A Convenient Primer on Convenience + Service Fees

By Matt Johnson, Director of Solutions Engineering

One of the most common topics of confusion we see when setting up online payment processing for our clients is the difference between convenience and service fees. Most clients don’t even realize they’re confusing the two, but it’s important to know the difference.

If you accept payments and are out of compliance with the Card Acceptance Guidelines for Visa Merchants, you run the risk of having Visa tell you to change part of your process, or potentially even fine you or terminate your ability to accept Visa cards. Even if you’re in compliance, knowing the card rules can help save money per transaction.


Fee Definitions and Common Mistakes

Convenience Fees

A convenience fee is a cost you are allowed to charge people for a “bona fide convenient payment alternative channel,” according to Visa’s Card Acceptance Guidelines. What that means is you can’t charge a convenience fee at the counter if that’s the only way a person can pay with a card. Convenience fees are often associated with online payments that offer a more convenient alternative to paying for something in person.

Additionally, you can only charge convenience fees for a one-time, card-not-present transaction (no card swipe or EMV dip).

That means you can charge convenience fees on payments via:

    • Web
    • Mobile application
    • IVR (phone)
    • SMS (text)

A common mistake we see in the industry is around recurring transactions. Transactions are not eligible for convenience fees if they are recurring, for instance, when someone uses a stored credit card for a monthly auto-payment on their electricity bill.


Service Fees

Only merchants in education or government are allowed to charge service fees, as defined by your Merchant Category Code (MCC). Below are the MCCs that are eligible to charge service fees.

Government Merchants:

    • MCC 9311-Tax
    • MCC 9222-Fines
    • MCC 9211-Court Costs
    • MCC 9399-Miscellaneous Government Services

Tuition Payments for Higher Education:

    • MCC 8220-College Tuition
    • MCC 8244-Business
    • MCC 8249-Trade School

While the rules are more restrictive about who can charge service fees, they are more flexible in other ways.

For instance, there are no limitations on the payment channels where eligible merchants can charge service fees (in-person, online: it’s all kosher). You can also charge service fees on recurring payments, like monthly payments toward a property tax bill.


Fee Structures and Rules

A convenience fee must be a fixed amount, like $2.95. It cannot be a variable amount, like 2% with a minimum of $1. This is explicit in the rules, but it’s a point most people overlook.

According to the rules — and this is one of the most frequently broken — you must charge the same convenience fee across all methods of payment. So if you charge a $2.95 convenience fee for credit card payments on your website, you are supposed to charge that same $2.95 for eCheck payments on your site.

Again, service fees are more flexible when it comes to fee structure. While service fees are applicable in a limited number of scenarios, there are very few restrictions on what that service fee looks like.

Service fees can be fixed or variable amounts. For instance, 2% with a minimum of $1 would fly for a service fee. Additionally, you can be more flexible in how you apply those fees. If you’re taking both card and eCheck payments on your website, you could charge a 2% service fee for cards and no fee for eChecks.


Convenience vs. Service Fees At a Glance

Here’s a quick breakdown of the differences between convenience and service fees.


How Knowing the Rules Can Save You Money

Interchange fees (yes, another fee type) are charged by card issuers to compensate for the cost of handling funds and risk associated with processing credit cards. Interchange fees are variable rates that are set by the card brands and paid for by the merchant.

Merchants operating in the utility space have lower interchange rates to process credit cards if they opt into the Visa utility rate program.

However, if you charge a convenience fee, you get dinged and you don’t get those lower interchange rates for utilities.

If you follow the rules of setting a fixed convenience fee, you can determine if it makes sense for you to charge a convenience fee or not. Based on your average transaction size, you can calculate whether or not you should charge a fee — and what that dollar amount should be.

In the chart below, you can see the break-even point for a hypothetical utility company with an average transaction size of $1,000, which would get a (hypothetical) reduced interchange rate of 1.8% in the utility rate program.

It’s pretty easy math to punch in those numbers and be able to see if there’s value to charging convenience fees to your utility customers. The important first step is to understand just how you’re allowed to set those fees, and whether it helps you (and your customers) in the long run.

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