Service Fee vs. Convenience Fee: Understanding the Differences

By Dale Erling | Last Updated February 2026 | 6-8 minute read

Executive Summary

This guide explains the key differences between service fees, convenience fees, and surcharges: three distinct approaches for offsetting payment processing costs. For Dual Pricing, learn more here.  This post has a focus on government, education, and utility organizations. Updated to reflect Visa’s October 2025 expansion of service fee eligibility to include utilities (MCC 4900) and rule simplifications across the program, this resource helps merchants understand eligibility requirements, compliance obligations, and implementation considerations for each fee model.

Key takeaways:

• Service fees are limited to qualifying government, education, and utility merchants under specific card network programs
• Convenience fees apply to alternative payment channels and are available to broader merchant categories
• Surcharges differ fundamentally in purpose, disclosure, and legal constraints
• October 2025 Visa rule changes expanded service fee eligibility and simplified program requirements
• Card network rules, state laws, and proper disclosure govern what’s permitted

Background

Rising inflation, material, and labor costs have driven merchants to find cost savings everywhere. Since credit card processing is often in the top five of merchant costs, organizations increasingly look at options for recouping some or all expenses through fee-based programs.

This guide describes Service Fee Processing, Convenience Fee Processing, and Surcharging—three distinct approaches with different eligibility requirements, rules, and merchant obligations.

Part I: Service Fee Processing

What Is a Service Fee?

A service fee is a charge that qualifying government, education, and utility merchants can assess to offset the cost of accepting card payments. Service fees are permitted under specific card network programs and must comply with detailed program requirements.

Visa Government, Higher Education, and Utility Payment Program

Program overview:

The Visa Government, Higher Education, and Utility Payment Program enables qualified merchants to accept Visa cards across all payment channels and assess a variable service fee as a separate transaction[web:131][web:133][web:150].

Eligible merchant categories:

Effective October 18, 2025, Visa expanded service fee program eligibility to include utilities (MCC 4900), joining government and higher education merchants[web:133][web:150].

Eligible MCCs now include:

• Government merchants:
  • MCC 9311 – Tax Payments
  • MCC 9222 – Fines
  • MCC 9211 – Court Costs
  • MCC 9399 – Miscellaneous Government Services
• Higher education:
  • MCC 8220 – College Tuition
  • MCC 8244 – Business and Secretarial Schools
  • MCC 8249 – Trade and Vocational Schools
• Utilities (added October 2025):
  • MCC 4900 – Electric, Gas, Sanitary Services, Water Utilities

Important: Telecommunications and cable services are not eligible for MCC 4900 classification and therefore cannot participate in the utility service fee program[web:149][web:150].

October 2025 Rule Simplifications

Visa announced significant simplifications to the Service Fee program effective October 18, 2025[web:150]:

1. Registration no longer required: Merchants do not need to register with Visa before implementing a service fee
2. MVV not required: Merchants no longer need to send a Merchant Verification Value (MVV) in the transaction message
3. Separate transaction no longer mandatory: The service fee no longer needs to be processed as a separate transaction, giving merchants and service providers greater flexibility in fee application and reconciliation

These changes are expected to accelerate service fee adoption, particularly among utility providers seeking to offset card-acceptance costs[web:150].

Service Fee Requirements

While Visa simplified certain technical requirements, core program obligations remain[web:131][web:139][web:150]:

• Service fees are permitted solely for eligible payments in government, higher education, and utility MCCs
• The fee can be applied by either the merchant or a third-party service provider accepting payments on behalf of the merchant
• Service fees can be assessed in both card-present and card-not-present environments
• The fee may be assessed as a flat or variable amount on Visa Consumer Debit (including prepaid), Visa Consumer Credit, and Visa Commercial Card transactions
• The service fee must be clearly disclosed to the cardholder in advance of payment
• The fee must be identified as charged by the merchant or third party
• Cardholders must be informed of the fee amount before completing the transaction

How Service Fee Processing Works

In a typical service fee implementation with a third-party processor like IntelliPay:

Step 1 – Amount due is processed on Merchant Account #1:

The transaction for the amount owed by the citizen, student, or utility customer is processed and funds are deposited into the government entity’s, educational institution’s, or utility’s bank account.

