Surcharges vs. Convenience Fee: What’s the Difference?


    High-risk merchants can expect to pay more in credit card fees than their low-risk counterparts. One way to reduce the cost of merchant processing is to assess a surcharge or convenience fee on transactions – but what’s the difference between the two? In this blog post, we’ll break down the differences between these two types of fees and help you decide which is best for your business. Keep reading to learn more!

    Surcharges vs. Conveinence Fees

    When it comes to fees a high-risk merchant can pass on to a consumer, it can be hard to tell the difference between a surcharge and a convenience fee. Credit card companies and governments regulate both, so it’s crucial to tell them apart if you plan on assessing one. So both can be charged by businesses, but for different reasons. So, what’s the difference? Let’s take a look.

    Surcharges are typically added on when customers pay with credit cards that carry a higher processing cost for businesses. This extra fee helps offset the cost of those payments for the high-risk merchant. The fee is added to EVERY credit card purchase made by your customers.

    On the other hand, convenience fees are generally assessed when your customers make a purchase using a nonstandard payment type. This could be anything from paying with a credit card or paying over the phone instead of online. Generally, this fee is charged to cover the administrative costs of handling those payments.

    Often, convenience fees are lower than surcharges, but this isn’t always the case.

    Surcharges Definition

    Surcharges are regulated fees that a high-risk merchant may add to every transaction in which a credit card is used. Companies can only assess a surcharge to customers when the fee is legal in the state they conduct business in.

    Surcharges are illegal in 10 states and territories:

    • California
    • Connecticut
    • Florida
    • Kansas
    • Maine
    • Massachusetts
    • New York
    • Oklahoma
    • Texas
    • Puerto Rico

    Not long ago, Colorado was on the above list banning the surcharge fee. However, the imposed changes to Colorado Revised Statute 5-2-212 allow high-risk merchants to add the fee to credit cards sales effective in July 2022.

    Credit card companies and state governments enforce restrictions on how and where surcharges may be used. So, if you want to impose a surcharge on your clients, it’s critical that you contact your credit card processor as well as seek further legal counsel if necessary.

    The surcharge limit is capped to 4% by most credit card processors. Many businesses may charge a flat fee rather than a percentage of the total sale. However, most states that allow surcharges allow companies to determine how much of the transaction fee is charged to consumers.

    Convenience Fee Definition

    Convenience fees can only be levied when the payment method is considered nonstandard. Collection agencies often assess convenience fees when a credit card is used to pay a debt instead of cash, check, or an ACH transfer. Furthermore, convenience fees seem to be most frequently charged to utilities, rent, tuition, government charges, and taxes. These costs are generally paid by check or in person, so paying by credit card online or over the phone is clearly a time-saver.

    As already stated, a convenience fee is generally assessed to cover the administrative costs of handling payments. Convenience fees can be either flat fees or a percentage of the transaction. Some agencies will waive the convenience fee if a payment is made within a specific time frame, such as seven days of the original invoice date.

    There are restrictions on how much you may charge for a convenience fee and what notifications the consumer must receive. The rules differ depending on the card brand. Visa has the most stringent policy in this area, while Discover and American Express are less clear and rely on more general rules that apply to how merchants accept card payments.

    Be sure to discuss the rules and regulations with your payment processor before implementing a convenience fee program. Your credit card processing provider may also have built-in convenience fee capabilities with their payment software, so it’s worth a phone call. It’s also a good idea to consult an attorney to see if your business is permitted to charge convenience fees in your state.

    What is the difference between a surcharge and a convenience fee?

    A convenience fee is a charge assessed by a business for the privilege of using a particular convenience, such as the ability to pay by credit card.

    A surcharge is an additional fee added to the cost of a good or service to cover the cost of a particular expense, such as a fuel surcharge added to the cost of an airline ticket to cover the cost of higher fuel prices.

    Which is Right for Your Business?

    When it comes to deciding whether to levy a surcharge or convenience fee on your clients, it’s essential to weigh the pros and cons of each. Surcharges can be a great way to offset the cost of credit card processing for high-risk merchants, but they can also alienate customers and lead to lost business. On the other hand, convenience fees may not cover all administrative costs associated with handling nonstandard payments, but they’re less likely to turn away customers.

    If you’re still unsure which option is best for your business, contact your payment processor and ask for their advice. They’ll be able to tell you what’s allowable in your state and help you set up the right system for your needs. With a bit of planning, you can make sure that your customers have the smoothest possible payment experience – and that you’re getting the most value for your money.

    The Bottom Line

    It’s crucial to know surcharges and convenience fees differ in both application and regulation. If you’re looking for a way to reduce the cost of merchant processing, check out Payment Savvy’s convenience fee program. We’ve been helping businesses save money on credit card fees since 2010. We’re proud to offer one of the most comprehensive and compliant programs in the industry. We have the experience and expertise to help you choose the right program for your business.

    Contact us today to learn more about our program and how it can help reduce your costs!

    Brandi is a highly motivated, results oriented and accomplished creative with over 15 years of experience in Financial Services Operations.
    Her passion for helping others, attention to detail and dedication help ensure our clientele receive the excellent payment solutions and support we strive for.