“Free” Credit Card Processing: What It Really Means

Free credit card processing sounds great, but it is important to remember that nothing of value in life is truly free; someone at some point in time is paying the cost. Merchant services is no exception. Even though many people claim they can give you “free credit card processing,” it is a very misleading statement; someone is paying the cost. In this case, it is your customer.

This program, a.k.a. “free credit card processing,” is known as surcharging. The way this system works is it merely passes the processing fees on to your customers when they pay the invoice, usually in the amount of 3-4%. For some industries, this creates a very bad customer experience at the worst possible point of time: the last touch point between business and customer. The customer makes a purchase, experiences the product/service, and at the last minute gets surprised with an additional fee they did not know about.

There are, however, situations and specific business models when passing the fee on to the customer might make sense. For example, it makes more sense to charge the additional fee for large transactions (over $1,000) than it does for small transactions. However, communicating this in advance is imperative to a good relationship between business and customer. The business must communicate how its cost structure works to the customer before they begin conducting business with each other. If this communication fails, there will be a very different expectation at the time of purchase. This is usually when the business asks for a good review and if the customer, in that very moment, has a subpar experience, a review could adversely impact the business.

In summary, there really is no such thing as “free credit card processing”; someone in the process is paying the cost. Understanding the business model and relationship between business and customer will help determine whether to pass card fees onto the customer directly and, if so, how to conduct that transaction. If you or someone you know wants to utilize the surcharging program, know that it is possible, but also that there are some very important details that should be discussed before committing to that pricing structure. If you or a business owner you know have any questions regarding surcharging, simply send us a note and we will be more than happy to assess your situation and share our expertise.