The Inconvenient Truth About Convenience Fees for Utilities

Why Public Electric, Gas, Water, and Sanitary Utilities Are Losing Money on Every Credit Card Payment—And What Changed in October 2025

A Practical Guide for Utility Financial Leaders | Updated January 2026

What You Need to Know

Here’s the Problem Nobody Talks About

If you run the finance side of a public utility—whether that’s electric, gas, water, or sanitary services—you’ve probably been told that convenience fees help you recover credit card processing costs. Makes sense, right? Charge customers a few dollars to pay online, and you offset what Visa and Mastercard take from every transaction.

Except it doesn’t actually work that way.

The traditional convenience fee model has a fundamental math problem that’s costing utilities real money—sometimes six figures a year. And most utility leaders don’t even realize it’s happening.

The good news? As of October 18, 2025, Visa expanded its Service Fee Program to include utilities classified under MCC 4900. This opens up a completely different approach—one that actually solves the problems convenience fees create. But before we get to the solution, let’s talk about why the old model is broken.

Quick Background: What Is MCC 4900?

MCC stands for Merchant Category Code—it’s how card networks classify different types of businesses. MCC 4900 covers essential utility services: electric, gas (natural gas distribution), water, and sanitary (sewage and waste management).

This matters because Visa and Mastercard offer special utility interchange programs with flat per-transaction pricing (typically $0.75 per transaction) for MCC 4900 merchants. Sounds great, but there’s a catch: to get those rates, you generally can’t charge customers a convenience fee.

So utilities face a choice: take the lower interchange rates and absorb all processing costs, or opt out of the utility program and try to recover costs through convenience fees. Most utilities that want to charge fees end up working with a third-party processor who handles the fee as a separate transaction.

Neither option, until October 2025, actually solved the core problem.

Five Ways Convenience Fees Fail Public Utilities

Generic advice about payment processing doesn’t account for how utilities actually operate. Here’s what goes wrong:

1. Flat Fees Can’t Keep Up with High-Dollar Bills

Here’s the math that keeps utility CFOs up at night:

A commercial customer pays a $500 utility bill with a premium rewards credit card. The interchange fee on that card runs about 2.5%, which means you’re paying $12.50 to process it. Your convenience fee? A flat $2.95.

You just lost $9.55 on one transaction.

Card brand rules require convenience fees to be a flat, fixed amount. You can’t charge a percentage. So whether someone pays a $50 residential bill or a $500 commercial bill, they pay the same fee—even though your costs scale with the transaction amount.

Multiply this across thousands of commercial accounts and high summer electric bills, and you’re looking at serious money left on the table.

2. You Can’t Charge Fees on Your Most Important Channels

Convenience fees only work for “alternative” payment channels—think online or phone payments when your “normal” method is paying at the counter or by mail.

That creates some big blind spots:

• In-person payments at the utility office? Generally can’t charge a convenience fee.
• AutoPay and recurring payments? Card rules generally prohibit convenience fees on these.
• Kiosk payments? Same problem.

Think about that for a second. AutoPay—the payment method that reduces late payments, cuts down on collection costs, and improves your Days Sales Outstanding—is the one method where you’re absorbing 100% of processing costs. You’re essentially paying customers to do the thing that saves you the most money.

3. You Can’t Steer Customers to Cheaper Payment Methods

If you charge a convenience fee, you have to charge the same amount for all payment types in that channel. Pay online with a credit card? $2.95. Pay online with ACH? Also $2.95.

But here’s the thing: ACH payments cost a fraction of what credit cards cost. You’d love to offer free ACH while charging for credit cards—that’s the smart way to manage costs. Convenience fee rules don’t let you do that.

So customers who would happily pay with a low-cost method get charged the same fee as customers using expensive rewards cards. No ability to nudge behavior toward what’s better for everyone.

