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I. 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, we look at options for recouping some or all expenses through fee-based options.

The following document describes Service Fee Processing and Convenience Fee Processing

In the US Region, Service Fees are allowed for Government and Education Merchants. This program is just for educational payments (tuition) and government payments (taxes, fines, fees etc.).

Visa Rule ID #0029275 sets out the requirements for a Service Fee at a Government or Education Merchant.  If the Government or Education Merchant qualifies to charge a Service Fee, the Merchant must process the Service Fee as a separate transaction. The amount due is processed on MID #1. This MID deposits the amount due by the citizen or student into the government or educational entity’s bank account. The Service Fee is processed on MID #2. These funds are deposited into the registered Third Party Processor’s (TPP) bank account. Interchange dues and assessments are billed to the TPP’s bank account and they use the Service Fee Amount to cover the cost of the processing fees. Thus, making Service Fee Processing a no-cost processing solution for the merchants that qualify for this program.

III. Convenience Fee Processing

For merchants that want to offset their merchant processing fees, Visa/MC has a program called Convenience Fee Processing.

Convenience fees are charges levied for the privilege of paying for a product or service using an alternative payment channel, or a payment method that is not standard for the merchant. Movie theaters, for example, typically sell tickets face-to-face in the box office. However, if a movie theater gives customers the alternative option of paying by phone or online using a credit card, then that theater could charge a “convenience fee.” So technically, you’re not paying for using your credit card, but for the privilege of using the pay-by-phone or online option.

Card brands have different Convenience Fee Polices:


According to Visa’s policy, certain criteria must be met in order for a merchant to charge a convenience fee:

  • 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, or it must be clearly disclosed.
  • The fee must be a flat or fixed price rather than a percentage of the sale.


Like Visa, MasterCard outlaws surcharges. However, in 2008, the company created the MasterCard Convenience Fee Program for government agencies and educational institutions that were not accepting card payments at the time. “It was an effort for us to make sure that we were providing consumers with that choice in how they wanted to pay,” said MasterCard spokesman Seth Eisen. Since the organizations can charge convenience fees, the cost of accepting credit cards is less prohibitive. However, they still must offer an alternative payment channel. MasterCard leaves the fee structure — whether it’s fixed, tiered or a percentage — up to the organizations in the program.

American Express

Under American Express’s policy, “Select transactions do qualify for convenience fees including taxes and tuition,” says Molly Faust, a spokeswoman for American Express. “However, 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 also be clearly disclosed before the transaction is completed.”


While Discover doesn’t have an official convenience fee policy, it requires that all credit cards be treated the same, said Katie Allmaras, a spokeswoman for Discover. As a result, the rules instituted by the other card issuers would apply to Discover since a merchant cannot levy a fee on a Discover cardholder that it isn’t allowed to impose on a MasterCard, Visa or American Express cardholder.

Not a surcharge
Convenience fees are not surcharges, which are costs added simply for the privilege of using a credit card and normally presented at the point of service.   Surcharges cover the merchants’ actual cost of processing or a maximum of 3% (2% in Colorado. 

Please Note: This information was gathered from

IV. Some Comparisons between Service Fee vs. Convenience Fee

Service Fee and Convenience Fee programs mentioned above are completely different. Here are the main points:

  • In Service Fee Processing, the “fee” amount goes to the TPP and not the merchant. The TPP then uses the fee to cover the processing fees. The Service Fee Merchant does not deal with the extra fee and only receives the amount that the customer owes.
  • In Convenience Fee Processing, the “fee” amount goes to the merchant and the merchant uses the fee to offset the processing fees. This is not an exact coverage as sometimes the fee amount is insufficient to cover the processing fees and sometimes the fee amount is more than the processing fees.
  • In Convenience Fee Processing, the merchant must provide an “alternative” payment method that does not impose a fee. Service Fee Processing does not have to provide an alternative payment method.

V. Problem

We’ve been in the industry for over ten years. During this time, we have heard merchants complain about paying credit card fees. In order to appease the merchant, salespeople are constantly trying to lower their rates. This has caused a “race to zero” in the marketplace. Merchants will switch processors at a moments notice if it will save them money. The credit card industry is plagued with high attrition rates caused by this scenario.