The real cost of "free" payment processing

"Free processing" offers promise to make card fees disappear. They don't. The fees are still paid; they are moved from your statement to your customer's bill, through a surcharge or a price difference between cash and card.

That can be a reasonable choice for some businesses. It can also cost you customers, break the rules in your province, or come with expensive equipment. Here is what to know before you sign.

How the programs work

Three versions are common:

• Surcharge: a percentage added to credit card payments at checkout.
• Cash discount: prices are shown with the card cost included, and customers paying cash get a discount.
• Dual pricing: two prices displayed for every item, one for cash and one for card.

What the rules allow in Canada

Outside Quebec, Visa and Mastercard allow merchants to add a surcharge on credit cards within a maximum they set, with advance notice to the networks and clear disclosure to customers before they pay. Surcharges are not allowed on Interac debit or on prepaid cards.

In Quebec, the Consumer Protection Act does not allow a merchant to charge more than the price advertised. In practice, adding a card surcharge is not an option for Quebec businesses selling to consumers. Before considering any of these programs, check the rules that apply to your province and your customers.

The costs that don't show up on the flyer

Look past the zero on the flyer:

• Customers notice. A surcharge at the end of the bill is a common reason for complaints and lost repeat business.
• Special terminals or software are often required, sometimes on a lease you can't easily leave.
• The processor's own rate is often high, since the customer is paying it. If the program stops, you pay that rate.
• You remain responsible for following the networks' rules, not the program's salesperson.

The alternative: pay less, openly

For most businesses, the better answer is a lower real cost rather than a cost moved to customers: interchange-plus pricing, a fair markup and no unnecessary monthly fees. Start with your effective rate (total fees divided by total card sales) and compare offers on that number. Our fee guide shows how.