When it comes to operating a small business, credit card fees can be a considerable expense. It is possible that you could recoup some of these credit card processing expenses by charging your consumers a convenience fee; however, this is only the case if you do not sell only online and if you adhere to the guidelines set forth by a card issuer.
What is typically permitted and what to be aware of about convenience fees are explained here.
What is a Convenience Fee?
A convenience fee is a charge that you impose on your clients to compensate them for utilizing a mode of payment that is not consistent with your company’s norms. As an illustration, let’s imagine you own a movie theater and sell tickets at the box office. In this location, you can accept cash payments and may also have access to a credit card processor that is quite inexpensive. When you also make it possible for clients to purchase tickets online using their credit cards, you can decide to add a convenience fee to the purchase price to help cover the costs of the website as well as the processing fees.
If you charge a convenience fee, you can accept payments that are not conventional without having to take on the full expense of those payments. If you would like to impose one, you will need to get in touch with the firm that processes your credit card transactions. You will be able to learn about the rules and the maximum amount that you are allowed to charge for the fee.
Typical Example of a Convenience Fee
Imagine for a moment if you desired to make a payment to the Internal Revenue Service (IRS) using a credit card. There are several different payment processing firms that the Internal Revenue Service (IRS) will use to take payments made using credit cards. According to the credit card issuers’ approval, all of these businesses charge convenience fees.
For example, one company might charge 2.49% with a minimum of $3.95, whereas another company might charge 3.93% with a minimum of $2.00. As a result, if you are required to send the Internal Revenue Service $2,000 and decide to pay with a credit card, you may have to pay a maximum convenience fee of 0.0393 times $2,000, which comes to $78.60.
Ten states have passed legislation restricting surcharges and convenience fees for credit card transactions, but later court decisions have invalidated these laws. Just three states and territories in the United States still have bans that have not been challenged: Connecticut, Massachusetts, and Puerto Rico.
How Much is a Credit Card Convenience Fee?
In most cases, the convenience fees that are levied for credit cards are charged as flat-rate fees in addition to the price of the goods or services. In general, these will range from two dollars to fifteen dollars, although the exact amount may vary depending on the sector and the service that is being offered. Even though there are no actual limits that have been established, charging an excessively high convenience fee will cause clients to look elsewhere for their business.
Who Can Charge a Convenience Fee?
For non-standard payment choices, any retailer that accepts numerous payment methods may impose convenience fees. Since these are considered conventional payment choices, this would not cover firms that exclusively engage in e-commerce or the majority of transactions that take place in person.
Are There Any Refunds For Convenience Fees?
When it comes to convenience fees, they are typically not refundable. Convenience fees are a separate payment; thus, even if a consumer receives a refund on a product or service, the refund would not include the convenience fees because they are a separate charge.
Regulations for Convenience Fees
It is possible that some individuals might not mind paying a convenience fee in exchange for the benefit of using an electronic payment card. This is especially true if the benefit of accumulating rewards on the card is greater than the advantage of paying the convenience fee. It is important to note that this activity is subject to regulation by both state legislation and card networks. Since it is a regulated activity, businesses are required to exercise caution when imposing surcharges and convenience fees on their customers.
Ten states have legislation on the books that prohibits surcharges and convenience fees; however, some of these laws have been declared unconstitutional by previous court decisions. Nevertheless, fees continue to be completely prohibited in the states of Connecticut, Massachusetts, and Puerto Rico. In states where it is legal, merchants can set surcharge levels up to a maximum of 4%.
Can You Charge Your Customers a Convenience Fee?
Considering that convenience fees are permitted in the majority of jurisdictions, it is not too difficult to put them into practice. On the other hand, the major credit card companies have established many particular restrictions that restrict how and the circumstances under which convenience fees can be applied:
- American Express: According to the guidelines governing American Express merchants, a merchant is not permitted to “impose any restrictions, conditions, disadvantages, or fees when the card is accepted that are not imposed equally on all other payment products, except for electronic funds.” In principle, convenience fees would be permitted so long as they are imposed in the same manner with equal weight.
- Visa: Visa only permits the use of convenience fees for forms of alternative payment methods that do not involve transactions that take place in person. Additionally, it must be a flat fee amount, not a percentage, and it must apply to all alternative payment modes in the same manner.
- Mastercard: Mastercard can charge the most extensive variety of convenience fees for alternative payment methods, such as in-person and recurring transactions, provided that the fee is applied in the same manner to all forms of payment.
- Discover: Although Discover does not have any explicit restrictions regarding convenience fees, their rules do stipulate that surcharges are permitted as long as all cards are processed in the same manner. Because they do not expressly forbid convenience fees, they would be permitted so long as they are administered in the same manner as surcharges.
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Because all of these requirements stipulate that the fee must be imposed uniformly across the board, you might utilize Visa’s standards as a basis for your convenience fee charges to guarantee that you comply with the legislation. This indicates that it is generally not possible to impose convenience fees for firms that are restricted to operating solely online and that these fees would have to be a flat fee rather than a percentage.
