As more businesses embrace credit card acceptance, it’s not uncommon to see the phrase “convenience fee” on payment pages or at point-of-sale terminals. What exactly is a convenience fee? How does it differ from a more traditional credit card surcharge?
In this post, we'll take a closer look at what convenience fees are and how they work in the larger card payment process. This article also explores tips for customers to avoid convenience fees.
What Is a Convenience Fee?
A convenience fee is an extra charge that businesses add to credit card transactions to cover the cost of processing payments. This fee is usually seen in cases where a business normally doesn’t accept credit cards or where the payment processing cost exceeds the average.
For instance, a government office may allow taxpayers to pay their taxes online and charge a 2.5% convenience charge for using a credit card. This means that for a payment of $1,000, the taxpayer would be charged an extra $25 for the convenience of paying with a credit card.
Despite the additional cost, convenience fees offer customers more flexibility in payment options and can be a beneficial alternative in situations where cash or checks are not practical or available.
Convenience Fee vs. Surcharge
Convenience fees and surcharges are often used interchangeably. However, they are two separate types of fees:
- A convenience fee is added to a transaction to cover the cost of processing any nonstandard payment (including credit cards that aren’t normally accepted).
- A surcharge is an additional fee added to a transaction to cover the cost of accepting credit cards.
For example, a credit card processing surcharge can be added to offset the higher processing costs for high-risk merchants. By contrast, a convenience fee may be charged when a customer pays with a nonstandard payment type, such as paying with a credit card or paying over the phone instead of online.
Convenience Fee Compliance
Convenience fees are technically legal in all 50 states, however, there are certain regulations and compliance aspects associated with them. For example, merchants must provide a convenience fee disclosure to the customer before the transaction takes place. Equally important, the fee should be clearly identified as a convenience fee — not as a surcharge.
To ensure compliance, merchants must be familiar with the regulations in their specific industry and jurisdiction. Failing to comply with these regulations can result in legal action and fines. Moreover, if you violate a card network’s guidelines regarding convenience fees, you risk having your merchant account suspended.
Credit Card Convenience Fees by Network
Each of the major credit card networks has specific guidelines regarding convenience fees. Here’s a quick overview:
- Neither Discover nor American Express includes convenience fees in their official policies.
- Mastercard allows convenience fees — provided they are applied to all transaction types and payment options.
- Visa allows you to charge a convenience fee for using a credit card — but only for nonstandard payment channels. Moreover, the fee must be a flat rate instead of a percentage of the total sale.
How to Avoid Convenience Fee Charges
Convenience fees are an added cost that consumers typically try to avoid whenever possible. Here are some useful suggestions for reducing convenience fees in your transactions:
- Pay with a payment method that doesn’t incur a convenience fee. For example, paying with cash or a debit card may not carry any additional fees. This can be especially helpful for smaller transactions where the “fixed” cost of a convenience fee may be relatively high compared to the overall purchase price.
- Pay in person whenever possible. Many merchants assess convenience fees for transactions that occur online or over the phone, so choosing to make a purchase in-person can help eliminate the need for a convenience fee.
- Depending on the size of the business, it might be possible to negotiate. For example, a smaller merchant may be willing to waive the fee if it moves her closer to making a successful sale
- Read the fine print and be aware of any potential fees before making a purchase. Some merchants may offer discounts or promotions that waive convenience fees. Or the businesses may have special arrangements with payment processors that allow for lower fees.
By following these tips and being mindful of potential convenience fees, consumers can reduce their expenses and make smarter purchasing decisions.
Conclusion
Convenience fees can be a useful tool for businesses to offset the costs of credit card processing. However, these charges should be used with caution. Consumers should be aware of the potential for convenience fees when making transactions and take steps to minimize their impact when possible. Understanding the differences between convenience fees and surcharges and staying up to date with credit card network guidelines can help both businesses and consumers navigate this complex landscape.
To learn more about convenience fees, surcharges and other ways to offset the costs associated with secure payment acceptance, schedule a free consultation with our merchant services team today.
