Convenience Fees vs. Service Fees – A Quick Read Guide
Persistently high inflation and ever-rising card brand fees have made charging customers convenience fees common among businesses of all sizes. This quick read guide explores these fees, how they’re different and an alternative to convenience fees.
What Are Convenience Fees?
A convenience fee is a charge assessed by a merchant when a customer pays using an alternative payment method rather than a standard payment method for that business. For example, if a business typically accepts in-person cash payments, they might charge a convenience fee for accepting credit card payments online. Convenience fees are not surcharge fees or Service Fees , each of which have their own sets of rules and requirements.
Since the terms convenience fees and service fees are often used interchangeably, they are not the same thing. There are distinct differences. So, let’s look at the key differences between convenience fees and Visa service fees:
Key Differences:
Eligibility:
– Visa Service Fees: Only available to government and education sector merchants
– Convenience Fees: Available to any merchant type
Fee Structure:
– Visa Service Fees: Can be percentage-based (e.g., 2.5% of transaction)
– Convenience Fees: Must be a flat fee (e.g., $5.00)
Transaction Processing:
– Visa Service Fees: Must be included in the total transaction amount (single transaction)
– Convenience Fees: Must be processed as a separate transaction
Channel Requirements:
– Visa Service Fees: Can be applied to specific payment channels
– Convenience Fees: Must be applied to ALL payment types within the same channel
Processing Rights:
– Visa Service Fees: Can only be charged by the merchant directly, not third-party processors
– Convenience Fees: Can be charged by both merchants and third-party processors
MCC Requirements:
– Visa Service Fees: Require specific Merchant Category Codes (MCCs) for government and education
– Convenience Fees: No specific MCC requirements
Payment Methods:
– Visa Service Fees: Can be applied specifically to card payments
– Convenience Fees: Must be applied equally to all payment methods in that channel (cards, ACH, etc.)
Geographic Restrictions:
– Visa Service Fees: Available in specific regions/countries
– Convenience Fees: More broadly available but can be subject to local regulations
Convenience Fee Alternatives
It should come as no surprise that some customers will be frustrated with convenience fees believing the the business should cover the processing costs. To encourage these customers to continue to purchase from you, you might consider a dual pricing program. Under dual pricing, a dual price is offered at checkout. A card price with payment fees built in and a cash price. By offering your customers a choice upfront you eliminate the “surprise” at the end of the transaction and nearly all of your payment processing expenses.
Summary
The key takeaway is that Visa Service Fees are more flexible in structure (can be percentage-based) but more restricted in who can use them (only government/education), while Convenience Fees are more widely available but must follow stricter rules about being flat fees and apply equally to all payment methods. If you are in a hyper competitive market or local restrict your ability to charge an additional fee, a 100% complaint dual pricing program might be the best option for your business. To learn more, email sales@intellipay.com or schedule an appointment with one of our experts on our website, https://intellipay.com/talk-to-a-consultant/
