come up with a strategy that best fits their business model and success strategy. There are never any contracts either. In fact, the flexibility is what merchants love about our Cash Discount Program. Merchants are able to revisit the discount numbers once they have been using the program for a few months to see how it is working for them and make adjustments accordingly. Also, because there are no contracts, merchants can choose to stop the program completely and easily switch back to regular processing. Once the correct details have been decided on, Bankcard Brokers will do the footwork for you. Rules, regulations and notifications will be done, you will be sent a terminal pre-programmed (or we will update your current terminal) for the required information to remain compliant. All appropriate signage will be furnished. And as always, we will focus on offering you the most fair, transparent processing fees available for the long term success of both your business, and our business partnership.