No-Cost Processing: Too Good to Be True?
As a consumer, you have no doubt encountered merchants succumbing to the latest industry craze of charging their customers a fee to process plastic payments. And as a merchant you have surely heard the pitch from processors promising no-cost processing…and been left wondering if the claim is too good to be true. Love it or hate it, the practice is rooted in merchants’ genuine interest to recoup the increasing cost of card acceptance. In an unstable economic climate with volatile cost of inputs, supply chain disruptions, labor shortages, and post-pandemic uncertainty, business owners are desperate for reprieve. Many merchants, however, remain cautiously wary of the practice, wondering: Is it legal in my state? How do I implement the fee correctly? Will I lose business? Is this really too good to be true??? All valid questions that we’d love to address!
Is it legal in my state?
Turns out, dual pricing has been around for decades and if you’ve filled your car with fuel, you’ve likely been presented with the choice of a cash or card price. When implemented correctly, both dual pricing and cash discounting are legal in all 50 U.S. states. Good news, right?
How do I implement no-cost processing correctly?
Not so fast. While the practice is legal when implemented correctly, it remains a fact that many merchant acquirers – the payment processing companies advising merchants on how to navigate the program – aren’t always fulfilling their professional obligations. This is unfortunate because Visa’s rules governing the practice are actually quite simple: A business seeking to engage in this program must first increase the price of their good or service. The payment terminal must then be equipped to display two prices – one for cash and one for card – or discount the item for cash paying customers. Working with a reputable firm and checking Visa’s simple compliance boxes should provide peace of mind that you’re operating in the safe zone.
Will I lose business?
The decision on whether or not to engage in a dual pricing or cash discounting program is a personal one, however we can add context that has been useful for many merchants who have similarly weighed their options on the subject. While the industry is noting widespread geographical adoption of these programs, we suggest some good old fashioned recon and a conversation with your local Pinnacle Payments Relationship Manager to determine the prevalence in your particular market.
It is also valuable to put the fee amount in context using your unique business variables. If your average transaction is $39, the fee will cost your typical customer $1.56 – less than the typical charge for tax, gratuity or even a soda. By contrast, if you operate in a high ticket environment, the fee will pose a greater burden on each individual customer, thus a conversation with your Relationship Manager regarding alternative ways to incorporate the cost into the price of your good or service may be warranted.
Regardless of the monetary impact to the cardholder, we have overwhelmingly received feedback from merchants and consumers alike that the post-pandemic mood is highly in favor of small business success. Consumers are largely supportive of local small businesses and we believe, more understanding than ever of the difficult nature of navigating business ownership amid increasingly difficult economic circumstances. Now more than ever, consumers are likely to understand merchants’ need to offset their rising cost of doing business, making this an ideal time to implement the practice.
Is no-cost processing really too good to be true???
The bottom line is paying or passing card processing fees is entirely your prerogative. At Pinnacle Payments, we help clients successfully navigate this issue on the daily and we are well equipped to help you conduct a cost benefit analysis taking into account the variables that uniquely impact your business. We take incredible pride in our commitment to help merchants succeed financially – often by eliminating the majority of their processing fees – while adhering to Card Brand rules so we can all sleep peacefully at night! We look forward to having a related conversation with you!