Customers are required to be informed of any convenience fees that may be applicable before the transaction. This is an additional point that should not be overlooked. The customer has the option of selecting an alternate, regular way of payment, canceling the transaction, or accepting the convenience fee in its current form from this point on.
Policy Statements of Credit Card Companies Regarding Convenience Fees
When it comes to convenience fees, every credit card provider has its own set of guidelines. Some are more comprehensive than others, and it would be worthwhile to do some research on the best credit cards to see which ones have the finest policies. Some of the most prominent credit card companies have the following policies in place:
If used for all transactions and payment methods, Mastercard permits convenience fees.
Visa permits the use of convenience fees, but only if the payment is made through an alternate channel, such as by phone or online, and the company first informs the customer that the fee is a flat rate rather than a percentage of the total sale.
By their policy, American Express does not impose any surcharges or convenience fees on their customers.
In addition, Discover has a policy that does not include any surcharges or fees for convenience.
How To Avoid Convenience Store Fees
When it comes to convenience fees, there are only two choices available: either pay the fee or use another method of payment, such as cash. Both of these options should be considered. Several establishments, including petrol stations, provide discounts to customers who pay with cash. This is the case in many instances.
It is usually a good idea to inquire about the availability of a cash discount from a company. Convenience fees are supposed to be revealed at the point of sale; therefore, if you find out that you have been charged a fee after the fact, it is essential to discuss this matter with the credit card company you use.
What are Some Ways to Avoid Paying Convenience Fees for Movie Tickets?
Certain movie theaters impose convenience fees on customers who order online or in advance. It is recommended that you try to purchase your ticket at the box office on the day of the play to avoid experiencing these fees. As a result, there is a possibility that the seats you have selected will not be available.
How Can You Avoid Being Charged Convenience Fees When You Pay Your Rent?
Some landlords permit their tenants to pay their rent online through a third-party payment system. These landlords may charge a convenience fee equal to a percentage of the rent for this service. You might be able to avoid these fees if you pay using a check, money order, cash, or some other method of payment that does not include the use of the Internet, but this will depend on the terms of your lease. Certain jurisdictions make it illegal for landlords to demand any kind of payment that includes required surcharges, while other states allow it to be lawful.
How Is It Possible for a Small Firm to Charge a Fee for Convenience?
Your point-of-sale (POS) system will provide you with instructions on how to implement convenience fees for specific sales, and you will need to consult it beforehand. In the case of Square, for instance, you will have the ability to configure them and specify which transactions they should be applied to.
Pros and Cons of Implementing Convenience Fees
Before moving forward with convenience fees, it is important for you, as a small business, to look at both the benefits and the drawbacks of these fees. A summary of some of the most significant advantages and disadvantages is presented here in a concise manner.
| Pros | Cons |
| Can offer payment convenience and flexibility to your customers? | Must abide by strict rules and regulations imposed by each credit card company |
| May increase sales volume and improve your bottom line | Might deter customers who are not willing to pay more for convenience |
| Can allow you to recoup some of the costs of accepting nonstandard payments | Can hinder your reputation if your competitors don’t charge these fees |
Convenience Fees vs. Surcharges
However, although the terms “surcharges” and “convenience fees” are sometimes used interchangeably, they are not the same thing. You have the option of charging clients additional fees, known as credit card surcharges, when they pay for their items at the checkout counter using their credit cards. If you do decide to add surcharges, you are required to adhere to specific rules to guarantee that you are entirely open and honest about them. When it comes to debit cards or transactions involving prepaid debit cards, several credit card providers forbid them as well. Additionally, surcharges are prohibited in many states.
However, credit card convenience fees can only be assessed in specific circumstances and will differ from credit card provider to credit card company. The purpose of these plans is to provide financial compensation to your company for accepting payment methods that are not deemed to be normal. A convenience fee may be justified if customers were given the option to submit payments through a mail-in form or over the phone. This would necessitate the use of a person to conduct the transaction outside of the conventional checkout process.
Alternatives to Convenience Store Fees
Not surprisingly, some consumers are dissatisfied with convenience fees and believe that the company ought to be responsible for covering the expenses associated with accepting nonstandard forms of payment. You can offer these consumers incentives, such as discounts or coupons, for making payments in cash or using the conventional method of payment. This will encourage them to make purchases from your company. For example, some retailers prefer to simply raise their pricing to compensate for the costs of doing business, and then they provide a discount to customers who are prepared to pay with cash.
Because every business has its own price structure, you might also want to look for credit card processing that is easier on your wallet. You may be able to save some money and avoid charging convenience fees if you shop around and compare the various options available to you.
Conclusion
At the end of the day, it is up to you to decide whether or not you will charge consumers who want to pay using atypical ways or convenience fees. Make sure that you give careful consideration to both the positive and negative aspects of the situation before making a decision. Think about the potential impact that convenience fees could have on your consumers, as well as how their feedback can have an effect on your company over the long term.
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