0% Processing: How Does It Work and Is It Right for Your Business?

One of the concerns that business owners have regarding the payment process is how much will it cost them to merely collect payment for goods and services rendered. While there is some variability based upon factors like processing volumes, the number of transactions, the type of card used, and so forth, one program that has some interesting merit to it is called 0% processing. Under this system, the business pays only the monthly cost – they do not have to pay any rates.

In the 0% processing system, there is a cost to process the payment but this cost is passed on to the business’s customer. For example, let’s take a small coffee shop that is getting ready to sell a large mocha latte for $4.95. Under the 0% processing structure, when the business rings up the latte, it will charge the customer roughly $5.40 (3% + $0.30) but the business gets the full $4.95; the remaining $0.45 goes to the merchant services company to cover the processing costs. Conversely, under a regular pricing structure, the merchant would collect $4.95 for the latte but then pay the processing costs out of that so its profit would be less. Restated, in a 0% processing system, the processing costs gets passed on to the customer. The only cost the business pays is a small monthly cost that varies based on the system used – a very simple system costs cost very little per month while an elaborate software would cost more.

With that basic understanding of the system, the next question is does it make sense for your business? It largely depends on the price sensitivity of your customers (also known as elasticity) – for businesses like coffee shops, retailers, and restaurants where the elasticity tends to be lower and where businesses have many low-ticket transactions, yes, 0% processing makes a lot of sense. Conversely, where price sensitivity tends to be great and where businesses have few but large-ticket transactions, 0% processing may not work as well for them. 0% processing also depends on the business’s brand and business model, so there will inevitably be uniqueness to each situation.

If price sensitivity is not a major issue in your industry, 0% processing makes quite a bit of sense. Additionally, for small ticket industries where the average ticket is less than $150.00, 0% processing also makes sense. When pricing is an important part of the sales process or if the tickets are large, businesses will be better off building 2-3% into their pricing before the sale or simply adding a convenience fee at the time of sale.
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If you have any questions about 0% processing or adding convenience fees, please let me know and I will be more than happy to help in any way possible! Have a wonderful week and a blessed day!