Convenience Fees for Credit Card Transaction Processing
Many merchants are aware that a convenience fee can be used with credit card transaction processing services. In fact many are interested in applying this practice to their own business. Yet the rules pertaining to these fees can be somewhat unclear and are unknown to many merchant services professionals.
Convenience fees are…?
Simply put, a convenience fee is an extra charge that is implemented for the convenience of using an alternative method of payment. Perhaps you’ve experienced these types of fees when trying to pay your property taxes online, instead of by writing a check. You were able to pay by credit card, but only if you agreed to pay an additional fee, perhaps around 2.95%.
This concept seems simple enough, and theoretically it is. The complication occurs because the rules for the fee amounts change from card association to card association.
What are the rules when it comes to convenience fees?
Although there is no “absolute list” of rules for these fees (because of the many differences between card brands) there are some general rules that apply to these fees for credit card transaction processing.
1. Convenience fees should be applied equally over all credit and debit cards. If you charge a fee for MasterCard you should also charge one for Visa and Discover.
2. All fees must be made clear to your customers. You also must allow them the opportunity to opt out.
3. Always refer to the fee as a “convenience fee”. Surcharges and processing fees are different and should not be used synonymously with the term convenience fees.
4. The processing of convenience fees should be handled as a separate transaction.
Keep in mind that the card brands have their own unique rules, as well as special programs for different types of transactions, like tax payments. There are also unique programs for different types of merchants.
Who can access a convenience fee?
Not all merchants can assess convenience fees. It depends on the type of merchant and the different payment methods they offer. Some credit cards, such as Visa, do not allow face-to-face transactions to have these fees. They do however make an exception for participants of the Tax Payment Program. Visa also only allows convenience fees to be charged for alternative payment channels, except for the Tax Payment Program. In a nutshell, what this means is that an Internet-based merchant cannot charge a convenience fee because the Internet is not an alternative payment channel.
Discover and MasterCard are much more flexible when it comes to convenience fees for credit card processing. Their primary concern is making sure that their brand is treated the same as the other card brands.
How do merchants determine the fee amount?
As mentioned above, Discover and MasterCard are less complicated and allow a fixed rate of .50 per transaction, or a variable amount of 3%.
With Visa’s Tax Payment Program, they only allow a fixed rate for debit cards and have set a maximum fee of .95 for the transaction to qualify for their preferred interchange rates. Their rules also state that merchants can only charge variable fees for those transactions made with a credit card. Outside of Visa’s Tax Payment Program, merchants can charge a fixed rate on debit and credit card transactions.
Convenience fees are a complicated area and did not cover all of the areas rules and regulations.