Home » What Is a Convenience Fee and How it Differs from a Surcharge

Over the past few years credit cards have become the most used payment method. For many businesses out there, this means high credit card processing costs — and lower profits.  

One common way merchants can reduce some of the costs associated with accepting credit card payments is to charge a convenience fee. 

In this article, we’ll explain what a convenience fee is, how it differs from a surcharge, and discuss card brand rules and regulations that businesses must comply with when utilzing this feature.

What is a convenience fee?

A convenience fee is an additional charge businesses impose on customers for the privilege of paying through a non-standard payment method. This fee is typically applied when a customer uses an alternative payment option that is more convenient for them but incurs extra costs for the business. 

For example, if a company typically accepts checks or cash, a convenience fee might be applied for credit card payments made online or over the phone.

It’s a way for businesses to offer multiple payment channels at no extra cost.

An example of a convenience fee in action

Imagine a concert ticketing company that sells tickets primarily through physical box offices. To provide greater convenience, the company introduces an option for customers to purchase tickets online using a credit card. 

To offset the costs associated with the new payment method, the company decides to implement a convenience fee. So, if a concert ticket costs $50, a convenience fee of $2 might be added for online credit card payments, making the total amount $52.

Why do businesses charge a credit card convenience fee?

Business charge a credit card convenience fee in order to:

• Offset the higher costs associated with processing credit card transactions.
• Encourage customers to use standard, less costly payment methods.
• Cover the expenses of maintaining and securing alternative payment channels.

However, there are some drawbacks to charging convenience fees. 

A business might face a competitive disadvantage, and customers may be unhappy with the extra charge, leading to negative feedback or lost business. Also, implementing these fees can be complex, requiring compliance with legal regulations and card brand rules.

Convenience fee vs. surcharge

While convenience fees and surcharges involve additional costs passed on to customers, they serve different purposes and are subject to different regulations. 

Convenience Fees vs. Surcharge Fees – Implementation differences:

• A convenience fee is charged when a customer uses any non-standard payment method that offers added convenience.
• A surcharge is an additional fee imposed specifically for using a credit card. This fee directly passes the cost of credit card processing onto the customer. Unlike convenience fees, surcharges can only be applied to credit card transactions.

Convenience Fees vs. Surcharge Fees – Legality differences:

• Credit card companies, such as Visa and MasterCard, allow businesses to charge convenience fees in all states under specific conditions. Generally, these fees must be applied uniformly to all customers and disclosed upfront. Additionally, there must be a standard, no-fee payment option available.
• The rules for surcharges are stricter. Many states have laws regulating and a few even prohibiting surcharges. The surcharge has to be disclosed before the transaction is completed and be clearly itemized on the receipt, along with other specific guidelines.

How convenience fees work

Let’s see which steps businesses need to take to implement these fees, who sets the rates, and factors that influence the final amount.

The process of implementing convenience fees

The implementation process will often look something like this:

1. Identify the payment method: Determine which new payment methods you plan to offer that will incur a convenience fee.
2. Determine the fee amount: Calculate the convenience fee based on the additional costs associated with the non-standard payment method. This could include credit card processing fees, technology infrastructure costs, and administrative expenses.
3. Add disclosures: Clearly inform customers about the convenience fee before they complete their transaction. This transparency is essential to maintain trust and comply with legal requirements. 
4. Apply the fee: Add the convenience fee to the total transaction amount when the customer selects the non-standard payment method.

Additionally, if you are adding convenience fees to online payments, you will need to work with your payment processor to configure your payment gateway and make sure charges are applied correctly.

Who sets the convenience fee rates?

Convenience fees are typically set by the businesses themselves, although they may consult with their payment processors to determine an appropriate amount. The fee should be reasonable and reflect the actual additional costs incurred by offering the alternative payment method. 

In some cases, payment processors may provide guidelines or limits on the amount that can be charged as a convenience fee. 

Here at SecureGlobalPay, we work closely with our merchants to help them implement convenience fees, dual pricing, cash discounting, or surcharge programs.

How the amount of the fee is determined

A convenience fee can be either a flat fee or a percentage of the sale amount, depending on card brand rules and the additional costs they aim to cover.

The final amount is typically determined by:

• Processing fees: The cost charged by payment processors for handling credit card transactions, which is usually a percentage of the transaction amount.
• Technology costs: Expenses related to maintaining online payment portals, phone payment systems, or other non-standard payment infrastructures.
• Administrative costs: Additional costs associated with managing and processing non-standard payment methods.

Card brand rules around accepting convenience fees

When it comes to accepting convenience fees, businesses must adhere to specific rules set by major credit card companies like Visa, MasterCard, American Express, and Discover.

The good news is that card issuers have very similar rules:

• The convenience fee can only be applied to alternative payment methods; there must be a standard, no-fee payment option available. 
• The convenience fee must be clearly disclosed to the customer before the transaction is completed.
• The fee must be applied uniformly to all similar transactions, regardless of the card issuer (i.e. you can’t charge convenience fees only to Visa cardholders).

The only real differences lie in how the fee can be structured:

• Visa and American Express typically require the convenience fee to be a fixed amount, not a percentage of the transaction.
• MasterCard and Discover allow both flat and percentage-based convenience fees, provided they are reasonable and clearly communicated.

These rules aim to ensure that the fees are applied fairly, transparently, and consistently, protecting both the business and the consumer.

Reduce your credit card processing costs with SecureGlobalPay

SecureGlobalPay offers an all-in-one solution for your payment processing needs. Each merchant we work with gets access to:

• ACH processing
• Instant check processing solutions
• Surcharge, convenience fee, cash discounting, dual pricing, and other no-fee payment processing models
• Merchant cash advances
• Mail Order/Telephone Order (MOTO) processing
• Chargeback dispute resolution and prevention programs
• Secure online payment gateway
• Free Point-of-Sale (POS) solutions

If you are ready to reduce processing costs and streamline your payment operations, reach out to partners@secureglobalpay.net or jumpstart the process by filling out our online application form: