Credit Card Processing Fees: The Convenience Fee Explained

I’ve noticed that a common source of confusion in the electronic payment processing industry is credit card processing fees. Perhaps the trickiest of those fees is the convenience fee.

I receive a lot of calls about convenience fees from our bank partners. They often tell me that their merchants are considering using a convenience fee, but that they just don’t know how it works. Here are few basic things they should know.

The convenience fee defined

A convenience fee is a charge added to the base transaction amount for the convenience of being able to use an alternative payment method. For example, your county government might charge you a 3.00% fee for paying your taxes online (the alternative payment method) rather than by sending a check via mail.

Sounds simple, doesn’t it? But as is true with other credit card processing fees, things can be complicated because the rules for convenience fees vary for different types of merchants and for different card brands.

What are some of the rules?

As stated above, rules for convenience fees can become complex because they differ depending on the merchant, the state in which he operates, and the card brand. However, here are some general rules:

  • Convenience fees must be applied equally for all similar transactions. This means that if a merchant charges a fee for Discover transactions, he must also charge one for MasterCard or Visa transactions.
  • Merchants must clearly explain the fee to customers when the transaction takes place, giving them the ability to opt out of the transaction.
  • In most cases, merchants must call the fee a “convenience fee” for offering credit or debit cards as an alternative payment option – not a “surcharge” or a fee designed to make up for discount or processing fees. The exception to this rule is that Visa now requires Government and Higher Education merchants to call it a “service fee.”
  • Oftentimes the convenience fee must be processed as a separate transaction, but this is not a steadfast rule as it depends on the merchant category code and the card brand.

While the previous rules are indeed important, they often vary by state. This is why it’s critical that if a merchant decides to implement a convenience fee, he must first carefully review state legislation to make sure he understands if convenience fees are permitted and under what circumstances.

Apart from those general rules, each card brand has it own particular guidelines, with Visa’s being the most complex. Additionally, Visa and MasterCard have distinct programs for specific sets of merchants. The Visa Government and Higher Education Payment Program lets government agencies charge what they now call “service fees” on approved tax types, and The MasterCard Convenience Fee Program allows both government and educational institutions to use convenience fees on certain payments. American Express also has a similar program.

Can all merchants charge convenience fees?

No. It hinges on the type of merchant and the payment methods they offer, and it varies from card brand to card brand.

Visa doesn’t permit convenience fees for face-to-face transactions and only allows them for alternative payment methods. This second specification means that a merchant who processes all of its transactions via e-commerce cannot charge a convenience fee because internet transactions aren’t an alternative payment method for them.

Discover, MasterCard, and American Express are less strict when it comes to convenience fees, with their main caveat being that their brand is treated equally with the other brands.

How can merchants decide what to charge for a convenience fee?

MasterCard, Visa, American Express and Discover allow merchants to charge both a variable amount (e.g., 2% of the transaction amount) or a fixed rate (e.g., $4.00 per transaction).

I hope you’ve enjoyed this article and learned a bit about convenience fees. It’s a complicated subject, so if you have any questions regarding the information above (or anything else about electronic payment processing) please leave a comment below.

About Author

Nick Karcher

Nick Karcher

VP, Midwest and South Sales

Nick leads Clearent's Midwest and South sales territories for our outside sales team. He lives with his wife and three children in the St. Louis area.

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