Zero-Fee Merchant Processing: Is It Actually Worth It?

Summary:

Zero-fee merchant processing shifts card processing fees to customers via surcharges. It reduces direct costs for merchants but may deter customers. Evaluating customer base and alternative fee management strategies is essential.

Main Points

• Zero-Fee Overview: Fees added as surcharges to customer bills.

• Cost Reduction: Lowers direct processing costs for merchants.

• Customer Impact: Potential to deter customers with surcharges.

• Alternatives: Incorporate fees into pricing for transparency.

• Legal Considerations: Surcharges prohibited or restricted in some states.

• Expert Assistance: Swipesum offers free consulting to optimize payment strategies.

Feeling fed up when you see the charges and fees on your merchant statement? You’re not alone. The cost of processing card payments and related services is frequently seen as a drain on your company’s revenue. That’s often true for small businesses, large companies, and many merchants in between.

You might be wondering if there’s a way to avoid some (or even all) of those costs while still accepting credit and debit cards. That desire to keep the price of accepting card payments low is what makes zero-fee processing seem attractive to many merchants.

The lowest credit card processing fees make plenty of sense from a financial perspective, especially in theory. But how does zero-fee merchant processing work in practice? Can you really accept cards and avoid all of the fees?

We’ll cover the answers to those questions and more in this article. Before we dive in, we want to remind you that Swipesum is dedicated to helping merchants like you optimize their card payment workflow.

Our expert consultants review your unique business needs and then recommend a shortlist of service providers to address them. Crucially, our team also takes the lead in cost negotiations. That means giving your business the right payment providers, tech, and tools at a lower price.

Best of all, our payments optimization process comes at no additional cost to your business. Ready to learn more? Book your free consultation!

Now, let’s take a closer look at zero-fee merchant processing.

How Does Zero-Fee Merchant Processing Work?

Zero-fee merchant pricing is an option offered by some payment processors to their clients. The term “zero fee” is somewhat accurate in the sense that merchants themselves don’t pay individual card processing fees.  

However, those fees ultimately need to be paid by someone. In the case of zero-fee merchant processing, that someone is your customer. In essence, zero-fee processing takes the processing fees normally paid by a business and adds them as a surcharge on a customer’s bill.

Payment processors that offer this option also generally help merchants configure their payment systems to automatically add the surcharge to credit card transactions.

Additionally, certain costs related to an agreement with a processor aren’t passed onto customers. Fees that fall outside of an individual transaction, like monthly fees related to compliance with PCI-DSS rules or for leased equipment like terminals, are still paid by the business.  

Finally, debit cards can’t have these fees charged to them. So, when a customer uses a debit card as their payment method, the merchant is still on the hook for those processing costs.

With all of that in mind, it’s more accurate to think of zero-fee merchant processing as low-fee credit card processing.

How Does Zero-Fee Merchant Processing Fit into Established Pricing Models?

Although there are many variations and versions, merchant fee pricing for card processing breaks down into three major categories:

1. Flat rate pricing. This price structure charges a flat rate, a fixed percentage, or a combination of the two each time a card is swiped.

2. Interchange pricing. Interchange pricing is based on the unavoidable, universal interchange rates charged by card issuers like Visa and MasterCard. It includes markups that bring profit to payment processors.

3. Tiered pricing. Tiered pricing is very situational and complex. The type of card used, how the transaction is processed, and other factors influence the price your business pays for a customer card transaction.

It’s reasonable to look at zero-fee merchant processing as a type of flat-rate pricing. The major difference is that the percentage-based markup is passed onto the customer instead of remaining the responsibility of the business.

Is Zero-Fee Processing Worth It?

Zero-fee merchant processing has some clear advantages and disadvantages. On the plus side, zero-fee processing can:

• Reduce direct costs for a merchant.

• Automate setting up the surcharge process.

• Limit the impact on customers. Surcharges for everyday purchases aren’t particularly high — just a few dollars.

However, the drawbacks of zero-fee merchant processing can include:

• Charging customers a higher cost, and making that higher cost clear to them as the transaction progresses. Directly increasing the sticker price of your goods or services to account for merchant fees can accomplish the same goal without the sudden addition of a surcharge.

• Unless you offer a unique product or service, encouraging customers to shop at merchants that don’t pass along merchant fees.

• Similarly, losing out on sales when customers don’t want to pay a surcharge and don’t have an alternative form of payment available.

• A few states (CT and MA) prohibit surcharging, and several others have rules restricting it, as payment processor Stax explains.

If you have the right type of customer base (i.e. they mostly won’t be upset or dissuaded by a surcharge) zero-fee merchant processing can be beneficial. For all of its drawbacks, it does eliminate the costs you would otherwise pay each time a customer uses a credit card.

However, there’s more than one way to pass along those costs. For example, incorporating merchant fees into your pricing. This strategy requires some time and effort spent on calculations. However, it also gives customers an accurate picture of the price they’ll pay from the start, avoiding an often unwelcome surcharge.

Of course, your business can also take a more holistic approach to payment processing and dealing with its associated costs. There are thousands of active payment processing service providers, each with its own variations in terms of fees, service levels, and much more. This competitive and large market gives your business the power of choice.

Navigating that market can be difficult for business owners and decision-makers who don’t have deep experience in this field. The good news is that Swipesum is here to help!

Our expert consultants aren’t connected to any specific provider or service model. They work as your advocates, learning about your business and finding the payment processing options that work best for it. They’ll negotiate on your behalf with providers as well, reducing the costs of processing card payments — and doing it without passing the cost onto your customers.

Our consulting and negotiation services are free to your business. Learn more about how Swipesum helps so many merchants optimize their payments strategy. Book your free consultation now!