4. Premium Rewards Cards Are Eating Your Budget

Here’s a trend that’s making everything worse: premium rewards cards now make up more than 60% of online credit card transactions nationwide. Utilities often see even higher numbers because of recurring, high-dollar payments.

These cards fund those generous travel rewards and cash-back programs by charging merchants higher interchange fees—ranging from about 2.30% to over 3.15% in Visa’s 2025 rate schedule, plus a per-transaction fee.

A flat convenience fee can’t distinguish between a basic debit card and a premium rewards card. As more customers chase those travel points, your gap between what you charge and what you pay keeps growing.

And this trend isn’t slowing down.

5. Customers Avoid Fees by Going Back to Paper—Which Costs You More

When customers see that extra $2.95 at checkout, many of them bail. They go back to writing checks or buying money orders. Feels like a win for them.

But it’s actually worse for you.

Paper checks come with hidden costs that rarely show up as a clean line item: mail handling, manual data entry, reconciliation labor, error correction, physical bank trips. When you fully load these costs, paper payments often cost more per dollar collected than digital payments—even after accounting for card fees.

Plus, customers who mail checks pay later. They miss due dates more often. Your Days Sales Outstanding goes up. Delinquency goes up. Bad debt goes up.

The convenience fee that was supposed to save you money is actually pushing customers toward payment methods that cost you more in the long run.

What Changed in October 2025

On October 18, 2025, Visa expanded its Service Fee Program to include utilities classified under MCC 4900. That means electric, gas, water, and sanitary utilities can now charge service fees on card payments—a fundamentally different model from convenience fees.

This isn’t just a technicality. It solves almost every problem we just talked about.

Convenience Fees vs. Service Fees: A Side-by-Side Look

Why Service Fees Work Better for Utilities

Let’s walk through how service fees address each of the problems we identified:

Your Fees Can Scale with the Bill Amount

Service fees can be percentage-based (like 2.5%) instead of flat. A $50 bill generates a $1.25 fee. A $500 bill generates a $12.50 fee. Your cost recovery matches your actual costs. No more losing money on high-dollar transactions.

One Fee Structure Across All Channels

Service fees can apply to online payments, phone payments, in-person payments, and—this is huge—recurring AutoPay transactions. No more absorbing 100% of costs on your most valuable payment channel.

You Can Offer Free ACH While Charging for Cards

Service fees can differ by payment method. Charge 2.5% for credit cards, charge nothing for ACH or e-check. Customers always have a free digital option, but those using premium payment methods cover the associated costs. This is the hybrid approach that makes the most sense—and it’s finally available to utilities.

Premium Cards Are No Longer a Budget Problem

Because service fees can be percentage-based, they naturally scale with the higher costs of premium rewards cards. As more customers use high-interchange cards, your fee revenue keeps pace. No more watching your margins shrink.

Easier to Explain to Customers (and Boards)

The message to customers is simple: “You can always pay for free with ACH or e-check. If you choose to use a credit card, there’s a fee that covers what the card company charges us.” Fees are disclosed upfront before every transaction. No surprises, no perception of hidden charges.

That’s a much easier conversation with your board, your ratepayers, and the public than trying to explain why a flat $2.95 fee somehow covers costs on a $500 bill (spoiler: it doesn’t).

How Service Fee Programs Work in Practice

To use Visa’s Service Fee Program, MCC 4900 utilities need to register through a participating payment processor. Not all processors support this model, so you may need to verify your current provider’s capabilities or find one with an established service fee program.

In most setups, the processor becomes the merchant-of-record for the service fee while your utility remains the merchant-of-record for the underlying bill payment. You receive the full invoice amount. The processor collects the service fee, pays the processing costs, and handles compliance. Clean separation, clear audit trail.

One important note: card network rules generally don’t allow surcharging on debit cards. Service fee programs handle this through proper card-type identification, so you’ll want to work with a processor experienced in managing these distinctions.

