Free Processing vs Standard Processing: Which is Better?

The up and coming product to hit the merchant service industry is “Free Processing”. It has also been marketed as “Zero Processing” and the “Cash Discount Program” depending on the company. This has become a very enticing alternative to standard processing services because it saves the merchants money.

Standard Processing

When merchants process a transaction there is always a cost from the card brands. Common sense dictates that merchant service companies are in business to make money so we charge a percentage to the merchant to keep our lights on. We are no different than any other business marking up a product, it just so happens that the card brands charge a significant amount of money for each transaction. So yes the bill might be high, but we are high because of the card type. If you have a customer come in they use a Mid-Qualified or Reward Card the card brand charges a higher rate to us because someone has to pay for those Sky Mile Rewards. The worst of all of the cards is the dreaded Non-Qualified which consist of Keyed In, Business, Corporate or Government Cards and they are NOT cheap! However, if you are looking to lower your bill then try to push Check Card and Pin Based Debit cards and this will lower your bill significantly. Also, make sure you stay on top of your Fees because they can get high. Some companies add fees and will keep charging you until you inquire about it.

Free Processing

Many merchants have been changing over to Free Processing because it solves a problem, saving money. Every business is looking for a way to save money and this is definitely a way to do that. When a merchant opens their bill and they see that they are losing profits they start to look for a solution. They can either renegotiate with their current provider, shop around for a new processor or choose to try “Free Processing”. Merchant service companies and their representatives try to get to technical with the explanation of this service. We make things short and simple, “Free Processing” is either you pass the cost on to your customer which is normally 3.5 to 4% or you can choose to incur the cost.

The biggest industry for “Free Processing” is is the automotive industry. The average bill for an automotive shop is $1,000 and we are going to use this figure as an example. The biggest issue with “Free Processing” is that merchants are afraid they are going to lose customers and yes that is a concern. However, if you can avoid paying $12,000 a year in processing fees wouldn’t it be worth it? If an oil change is $30 or a tires are $300 are you really going to lose enough in sales to justify paying $12,000 if fees? It also comes to markup on their products, those $300 tires sounds like a lot of money but what do they make of those tires in profit? Once again, does the little profit justify the $12,000 in savings annually? You do the math.

So, Which is Better???

Honestly, it’s a crap shoot! There are just to many pros and cons on both sides. Do you make it convenient to the merchant and incur the cost or do you pass it on to the customer and take the chance of losing the sale and future sales. Many merchants have asked their customers what they thought about charging such a fee and many have said they were fine with it because they want the option to pay by credit card. The best option for all merchants would be to try it and if they don’t care for it simply change back to standard processing.

Do you want to try Free Processing? Contact Us and learn how you can Apply for a Free Merchant Account Today!