What Is a Credit Card Convenience Fee – All You Need to Know

June 12, 2021/ Posted in Fees and Rates

Since the incessant popularity of cashless payment options is nowhere near receding, businesses need to find ways to cover all costs related to these transactions. One of the means available is imposing a credit card convenience fee to customers. Stick around to learn what you should know before opting for this, the pros and cons, and how to go about this process.

There are 2.8 billion credit cards globally, out of which 1.06 billion are in the US, which clearly shows how much Americans favor this payment method. Another research suggests that an average American owns three to five of these, so whatever math you apply, the result will be that they’re usually mandatory if you want your company to thrive. However, non-cash transactions come with a list of fees, since they are complex and have a number of financial actors. A way to recoup these costs is convenience fees, and we’re about to break down all there is to know about it.

The Basics: What Is a Credit Card Convenience Fee?

When you opt for setting up a merchant account, you should learn what average credit card processing fees are to know what to expect and what you’ll be paying for. As said above, you have the option to pass a portion of these costs down to your customers in the form of convenience fees. However, this fee can only be imposed in case you offer several payment methods to choose from.

As the word itself suggests, only if there are other ways (cash, check, and alike) to pay, but a customer opts to pay with plastic, can you request this. You’re giving the client the luxury of having a more convenient transaction because you’ll incur costs to provide them with this payment method.

Is It Legal to Charge a Credit Card Convenience Fee?

Charges are negotiated on both sides all the time, and we all know that businesses, banks, and card associations aren’t always the best of friends. In some countries, the deck is stacked against businesses, and such fees aren’t lawful. In the US, convenience fees are legal in all states if they’re in keeping with the association’s rules, and the customer is notified that they will be added to the final bill before making a purchase.

In case you’re running an offshore business, make sure you check what rules apply to the state where you’re registered. This is a complex issue, but don’t rush to conclusions that if the US law allows for something and you’re selling on the US market, that’s all there is to it. Harmonization with different codes plays a significant role for offshore enterprises, so save yourself from unnecessary stress and do research.

How Much Is a Credit Card Convenience Fee?

One of the most challenging questions you’ll face if you opt for this is determining the right amount. The first thing businesses should know here is that it’s not solely up to them, as adhering to rules issued by associations and financial institutions (acquirers) is a must. Besides, the credit card processing company can also help you and steer you in the right direction, which is why hiring a reliable one is a huge advantage.

Generally speaking, these charges are usually somewhere between two and three percent of the entire purchase value. Still, they mustn’t by any means surpass the merchant services credit card processing costs you’re bearing as that would be a breach of consumers’ trust, giving them a reason to report you or cross you off from the list of their go-tos.

You should negotiate with the acquirer on this one

This Is Only One Type of Fee a Business Can Charge

If you know what a merchant account is, you likely also know that credit card processing expenditures can be covered via other means, as well. As you must have grasped by now, the convenience payments are for those who wish to make a difference between customary and less customary paying methods in their sector. But, as an owner, you can also opt for more general charges, called surcharges.

What Are Surcharges?

They are a much more contentious term as they are imposed by a business for all card-paying instances regardless of other circumstances. They’re thus a much more direct way to protect your interests but also a slippery slope as many consumers can frown upon them. You should conduct thorough marketing and financial research before choosing to levy as they can backfire and cause problems.

Many business owners wonder in which states it is illegal to charge extra for using plastic, and that boils down to surcharges as they’re the only illegal cost in the US in this aspect. You should know that if you’re registered in Colorado, California, Connecticut, Kansas, Florida, Maine, Massachusetts, New York, Texas, or Oklahoma, you won’t be permitted to impose surcharges and can be persecuted for doing so.

You need to decide whether a surcharge would work better for you

Follow Card Associations’ Rules When Imposing Convenience Fees

Your market analysis should discover which types of cards you need to accept, that is, which ones are mostly used by your customers. Merchant services are essential for this one as your service provider can tell you how to stay cost-efficient while allowing consumers to pay with a variety of methods.