Step 2 – Service fee is processed on Merchant Account #2:

The service fee amount is processed separately (or may now be combined under the simplified October 2025 rules) and deposited into the registered Third-Party Processor’s (TPP) bank account.

Step 3 – TPP covers processing costs:

Interchange dues and assessments are billed to the TPP’s bank account, and the TPP uses the service fee revenue to cover the cost of processing fees.

Result: Service fee processing becomes a no-cost or significantly reduced-cost processing solution for qualifying merchants.

Important Compliance Considerations

• Card network rules governing service fees can change; merchants must follow the latest Visa Core Rules and program requirements[web:131][web:139]
• State and local laws may limit or prohibit service fees or impose additional disclosure requirements[web:131]
• Government agencies and educational institutions should consult legal counsel before implementing service fees[web:131]
• Service fee programs differ significantly from surcharging; they are not interchangeable[web:139]

Part II: Convenience Fee Processing

What Is a Convenience Fee?

A convenience fee is a charge levied for the privilege of paying through an alternative payment channel or a payment method that is not the merchant’s standard acceptance channel[web:137][web:139].

Example

Movie theaters typically sell tickets face-to-face at the box office. If a theater gives customers the alternative option of paying by phone or online using a credit card, the theater can charge a “convenience fee.” Technically, customers pay not for using their credit card, but for the privilege of using the pay-by-phone or online channel.

Card Network Convenience Fee Policies

Each card network has specific convenience fee requirements:

Visa Convenience Fee Requirements

According to Visa’s policy, certain criteria must be met for a merchant to charge a convenience fee[web:131][web:139]:

• The payment must take place across an alternative payment channel, such as online or by phone
• Customers must be told about the fee in advance, and the fee must be clearly disclosed
• The fee must be a flat or fixed price rather than a percentage of the sale
• The merchant must offer at least one standard payment channel where no convenience fee is assessed

Mastercard Convenience Fee Program

Mastercard launched its Convenience Fee Program in 2008 for government agencies and educational institutions to increase card acceptance in sectors that traditionally relied on cash and checks[web:137][web:140].

Mastercard allows convenience fees for merchants under the following conditions[web:137][web:139]:

• The fee can be charged for bona fide convenience in the form of an alternative payment channel (e.g., mail, telephone, eCommerce) outside the merchant’s customary payment channels
• The fee can be charged on in-person payments, card-not-present payments, or recurring/installment payment transactions
• Examples of recurring charges include insurance premiums, subscriptions, internet service provider monthly fees, membership dues, and utility charges
• Mastercard leaves the fee structure—whether fixed, tiered, or percentage-based—to participating organizations

No registration is required for participating in the Mastercard Government/Education Convenience Fee Program[web:137].

American Express Convenience Fee Policy

Under American Express’s policy, select transactions qualify for convenience fees, including taxes and tuition. A merchant must provide an actual convenience in the form of payment—for example, online payment, interactive voice response, or a payment kiosk. The fee must be clearly disclosed before the transaction is completed[web:139].

Discover Convenience Fee Treatment

Discover requires that all credit cards be treated consistently. As a result, the rules instituted by other card networks apply to Discover, since a merchant cannot levy a fee on a Discover cardholder that it isn’t allowed to impose on Visa, Mastercard, or American Express cardholders[web:139].

Key Differences: Service Fee vs. Convenience Fee

Part III: Surcharging

What Is a Surcharge?

A surcharge is a cost added for the privilege of using a credit card, typically presented at the point of service. Surcharges cover the merchant’s actual cost of processing, subject to network caps and state law restrictions[web:131][web:139][web:143].

Key Surcharge Characteristics

• Surcharges are applied at the point of sale as a direct pass-through of card-acceptance costs
• Network rules generally cap surcharges at the merchant’s actual processing cost or a maximum percentage (historically 3% in many jurisdictions, 2% in Colorado, though rules continue to evolve)[web:131][web:143]
• Surcharges are subject to significant state-level legal restrictions; some states prohibit surcharges entirely[web:131][web:143]
• Card network rules require advance disclosure and specific transaction receipt formatting[web:139]
• Surcharges typically cannot be applied to debit cards[web:139]

Important Distinctions

Surcharges are not service fees or convenience fees. The three programs have different eligibility requirements, different recipients of the fee revenue, different disclosure obligations, and different legal and regulatory frameworks[web:131][web:139][web:143].

