What Is A Convenience Fee & Can You Charge One To Your Customers?

Running a business, you know that every cent counts, especially in a possible economic downturn such a the one caused by the COVID-19 pandemic. Right now, you’re likely examining every aspect of your operations to see where you can save money or offset some of the costs of business-ownership.

If your business takes credit cards, then you know that you are charged a fee for each payment made with a card. You would not have to pay these fees if the customer paid in cash or by check, but given that we are moving towards a cashless society, you might feel forced to take credit card payments.

There is one sure way for merchants to recoup credit card charges, and that is by passing the cost down to customers, either via surcharges or convenience fees. We already have an article explaining surcharges, so this article focuses on convenience fees.

What Is A Convenience Fee?

A convenience fee is a small charge the merchant adds to a transaction when a customer chooses to pay with a credit card rather than a “preferred” standard method such as cash or ACH. Convenience fees can be either flat fees or a percentage of the transaction.

How Does A Convenience Fee Work?

Let’s start with an example that most people are familiar with. Movie theaters usually sell tickets at the box office. Customers can pay by credit card and that cost is absorbed as a cost of doing business. But the movie theater owner can offer an alternate way to buy tickets — via online sales — that requires customers to pay with a credit card. The theater can then charge a convenience fee for online purchases because those who do not wish to pay the convenience fee can always buy in person at the box office.

As a practical matter, convenience fees seem to be most commonly applied to payments such as utilities, rent, tuition, government fees (e.g., motor vehicle registration fees), and even taxes. All these fees tend to be traditionally payable by check or in person, so payment online by a credit card is very obviously an added convenience.

There are rules on how you can charge a convenience fee, and they differ with every card. Visa has the most thorough policy on the subject, while Discover and American Express are rather vague and rely on broader rules that apply to how merchants accept card payments, period. We will explain these rules below and show you how to properly charge a convenience fee.

First, though, let’s clarify the difference between convenience fees and surcharges.

Convenience Fee VS Surcharges

As mentioned in the introduction, adding a credit card surcharge is another way to offset credit card fees. A surcharge is not the same as a convenience fee, though they are often confused with each other.

Generally, a surcharge is added to a product or service’s regular price when a customer pays with a credit card. It can be applied to all credit card payments for a specific card or to specific categories of products. You do not need primary or secondary payment channels to institute surcharges, which makes things a bit simpler. However, not every state allows surcharges. The rules related to surcharges are complex, so be sure to speak to your credit card acquirer to make sure you follow all the rules before you start charging this fee.

We have a good article on surcharges—what they are and how to implement them—so be sure to check the article out as you consider your options.

How To (Correctly) Charge Convenience Fees

If you wish to charge a convenience fee, make sure you do it the correct way. Each credit card company has its own rules, and they all encourage merchants to speak to their card acquirer when considering adding a convenience fee. In fact, it seems you can’t find out the precise amount you can charge without working with your processor. Below, we will go through the rules implemented by Visa, Mastercard, Discover, and American Express so you can have a better idea of what you might have to do to charge a convenience fee.

Visa

According to Visa’s website:

In certain countries, for example Russia, the U.S., and some countries in Asia, a merchant is permitted to charge a convenience fee to the customer. The fee must be a flat fee (not a percentage of the transaction amount), clearly disclosed, and represent payment for the convenience of paying through an alternate payment channel (such as online) that is different than the merchant’s normal payment channel (for example sending a check through the mail or paying in person).

The details of Visa’s convenience fee rules can be found in the Visa Core Rules and Visa Product and Service Rules on Visa’s website. Section 5.6.2 addresses convenience fees, and it was last modified in 2020.

If your business is in the US, here are some major items of note when implementing a convenience fee for Visa cards:

• Can only be charged online.
• Cannot be charged if you are solely an online merchant (if you are, then consider a surcharge).
• Must disclose clearly and give the cardholder a chance to cancel the payment before paying.
• Fee must be included in the total amount of the transaction and not charged separately.
• Applicable to all forms of payment accepted in the payment channel.
• Fee must be a flat or fixed amount, regardless of the value of the payment due.
• Cannot charge for recurring transactions or installment transactions.
• Cannot charge both a convenience fee and a surcharge.

If you wish to implement a convenience fee for Visa cards, we encourage you to read Section 5.6.2 of the Visa rules and work with your processor.

If you’re a service business and wish to charge a service fee instead of a convenience fee, Visa does allow such charges for some MCC codes. Because this article focuses on convenience fees only, we won’t be discussing service fees in detail. If you wish to implement such a fee, be sure to check out the service fee requirements in Rule 5.6.3 and talk to your processor.

Mastercard

Mastercard’s rules for convenience fees are a little difficult to find. It seems that Mastercard does allow convenience fees, but only for government and education entities. Specifically, convenience fees are allowed only in connection with these types of payments:

• Tuition and school-sponsored room and board for elementary schools, secondary schools, colleges, universities, and professional schools.
• Government and court fees, costs, and fines, including alimony and child support payments.
• Local, state, and federal taxes.

