Protecting Your Margins from Rising Processing Costs

Consumers prefer to pay they choose and with whatever card they want. All that convenience comes at an expense to merchants.  Every time you accept a card, there are fees.  Each card transaction includes assessment, interchange, and transaction fees.  One way to combat ever-increasing processing fees is to add a convenience fee to each sale.

What is a Convenience Fee?

A convenience fee is, as the name implies, a fee consumers pay for the convenience of making payments in specified ways. Convenience fees don’t eliminate processing fees but reduce a merchant’s processing expense on each credit card or debit card transaction.   See the impact a convenience fee has on a single $100 sale in the chart below.

Convenience Fee Impact on Margin – $100 Purchase Example

Although used interchangeably, a convenience fee and a surcharge fee are entirely different. Convenience fees are a flat fee applied to debit and credit card transactions where the payment method is an alternative to the way the organization typically receives payment.  For example, movie theatre tickets are usually purchased in the theatre lobby, not online.  So movie theatres can add a convenience fee to all online ticket sales.

Surcharge fees apply only to credit card transactions.  Surcharge fees can be a flat fee or a percentage of the purchase amount not to exceed 4% of the merchant’s processing costs. Surcharge fees are subject to local laws and prohibited in seven states.

The Need to Communicate

There is no question that merchants can boost their margins by adding a convenience fee to reduce their credit card processing costs.

At this point, you might be thinking, won’t adding a convenience fee alienate customers, or reduce sales?  The answer is probably not.  Consumers prefer the convenience and will pay for it.  Research by Epsilon, a market research firm surveyed Amazon customers and found that 60% of consumers cite free shipping, and 52% cite convenience as a reason for buying on Amazon.

Further, government, education, utilities, and online ticketing organizations have acclimated consumers from paying fees for using convenient alternative methods to pay.

Finally, merchants in other industries use fees to cover processing costs. Gas stations have cash and credit prices.  Insurance companies charge a fee for recurring payments that varies by payment type.  And purchasing your weekly groceries online costs more than shopping yourself.   Although it may not be called a convenience fee, these merchants are reducing their processing costs, and consumers are still being charged more for the convenience of shopping remotely and using plastic.

Consumers Don’t Understand the Cost of Credit

As mentioned earlier consumers have no idea that the merchant pays fees for each transaction; and a small number of consumers will push back on being charged a fee. Before adding a convenience fee, communication with your customers is essential. Credit rules require that consumers need to be made aware that a fee will be charged at the point of sale and that free payment options are available, such as paying in-person or by mail.

The ways to reach out to consumers vary by business and industry, whether it’s a notification in an invoice, a mention on the website, newsletter, etc. the better you can relate your story the less friction you will experience at the point-of-sale.

The Rules and Regulations

Card brands (Visa, Mastercard, etc.) or card association rules permit merchants to charge convenience fees under conditions. Merchants need to comply with these rules to remain within the terms of their merchant agreement to continue to accept credit cards.   Here are the key points:

  • Convenience fees can be accessed when the payment channel is an alternative payment method to the method typically used by the merchant or industry.
  • A convenience fee is a flat fee, and that is charged equally across all debit or credit card transactions no matter how large the transaction or the brand of the card used.
  • Consumers must have a notification that a convenience fee will be charged and agree to it before the transaction groceries.
  • Consumers must have an option at the point-of-sale to choose an alternative payment method without a fee.
  • For government or educational institutions, a convenience fee is called a service fee and is limited to a select group of MCCs or merchants’ numbers.

Although convenience fees are not prohibited nationally, local laws may affect how a merchant can add a convenience fee to their credit and debit card transactions.


For merchants, taking card payments is a fact of life; paying all of the processing costs doesn’t have to be.  To optimize your convenience fee program and remain compliant, merchants need an experienced fee-based payment partner like IntelliPay.  The IntelliPay platform makes it easy-to-implement and customizes a convenience fee program to the needs of your business.   For more information, contact IntelliPay at 855-872-6632.

In response to COVID-19, IntelliPay is supporting small businesses with a free guide to getting paid on line.