We have been getting this question a lot in the past few months so we thought it was about time we addressed it. The short version of the answer is that nothing in life is actually free – but – by changing who pays for something it can in fact feel free.
What is free credit card processing?
Essentially free credit card processing is really just the business owner passing on the cost of processing a card transaction to the card holder. This is also known as surcharging. The rules for surcharging credit card processing have changed recently which is why we are seeing more and more “free credit card processing” offers and companies popping up everywhere.
How does free credit card processing work?
When the credit card holder runs their payment at the point of sale terminal they will be prompted to accept an additional charge for a certain percentage of the sale. ( Typically somewhere between 3-4% - but this depends on how much the business is being charged) Once they accept the charge they will have it added to their transaction and their merchant gets paid the additional fees therefore offsetting the cost of running the card.
How much can the merchant surcharge?
The merchant can charge as much as they want as long as they are not using the surcharge as a profit center. Therefore they have to keep the charge to the cardholder below their monthly cost to run cards. A lot of merchant service companies will set up the business owner with a much higher than usual cost to run cards ( 4% - which is the maximum surcharge amount for example) knowing that it does not matter to the business owner as long as they are recovering their costs. For this reason these types of accounts can be a lot more profitable to the merchant account companies.
Can Beacon Payments set up no cost credit card processing?
Yes. We have the ability to set it up on a specialized terminal that we carry.
Is it a good fit for our clients?
Yes and no. We don’t think every business type would work well using this type of surcharging , but in certain cases it can work quite well. For example we have seen it used quite a bit in medical practices, utilities, and even auto repair. In general higher ticket transactions tend to be a better fit for surcharging.
Is it even legal to surcharge credit card fees?
In most states it is . The few places you cannot surcharge fees are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. In addition surcharging can only be done on credit and not debit card transactions. Merchants must notify both Visa and MasterCard if they intend to surcharge their clients and they must make it clear to the cardholder that they will be imposing a surcharge.
How can I learn more?
https://usa.visa.com/support/small-business/regulations-fees.html
https://www.mastercard.us/en-us/merchants/get-support/merchant-surcharge-rules.html