Credit card processing is important for the vast majority of businesses operating today, but facilitating it can be costly – with card companies and payment processors alike taking small cuts from every sale.

Now imagine this: a world where your company never needs to give up percentages or flat fees to a payment processor for handling credit card transactions.

This world, believe it or not, exists today (if you can find the right merchant services provider). Zero fee credit card processing (or “surcharging”) is beginning to see some real traction throughout the U.S., and it’s a great deal for businesses out there looking to maximize their revenue.

Surcharging might be just the ticket for your business to grow. If you’d like to find out, read on to learn more about this processing method, relevant pertinent laws, its advantages and disadvantages, plus which types of industries benefit the most from adopting it.

Table of Contents

  1. What is Surcharging?
  2. The Legality
  3. Advantages & Disadvantages
  4. Suitable & Non-Suitable Industries
  5. Wrap-up

What is Surcharging?

a cash register with the text "Change: $0.00" on the screen, pos system

Accepting cards is business common sense, but you can do so in multiple ways.


Simply put, surcharging is when a merchant takes the standard processing fees levied upon them by their provider, and then makes the customer foot the bill.

Is it really free?

Although billed as “free credit card processing” by many payment processors, like most things in life someone is paying for it – and in this case, it’s anyone purchasing your products or services.

Businesses deciding to go this route will be charging every customer roughly 2-4% more per credit card swipe than the listed price of an item or service. As you can imagine, there are some people out there that might not appreciate this bump in cost.

However, it is free for your business.

Every time a customer pays you via credit card, the credit card associations (Visa / MasterCard / EuroPay) charge a wholesale price to process that transaction, plus an “interchange fee”, which is calculated based on a company’s potential risk, monthly volume, and a variety of other factors. With surcharging, these fees are simply passed on to the customer.

If you’re looking at exploring this payment processing model, it’s important to understand a bit about the laws regulating it (because it might actually be illegal in your state).

The Legality

a lawyer in a suit stamping a legal document, two people watch with anticipation

When in doubt, it’s better to play it safe.

For the time being, surcharging is illegal in the following 8 states:

  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • Oklahoma
  • Texas

Plus, its status is still up in the air in New York and California, where merchants have argued that banning surcharging is an infringement on their 1st Amendment rights. Believe it or not, the U.S. Supreme Court agreed that this is a matter of “free speech”, and that companies are allowed to take anti-surcharge laws to their state courts.

If your state wasn’t listed above and you operate a pure brick-and-mortar business, then you’re in good shape to implement a free credit card processing strategy. However, if you run an ecommerce business and might be selling to customers from any of the aforementioned states, you should be careful – it’s likely that their anti-surcharge laws apply to such ecommerce transactions.

It is illegal at the federal level to surcharge debit card transactions, so you’ll need to process these purchases normally.

Something to also note is that in states like California, “cash discounts” have been legal since the existence of surcharge laws. While operating in essentially the same way (encouraging customers to use physical money by making a product cheaper), surcharging has been the sole subject of public scorn. It seems likely that psychology is at play here.

The Advantages & Disadvantages of Free Credit Card Processing

a woman holding a tablet computer with "business chart – visual" written on the screen, showing a chart that's trending upward

Use the money you save by accepting surcharges to expand your business faster.

There are three primary advantages to using a free credit card processing payment strategy, and two important reasons it’s not as great as billed.

The Pros

1. Saves your business money

Although it may seem obvious, this is the greatest advantage on paper. Assuming your customers accept this change, you could save hundreds, thousands, or even tens of thousands of dollars over the course of your business’s lifetime.

The revenue saved using this payment strategy will allow you to grow your business and expand at a faster rate than if you were paying processing fees. If you need to process high volumes of money, surcharging can save you a lot; if you’re processing low volumes, it can help you retain valuable cash that would usually be spent on handling transactions.

2. Pushes customers to use cash or debit

Although increasingly passe, cash is still the best deal out there for merchants, and thus why many small businesses continue to refuse card payments. Debit card transactions are also significantly cheaper to process than credit cards (thanks to the highly regulated and convenient ACH transfer system), making them an overall better deal for both parties.

Not to mention, those fees you’re pushing onto your customers aren’t suddenly funneling into your account – they’re still going to the same people who’d be taking them from you anyways.

It’s in your best interest to have customers not pay with credit cards, but you still need to facilitate their use if you want to survive in 2018. If this just about sums up how you feel, zero fee processing might be just the thing for you.