There are some additional rules under the Mastercard Convenience Fee Program. They include:

• If you charge a convenience fee for American Express, Discover, and Visa, then you must treat Mastercard in the same way you treat these other cards.
• There are additional electronic data security standards that you may have to adhere to.
• The cardholder must be notified of the additional convenience fee and be given a chance to back out of paying this way.

Finally, Mastercard recommends that the convenience fee be charged separately from the actual payment. This is the opposite of the Visa requirement. Fortunately, it is not a mandatory rule.

If you are a government or education entity and wish to charge a convenience fee for Mastercard payments, contact your acquirer and work with them on the details.

American Express

American Express does not seem to have a policy on convenience fees, but it does not prohibit its merchants from charging them either (see Section 3.3 of the American Express Merchant Reference Guide—U.S., last updated in April 2019). It seems that you can charge a convenience fee as long as:

• The fee fits the definition of convenience fee (as opposed to a surcharge),
• You do not discriminate against the use of the American Express card (Section 2.3, fifth bullet point), and
• You disclose the fee to the cardholder and give the cardholder a chance to back out.

The safest approach for adding American Express to your convenience fee program is to speak to your credit card acquirer. But as long as you meet Visa’s requirements, you should also satisfy American Express’s.

Discover

Like American Express, Discover does not seem to have a rule on convenience fees. There is an undated article on Discover’s website about paying taxes with a credit card, and it touches on convenience fees. The article suggests that you can pay your taxes with a Discover card but you typically will have to pay a convenience fee in a percentage form or a flat rate form.

Because there are no clear, stated rules on convenience fees, the only other consideration is Section 2.4 of Discover’s Merchant Operating Regulations R11.1. This rule requires the merchant to not discriminate against the use of the Discover card, similar to American Express’s policy. If you don’t charge a convenience fee for Visa but assess one for Discover, you would be in violation of this rule.

From a practical standpoint, if you use the Visa rules and just add Discover card as a payment option, you should be satisfying Discover’s requirements for convenience fees. (Note we can’t find the Merchant Operation Regulations on Discover’s website, so we cannot verify how current the rule might be. Please double-check with your processor to ensure compliance.)

ACH Payments

We’ve had questions in the past on whether one can charge a convenience fee for ACH payments. For this update, we spent some time researching this question but could not find a definitive answer. Most ACH payments run through the ACH Network operated by Nacha. But, unlike the credit card networks, Nacha hasn’t provided guidance on convenience fees. As far as we can tell, various state and federal laws (if you’re in the US) might regulate convenience fees for ACH payments. This means that the rule might not be uniform.

If you wish to charge a convenience fee for ACH payments, we recommend you work with your processor. They might have best-practice suggestions for you to follow so you won’t run into trouble with state laws.

How To Post Notice For Charging A Credit Card Convenience Fee

As mentioned earlier, Visa has the most detailed requirements for convenience fees, so following Visa’s rules should satisfy the rules imposed by other card networks. Generally, where a convenience fee is allowed (US, Asia Pacific), there’s no strict wording requirement for the notice itself. However, for Russia, when taking the fee at a terminal, Visa does have the following suggested wording:

Fee Notice: [YOUR BUSINESS NAME] will assess a fee to cardholders for transactions at this terminal. This fee is added to the amount of your transaction and is in addition to any fees that may be charged by your financial institution.

A Russian merchant must also follow some other requirements in addition to posting this notice at the terminal.

If you’re a US-based business, you can modify the wording above and use something like:

CONVENIENCE FEE NOTICE: this method of paying online is provided to you for your convenience. If you proceed to checkout, you will be charged a convenience fee of [INSERT AMOUNT]. This fee is added to the total charge for the goods/service you purchased today. If you do not wish to pay this fee, please click “cancel” below to return to the previous page. You may pay us by [CHECK, ACH, IN PERSON] without incurring this convenience fee.

Keep in mind, though, that because there is no requirement for exact wording, as long as you satisfy Visa’s requirements in Section 5.6.2 of Visa’s rules, then you can word your notice any way you want.

Are Convenience Fees The Right Choice For Your Business?

Let’s review: Accepting credit card payments means more costs for merchants. However, you can sometimes pass credit card fees to a customer instead of having to absorb them as a cost of doing business. One such way is to use a convenience fee, but this method can only be used when there is another “standard” way for the customer to pay. If you wish to impose a convenience fee, contact your credit card acquirer. They can help you follow all the rules from the credit card companies as well as tell you how much you can charge for the fee.

Will customers pay extra just to have a non-standard way to pay for goods and services? It depends! Many people might be willing to pay extra to skip the line to renew a driver’s license but might not care about the time savings when they can just drop a check in the mail for their electric bill. Before you charge convenience fees, be sure there is a demand for them, or you might end up with an alternate payment method that no one uses.

Do you charge a convenience fee? Have you happily paid a convenience fee before? Let us know about your experiences in the comments section!