Is charging a credit card convenience fee the right choice for your business?
If your business wants to offer customers new avenues of credit card payment—like paying over the phone or online—you’ll have to decide if you also want to charge a convenience fee. However, there are a few things you should consider before making this important choice.
What is a credit card convenience fee?
A convenience fee is an additional cost tacked on to credit card payments that are made in a non-standard method.
The example most people are familiar with are movie tickets. When you go to a movie theater, you pay for your tickets in person at the box office. That’s the standard payment method most customers use. However, many theaters now offer the option to pay for tickets online. Because this is considered a non-standard payment method, theaters often add a convenience fee to the transaction. In part, customers pay this fee for the privilege of paying in an alternative, more convenient way.
Convenience fees also help merchants account for the varying costs of accepting credit cards. The cost of processing a credit card depends on many factors, but one of the most important is risk level. If a transaction is considered more risky, it will cost more to process.
Using the movie theater example, the theater pays less to process a credit card accepted at the box office, because that’s an in-person transaction, which is considered less risky. But the theater will pay more to process credit cards used to purchase tickets online, because there’s a greater potential for fraud. The convenience fee helps offset the extra cost caused by the increased risk of the alternative payment method.
Credit card convenience fee vs. surcharge
Convenience fees can be confused with surcharge. But they’re very different fees with very different sets of rules.
A convenience fee only applies to alternative payment methods, like in the movie theater example. Surcharge, on the other hand, is a fee applied to every single credit card transaction, regardless of method. The purpose of a convenience fee is to compensate the merchant for the added trouble and cost of accepting payment through a non-standard method, while the purpose of surcharge is to offset at least some of the costs of processing credit card payments in general.
Convenience fees are legal in all states, but surcharge is not. Before adopting an added fee for credit cards, make sure you know the difference between the two and which one your business is charging. And of course, if you choose to surcharge on transactions, make sure it’s legal in your state.
Pros of convenience fees:
Choosing to implement a convenience fee can enable merchants to add new, more convenient ways for their customers to pay. For example, they could add the option to pay over the phone or online. And the more convenient it is to purchase, the more likely it is that a customer will pay, which could increase sales volume and boost a merchant’s bottom line.
These days, most customers expect easy payment options. We’re used to online payments, mobile payments, even contactless payments. So if a convenience fee gives your business the ability to offer these more streamlined payment experiences, they can add legitimacy to your business and satisfy customer expectations.
If you’re looking for a convenient way to add a credit card convenience fee to your transactions, use automated software like EBizCharge to seamlessly include a convenience fee with each payment.
Cons of convenience fees:
Unfortunately, there are some downsides to implementing convenience fees.
Merchants who use convenience fees have to abide by strict regulations imposed by the card brands and associations. For example, merchants must disclose the convenience fee to the customer at the point of sale. If merchants don’t give ample notice, customers can lodge complaints with credit card networks, which could have serious consequences for your business. If you choose to use a convenience fee, do your research with each card brand to ensure you’re following all necessary rules and regulations.
Convenience fees may also be a deterrent for customers who bridle at the idea of paying more just for added convenience. Not all customers are willing to pay more for a smoother experience. In fact, they may choose to take their business elsewhere. When thinking about adopting convenience fees, take a look at your competition. Are they also charging convenience fees? If not, then it may be more difficult for your business to start suddenly charging more for certain credit card transactions. Make sure to study the current landscape and determine if convenience fees could hurt your competitive edge.
If your business is considering a convenience fee, there are a number of pros and cons to weigh and important questions to answer before choosing to implement them.
Convenience fees may not be right for every business. If you believe extra fees could deter business or upset customers, or if you don’t want to deal with all the regulation, then maybe it’s not the best option. But if adding a credit card convenience fee enables your business to offer additional, more convenient payment methods for your customers, it could be a win-win for customers willing to pay more for easier payment options.