What Is a Convenience Fee & Should You Charge It?

As a business owner, you’ve probably heard about convenience fees but might not be entirely sure what they entail. A convenience fee is an additional charge added to a customer’s bill when they use a non-standard payment method. Essentially, it’s a way for businesses to offset the cost of processing these alternative payment methods while still providing a convenient option for customers.

For example, you could add a convenience fee if your standard payment method is cash or check, but a customer wants to pay over the phone or online with a credit card. This fee compensates for these alternative methods’ higher processing costs and potential risks. In this article, you’ll learn the convenience fee meaning and the pros and cons.

Convenience Fee vs. Surcharge

It’s important to distinguish between a convenience fee and a surcharge, as they aren’t the same. A convenience fee is applied for using a non-standard payment method, while a surcharge is an additional fee added specifically for credit card transactions. 

Convenience fees can be charged for non-standard payment methods, such as online or over-the-phone payments. On the other hand, Surcharges are applied only to credit card payments and are meant to offset the merchant’s cost of processing credit card transactions. Additionally, surcharges are subject to more legal restrictions than convenience fees, with some states prohibiting them altogether.

Pros and Cons of Charging Convenience Fees

Pros:

Offset Processing Costs: Convenience fees help you recoup the costs of processing non-standard payment methods.

• Encourage Preferred Payment Methods: Adding a fee for less desirable payment methods can encourage customers to use your preferred, often cheaper, payment options.
• Transparent Costs: Convenience fees can help make the cost of processing transparent to customers, showing them the expense of using certain payment methods.

Cons:

• Potential Customer Turn-Off: Some customers might be deterred by additional fees and choose to take their business elsewhere.
• Complexity of Implementation: Ensuring compliance with various card network rules and state laws can be complicated.
• Impact on Pricing Perception: Convenience fees effectively raise your prices, which can impact how customers perceive the value of your goods or services.

Legal Considerations for Convenience Fees

Before implementing convenience fees, it’s crucial to understand the legal landscape and card network rules that govern these charges. Here’s a breakdown of the regulations from major credit card companies:

American Express

Merchants cannot impose fees that aren’t equally applied to all payment methods except electronic funds transfers.

Visa

Convenience fees are allowed for alternative payment methods that aren’t in-person transactions. The fee must be flat, not a percentage, and equally applicable to all alternative payment types.

Mastercard

This card allows for a broader range of convenience fees, including in-person and recurring transactions, as long as they are applied equally across all payment methods.

Discover

Does not have specific rules on convenience fees but allows surcharges, provided all cards are treated equally.

Always disclose convenience fees to customers before completing the transaction, allowing them to choose a different payment method or accept the fee.

Should Your Business Charge Convenience Fees?

Whether to charge convenience fees depends on various factors, including your business model, customer base, and the payment methods you accept. Here are some scenarios to consider:

Brick-and-Mortar Businesses

If you primarily accept payments in person and want to offer additional methods like over-the-phone payments, convenience fees can help offset the higher processing costs.

Service-Based Businesses

If your business involves services that require booking or payments through non-standard methods, convenience fees can ensure you’re not absorbing all the extra costs.

E-commerce Businesses

Generally, convenience fees might not be as applicable since online transactions are standard for e-commerce. However, specific alternative methods could still warrant a convenience fee.

Implementing Convenience Fees with MPS

My Payment Savvy (MPS) offers a straightforward solution for businesses looking to implement convenience fees. MPS provides a transparent and easy-to-use platform that helps you efficiently manage your payment processing needs. Here’s how MPS can support your business:

• Clear Fee Structures: MPS offers transparent fee structures, so you always know what you’re paying for.
• Multiple Payment Methods: With MPS, you can accept a wide range of payment methods, ensuring flexibility and convenience for your customers.
• Compliance Assistance: MPS helps you navigate the complex legal landscape of convenience fees, ensuring you stay compliant with all relevant regulations.
• Secure Transactions: MPS prioritizes security, providing advanced protection for your transactions and customer data.

By choosing MPS, you can implement convenience fees confidently, knowing that a reliable and supportive payment processing partner backs you.

Understanding Different Payment Methods and Their Fees

Before diving into convenience fees, it’s essential to understand the different payment methods your customers might use and the associated costs.

Credit and Debit Cards

Credit and debit cards remain the most popular payment methods for online transactions. However, they come with processing fees charged by the card issuers. These fees differ based on the card network and may consist of a percentage of the transaction amount in addition to a flat fee.

• Debit Cards: Generally have lower fees because the transaction is funded directly from the customer’s bank account, posing less risk.
• Credit Cards: These come with higher fees due to the risk of non-payment, as the issuer fronts the money on behalf of the customer.

ACH Transfers

Automated Clearing House (ACH) transfers are one of the most cost-effective ways to receive payments. ACH transactions typically have lower fees than card payments, making them a popular choice for businesses looking to reduce costs. However, funds from ACH transfers do not settle instantly and may take a few days to become available.

Mobile & Digital Wallets

Digital wallets like Apple Pay, Google Pay, and PayPal are becoming increasingly popular. These payment methods offer convenience to customers who can pay with a single click or tap. While some digital wallets do not charge extra fees beyond the standard card processing fees, others, like PayPal, add a fee for each transaction.

Evaluating Convenience Fees for Your Business

When considering convenience fees, evaluating how they will impact your business and your customers is essential. Here are some steps to help you decide:

• Assess Your Costs: Determine the additional costs associated with processing non-standard payment methods and whether convenience fees can help offset these expenses.
• Understand Your Customers: Consider your customer base and how they might react to additional fees. Will they be willing to pay for the convenience, or could it deter them from completing their purchase?
• Compliance and Transparency: Ensure you comply with all relevant regulations and card network rules. Always disclose convenience fees upfront to maintain transparency with your customers.

Conclusion: Making the Most of Convenience Fees

Convenience fees can be a valuable tool for businesses looking to offset the costs of processing non-standard payment methods. By understanding the pros and cons, legal considerations, and customer impact, you can decide whether to implement convenience fees in your business.

Remember, transparency and compliance are key. Always disclose convenience fees upfront and ensure you adhere to all relevant regulations. With the right approach, convenience fees can help you manage costs effectively while providing your customers with various payment options.

My Payment Savvy (MPS) offers a comprehensive solution to help you implement and manage convenience fees, ensuring a smooth and compliant payment processing experience. By leveraging MPS, you can focus on growing your business while controlling payment processing costs.