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I. Background

In the market place, we have discovered that there is a need for a new kind of processing. Currently, if a merchant is a government or higher education entity, they can use Visa’s Service Fee Program and offset the fee management to a technology provider that has the software to fulfill the Service Fee Requirements. Additionally, merchants in some industries are using a Convenient Fee Model to offset the costs of their credit card processing and are not happy with this program.

The following document describes Service Fee Processing, Convenience Fee Processing and a new form of processing that we are calling “Site Fee Processing.”

II. Service 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. 

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.

Merchants are open to charging Convenience Fees to offset their costs, but we’ve heard numerous complaints about this model:

  • “I hate having to create journal entries or creating a process that transfers the convenience fee amount to our operating account.”
  • “Convenience Fee Processing is so messy. Some months I have enough in convenience fees to cover my processing fees, while other months, I’m short.”
  • “I don’t like that my customers think that I’m receiving the money on the sale of my service as well as the convenience fee and double dipping on their credit card transactions. I’d rather just get what I’m owed and have someone else manage the fee program.”

These complaints are very common across all verticals. We hear them constantly.

VI. Solution

After listening to these complaints and issues for many years, and having a complete understanding of Service Fee Processing and Convenience Fee Processing, we had an idea!

The problem with Convenience Fee Processing is that the merchant has to deal with the extra fee. The benefit of Service Fee Processing is that the merchant never receives the fee, and it’s handled by the TPP.

Therefore, we would like to modify the Convenience Fee Program by separating the fee amount (like we do with our Service Fee Technology), and processing it on a different MID so that the fee amount is deposited into our bank account and not the merchant’s.

This is NOT the Service Fee Program; however, we use the Service Fee Technology that our system has to process the amount due on MID #1 and deposit the funds into the merchant’s bank account and then process the fee amount on MID #2, and deposit the funds into our custodial pool account. This solves the complaints and problems mentioned above.

Here is the basic outline:

  • We will call this program the Site Fee Program, as the customer is paying us (the TPP) for using our software to process online and over-the-phone payments.
  • The program will not be eligible for Card Present Payments, thus following a primary rule in the Convenience Fee Program and allowing the customer to have an alternative payment method that doesn’t charge a fee.
  • We would charge a fee on recurring or custom payment plans because the customer is using our software and requesting payment plan vs. making the payment amount due in one full payment.
  • Merchants would NOT receive the fee amount.
  • For government and IRS reporting purposes, MID #1 would be in the merchant’s name with their tax ID, since they are receiving these funds. MID #2 would be in our name with our tax ID as the funds would be deposited into our custodial pool account. This successfully fulfills the IRS tax reporting requirements.
  • DBA naming of the MIDs would be as follows: MID #1: “XYZ Company” and MID #2 “XYX Company Site Fee.”
  • Fees would be displayed BEFORE the customer makes the payment and would have to check a box or agree to pay the cost of the Site Fee.
  • Additionally, fees will be modest and can be a percentage or flat fee depending on what the merchant and TPP agrees to charge the customer. (High fees will deter the customer from paying, therefore fees would most likely be between 2.5% and 4%).

VI. Summary

By offering this modification of the Convenience Fee Program using Service Fee Technology, we can provide a solution that the marketplace is really looking for:

  • Merchants will not have to deal with the extra fee amount.
  • They will turn the fee processing system over to the TPP.
  • Customers will be able to use their credit/debit cards for making payments online, over-the-phone, and custom installments.
  • Merchants can let their customers know that they are not receiving the additional fee amount and that the TPP is receiving the fee amount to cover the costs of their software and merchant processing.

We believe that the regulatory and compliance departments will be happy with this program because:

  • Merchants will still pay for credit and debit card processing for all “card present” payments, thus allowing customers to make payments without being charged a fee.
  • Merchants will not make money from credit card processing. The TBB who handles the software and technology will make money to cover their technology fees plus a profit.
  • Fees will be modest in order for the customer to make their payments.

We recognize that this is a new program. We would appreciate compliance and regulatory departments to think “outside the box” and consider the “win-win” solution that this provides both merchant and technology provider.