Current Legal and Regulatory Environment

Surcharge rules and state laws have evolved and continue to change. Merchants considering surcharging should[web:131][web:143]:

• Review current card network rules for surcharge caps, registration, and disclosure requirements
• Consult legal counsel regarding state and local surcharge restrictions
• Ensure point-of-sale systems can properly disclose and process surcharges in compliance with network rules
• Monitor ongoing litigation and regulatory developments affecting surcharge practices

The Visa and Mastercard proposed interchange settlement announced in late 2025 may further impact surcharge practices and merchant obligations[web:143][web:156].

Part IV: How IntelliPay Implements Fee Programs

IntelliPay has been in the payment processing industry since 2004, serving thousands of businesses, government entities, educational institutions, and utility organizations nationwide[web:60][web:63][web:69][web:130].

During this time, we have helped merchants address rising processing costs through compliant implementation of service fees, convenience fees, and dual pricing options, significantly reducing or eliminating merchant processing expenses[web:60][web:62][web:130][web:133].

Service Fee Implementation for Government, Education, and Utilities

IntelliPay provides turnkey service fee programs for qualifying government, education, and utility merchants, including[web:130][web:133]:

• Dual merchant account setup and management
• Service fee calculation and collection
• Clear cardholder disclosure and messaging
• Compliance monitoring and network rule updates
• Reconciliation and reporting across both merchant accounts
• Support for Visa’s simplified October 2025 program requirements

For utilities, IntelliPay’s MCC 4900 service fee program allows qualifying electric, gas, water, and sanitary utilities to charge service fees across all payment types and bill sizes, making payment acceptance cost-neutral or significantly reduced-cost[web:130][web:133].

Convenience Fee and Dual Pricing Options

For merchants who don’t qualify for service fee programs, IntelliPay offers convenience fee and dual pricing implementations that comply with card network rules and state law requirements[web:60][web:62].

Transparent, Flexible Pricing Models

IntelliPay combines service fee, convenience fee, surcharge, and dual-pricing options with transparent interchange-plus pricing, giving merchants control over processing costs and the flexibility to choose the model that best fits their business and jurisdiction[web:60][web:62][web:130].

Frequently Asked Questions

Who qualifies for the Visa service fee program?

Government entities (tax, fines, court costs, miscellaneous government services), higher education institutions (tuition payments), and utilities (electric, gas, water, sanitary services under MCC 4900) qualify for Visa’s service fee program, subject to program requirements and proper implementation[web:131][web:133][web:150].

What changed in October 2025 for Visa service fees?

Visa expanded service fee eligibility to include utilities (MCC 4900) and simplified program rules by eliminating registration requirements, removing the MVV requirement, and making separate transaction processing optional[web:133][web:150].

Can utilities charge service fees on all payment types?

Yes. Qualifying utilities under MCC 4900 can charge service fees across all payment types (credit, debit, commercial cards) and bill sizes, provided they comply with Visa program requirements[web:130][web:133][web:150].

What is the difference between a service fee and a convenience fee?

A service fee is collected by the third-party processor to cover processing costs and is limited to government, education, and utility merchants. A convenience fee is collected by the merchant to offset processing costs and applies to alternative payment channels across broader merchant categories. Service fees do not require an alternative fee-free channel; convenience fees do[web:131][web:137][web:139].

Are service fees the same as surcharges?

No. Service fees are program-specific fees for qualifying government, education, and utility merchants, collected by the processor. Surcharges are point-of-sale charges applied by merchants to cover card-acceptance costs, subject to different rules, caps, and state law restrictions[web:131][web:139][web:143].

Do I need to register with Visa to charge a service fee?

As of October 18, 2025, registration with Visa is no longer required to implement a service fee, though merchants must still comply with all program rules, including proper disclosure and MCC eligibility[web:150].