The transition typically doesn’t require major operational changes. Experienced processors manage configuration, testing, and rollout. They provide customer communication materials—signage, scripts, notification templates—so your team isn’t building everything from scratch.

Frequently Asked Questions

What’s the difference between a convenience fee and a service fee?

Convenience fees must be a flat dollar amount, apply equally to all payment methods in a channel, and generally can’t be charged on recurring payments or in-person transactions. Service fees can be a percentage, can differ by payment method (charge for cards, free ACH), and can apply across all channels including AutoPay. For utilities, service fees offer significantly more flexibility and better cost recovery.

When did utilities become eligible for service fee programs?

Visa expanded its Service Fee Program to include utilities under MCC 4900 (electric, gas, water, and sanitary services) effective October 18, 2025. Prior to this, service fees were only available to government entities and educational institutions.

Can utilities charge service fees and still participate in Visa’s utility interchange program?

The traditional utility interchange program (with flat $0.75 per-transaction pricing) typically prohibits cardholder fees. The expanded service fee program creates a separate path with different economics and rules. Utilities should evaluate which approach—utility interchange, service fees, or a hybrid configuration—delivers the best overall result for their specific situation.

Is a service fee the same as surcharging?

No. Surcharging is a percentage-based fee added specifically to credit card transactions to cover processing costs, and it’s banned or restricted in several states. Service fee programs for government, education, and now utilities operate under different card-brand rules with their own compliance requirements. The service fee model has broader acceptance and fewer state-level restrictions.

Why are premium rewards cards such a problem for utilities?

Premium rewards and commercial cards now account for more than 60% of online credit card transactions. These cards carry higher interchange fees (roughly 2.30% to 3.15%+) to fund their rewards programs. Utilities see heavy usage of these cards because customers want points on their high-dollar recurring bills. A flat convenience fee can’t keep up with these costs, while a percentage-based service fee scales automatically.

What does MCC 4900 include?

MCC 4900 covers utilities providing electric, gas (natural gas distribution), water, and sanitary (sewage and waste management) services. Telecommunications and cable providers are not eligible—they fall under different merchant category codes. Heating oil and propane are also generally not eligible for utility classification.

Does switching to a service fee model require significant operational changes?

For most utilities, no. Experienced payment processors handle the technical configuration, testing, and compliance requirements. The utility’s main role is policy decisions (fee structure, implementation timeline) and customer communication. The processor typically provides signage, scripts, and notification templates to support the rollout.

The Bottom Line

Convenience fees were never designed for how utilities actually operate. Flat fees can’t cover variable costs. Channel restrictions exclude your most important payment methods. Parity rules prevent you from steering customers to cheaper options. And every year, premium rewards cards make the math worse.

The October 2025 expansion of Visa’s Service Fee Program gives MCC 4900 utilities a real alternative—one that:

• Scales with transaction size so you’re not losing money on high-dollar bills
• Covers all channels including the recurring payments you want customers to use
• Lets you offer free ACH while recovering costs on credit cards
• Keeps pace with premium card costs automatically
• Is easier to explain to ratepayers, boards, and regulators

If your utility is still using convenience fees, you’re likely leaving significant money on the table—money that could be funding infrastructure improvements, keeping rates stable, or improving customer service.

The door is open. The question is whether you’ll walk through it.

About This Article

This analysis is based on current Visa and Mastercard interchange rules, card brand program documentation, and industry research on utility payment processing. The October 18, 2025 effective date for MCC 4900 service fee eligibility reflects Visa’s published program expansion. Interchange rates and card brand rules are subject to change. For the most current information on utility payment processing options, consult with a qualified payment processor familiar with MCC 4900 requirements.

Disclaimer: This article is for general information and educational purposes only. It does not constitute legal, financial, accounting, or regulatory advice. Utilities should consult with qualified professional advisors to evaluate fee structures and policy changes in light of applicable laws, card-brand rules, and local requirements. Card network rules change frequently and may vary by state, merchant category, and specific circumstances.