Still, issuing banks or associations also have a large say in incorporating these into business practices, and convenience charges are no exception. Because of this, it is important to look at some guiding rules stipulated by most popular networks.

Visa Has the Most Specific Guidelines

The most popular association in the USA is Visa, and it has over 300 million cards in use across the country. This means that you’ll most probably encounter a majority that picks it for cashless transactions.

The section Merchants Questions on Visa’s website clearly states that a convenience charge is possible in the USA solely if the plastic payment is different from the usual paying alternatives. Also, percentage games aren’t allowed. The fee must be flat and negotiated with the acquirer.

Visa Core Rules and Product and Service Rules further specify that for Visa cards, this charge can solely be added for online transactions. However, if you fall under the category of those learning how to start an e-commerce store, this is not an option for you. Finally, convenience charges and surcharge exclude each other, so hedge your bets on time.

Familiarize Yourself With Other Companies That Make Cards and Their Stand, Too

It might seem that Visa has it all covered and that once you learn their regulations, you’re safe and sound. But that’s not the case as each network operates on its own principle.

The second-largest issuer in America – MasterCard is vaguer in its formulation of conditions. You can go through their Official Rules or read the Program Eligibility Requirements, but you should know that they restrict these consumer payments to government and education-related institutions. Still, there’s a catch as these charges must be aligned with how you treat other cards according to their directive, which means you must consult acquirers and merchant service providers for interpretation.

Finally, American Express and other powerful networks have their rulebooks, standards, and policies, as well. If you want them to be part of your offer, you know what to do.

Visa offers most details on this topic

Is This Charge Helping Your Business?

All service industries, as well as sellers, depend on their customers. For this reason, your strategy needs to reflect the needs of your consumers. You must think about whether they would find it justified to encounter this additional expense, whether they’d be fine with it, and whether it would pay off for you in the long run. If you go through the hassle to research and set it all up only to discover that nobody is using channels that call for this kind of remuneration for your businesses, it will be all for nothing.

For this reason, applying for a merchant account that offers free consultations with a financial expert is paramount as these specialists can let you know what the best course of action is in your situation. But before you get to that, here are two handy tips.

Always Notify Your Customer as Clearly as Possible and Allow for Cancellation

Not only would it be illegal not to, but you’re also jeopardizing your rapport with the customer because nobody is eager to see additional charges after they’ve paid a bill. Visa Rules stipulate that you should prepare a clear text or sign that explains this charge regardless of where you stand on the spectrum of different types of businesses. That is a valuable suggestion for everybody as it vouches for transparent and honest dealings.

Besides, before you think about small business tax deductions, you should ensure you don’t have chargebacks due to customer dissatisfaction. In case you weren’t open about the final price and didn’t give them a choice to cancel, your clients might file refund claims and complaints.

Remember That Customers Also Want to Save Money

Some programs have awards, and the more the holders use this method, the better. Still, not every consumer will be proficient in these, and naturally, the question of how do you avoid credit card convenience fees will spring up in your prospective buyer’s mind. For this reason, you should ensure that there are consumers who would benefit from cashless payments in your sector.

Another tricky point here is that certain businesses offer cash discounts or encourage their clients to shun using plastic to cut costs. And that’s potentially problematic for you as you don’t want your thrifty clients not to recommend you or to go somewhere where they’ll get a bonus you didn’t think of.

You should make your clients happy with your policies

Choose a Credit Card Processing Company That Will Truly Be There for You

Now that you know all the main points, you’re ready to look for a reliable merchant services provider who can help you reach the next level. As we’ve highlighted above, credit card processing companies are essential in your financial dealings as they provide you with the hardware and software necessary to get the transaction through.

Since merchants services rates will play such a big role in your enterprise, you’ll do well to opt for professionals who can take the weight off your shoulders and who want you to understand what you’re paying for. It’s possible to find credit card processing services that are easy to set up, affordable, trustworthy, and versatile (who knows when you’ll need a mobile notary, for example). Just take your time and don’t settle for less.