Can I charge a percentage-based convenience fee?

It depends on the card network. Visa requires convenience fees to be flat or fixed amounts. Mastercard allows fixed, tiered, or percentage-based convenience fees for its Government/Education Convenience Fee Program participants. Always check current network rules before implementing fees[web:137][web:139].

What states prohibit surcharging?

Surcharge laws vary by state and continue to evolve through legislation and litigation. Merchants must consult legal counsel and review current state law before implementing surcharges. Some states prohibit surcharges entirely; others impose disclosure or cap requirements[web:131][web:143].

How does IntelliPay help merchants implement service fees?

IntelliPay provides end-to-end service fee program management for qualifying government, education, and utility merchants, including dual merchant account setup, service fee collection, cardholder disclosure, compliance monitoring, and reconciliation across accounts[web:130][web:133].

Summary and Next Steps

Service fees, convenience fees, and surcharges each offer distinct approaches to managing payment processing costs, with different eligibility requirements, recipient structures, and compliance obligations.

For qualifying government, education, and utility merchants, Visa’s October 2025 expansion and simplification of the service fee program represents a significant opportunity to reduce or eliminate processing costs while maintaining broad card acceptance[web:133][web:150].

IntelliPay offers compliant service fee, convenience fee, and dual pricing implementations tailored to your organization’s specific needs and regulatory environment. To learn more, email sales@intellipay.com or visit https://intellipay.com/contact.

Important Legal Disclaimer

This document is provided for informational purposes only and does not constitute legal, tax, or compliance advice. Card network rules, acquirer requirements, and state and local laws govern what fee structures are permitted and how they must be implemented. Merchants should consult legal counsel and their acquirer before implementing service fees, convenience fees, or surcharges. IntelliPay makes no representations or warranties regarding the accuracy or completeness of this information, and card network rules and legal requirements are subject to change.

References

[1] GSA SmartPay. (2023). Visa’s Government and Higher Education Payment Program. https://smartpay.gsa.gov/guidance-and-audits/smart-bulletins/018/

[2] IntelliPay. (2025). Visa’s 2025 Fee Changes for Utilities: CEDP Risks and Service Fee Opportunities. https://intellipay.com/what-are-the-implications-of-the-change-in-visa-fee-policies-for-utility-companies/

[3] IntelliPay. (2024). The MasterCard Convenience Fee Program. https://intellipay.com/wp-content/uploads/2024/11/mastercard-Conveneince-Fee-program.pdf

[4] CSG Forte. (2025). Convenience/Service Fee and Surcharge Tip Sheet. https://support.forte.net/support/solutions/articles/11000126268-convenience-service-fee-and-surcharge-tip-sheet

[5] IntelliPay. (2026). MCC 4900 Utility Payment Processing. https://intellipay.com/utilities/

[6] TSG Payments. (2025). Visa Expands Service Fee Eligibility and Simplifies Rules. https://tsgpayments.com/visa-expands-service-fee-eligibility-and-simplifies-rules/

[7] Visa USA. (2025). Interchange Reimbursement Fees – Rates Effective October 18, 2025. https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf

[8] Mastercard. (2025). 2025–2026 US Region Interchange Programs and Rates. https://www.mastercard.com/content/dam/mccom/us/business/documents/merchant-rates-2025-2026.pdf

[9] NACS. (2026). The Latest Proposed Swipe Fee Settlement Is More ‘Smoke and Mirrors.’ https://www.convenience.org/Media/Daily/2025/November/10/1-The-Latest-Proposed-Swipe-Fee-Settlement_GR

[10] IntelliPay. (2026). Customizable In-Person and Online Payment Solutions for Every Business. https://intellipay.com

[11] IntelliPay. (2024). Payment Processing Models. https://intellipay.com/payment-models/

[12] IntelliPay. (2025). Scalable Custom Payment Solutions for Growing Businesses. https://intellipay.com/scalable-custom-payment-solutions-for-growing-businesses/

[13] IntelliPay. (2024). About IntelliPay – Simplifying Payments for Everyone. https://intellipay.com/about-us/