3. Creates a more informed consumer base

Many customers simply don’t understand how credit cards work. Businesses happily absorb the cost most of the time because they are still getting paid, but they’re getting less than the listed price tag.

In order to surcharge, Visa and MasterCard require that you let customers know – generally via signage at the checkout counter, or at points during the online checkout process. You also need to list the charge on the receipt separately from the item’s price.

While this will irk some people, it will teach them that credit cards are simply less friendly for businesses. If your customers truly care about your business and the product/service it provides, they will know to use a different method of payment or accept the surcharge.

Motile LLC can help you incorporate surcharges into your current POS system or checkout page if you’re ready to make the switch.

The Cons

1. Rubs some customers the wrong way (and may lose you business)

It’s pretty straightforward why “free credit card processing” bothers consumers – it’s not free for them. Nobody wants to be charged more than the listed price of an item. Ever.

And unfortunately for you, it’s mandated that you reveal this additional cost at multiple points during the payment process. Some merchants are worried this will have an impact on their bottom line, and it possibly could. Consider this ramification before jumping on board with surcharging.

2. Laws are still being ironed out in the courts

While it’s already legal in the majority of states, until it’s declared completely legal at both the federal and state levels entirely, there is some risk involved. Thankfully, any qualified payment processor willing to work with you will understand these laws, and help you navigate them thoroughly.

Suitable (and Non-Suitable) Industries

Beer and coffee bar, nice wooden interior with warm lighting and nice glassware

Bars are only one type of business that should consider surcharging.

Zero fee processing may sound great for businesses of all sizes, but it’s more suitable for certain types than others. Here are a few examples of industries where surcharging is extremely effective and useful, as well as a couple that might not be a great fit for it.

Best Fits

1. Contractors

In particular, anyone who makes a living on big ticket sales with low profit margins. Being able to avoid paying processing fees makes a big difference to the bottom line of such merchants.

Here’s a quick example: you bill out a client for $1,000 dollars, and the transaction fee is 4%. A 4% charge on a $1000 ticket is $40. If your margin is only $100, then that $40 fee makes up 40% of your profit. Making the client pay for that isn’t much of an additional expense either (mathematically speaking, it’s ten times more costly to you than them in this case).

2. Freelancers (“Independent Contractors”)

Similar to contractors, it’s not entirely fair to charge a price for a project and then get nickeled and dimed by a processor. If you want to get paid $150 for a project, there’s no reason you should be pulling in $143.45.

3. Restaurants & Bars

Margins are often low on food, especially at fast food restaurants and moderately priced dine-in establishments. If you’re running either a restaurant or bar, using a surcharge will encourage debit and cash transactions, which will help you keep that profit margin within a more reasonable range.

Plus, charging extra for credit cards helps out servers and bar staff, who generally prefer to get paid in cash since the payout is more immediate.

Worst Fits

1. Businesses in highly-competitive markets

If you think adding a surcharge to credit card transactions will put you at a competitive disadvantage with others in your industry, it may not be a great idea to suddenly spring it onto your customers. In a world where raising your prices could cost you valuable business, it might just be worth it to eat the cost of interchange plus fees.

Loyal consumers will stick by you, but those on the fence may move on from your products. It’s definitely a risk to be aware of.

2. Companies that don’t facilitate alternative payment methods

If you are in a position where credit card transactions are by far the most common (or only) form of payment for your goods or services, switching to free credit card processing is not ideal.

Keeping your standing customer base happy is more important than saving money on processing, because studies have concluded that finding new consumers is anywhere from 5 to 25 times more expensive than attracting new ones.

There’s no reason your business can’t have a diverse range of payment methods to handle the needs of customers – you just need the right processor.


Hands tying a Christmas package, candy canes on the brown wrapping paper, candles in the background

Delivery services can also benefit from applying surcharges to credit card payments.

Whether or not free credit card processing is right for your business is ultimately up to you. Payment processing is an unavoidable part of running a business in the 21st century, but how you make it happen is more flexible than ever.

Ready to give surcharging a shot? We have multiple solutions for you. Or if you’re simply looking for better processing options, reach out and see how we can help your business save money.

About the Author

Geoff Scott is a Payments Consultant for Motile LLC, where he strives to connect users across the internet with processing solutions for their small businesses. He also loves Thai food, craft beer, and an exhilarating game of squash (when he's off the clock, of course).