In a world where almost all money is in digital bank accounts, paying with a card is a matter of course, and yet a large number of stores and restaurants charge an extra fee to any guest who pays in the most practical manner.
This is called a convenience fee and is charged because some businesses think it will save them money. What most don’t realize, however, is that the pittance they are collecting from each card paying customers isn’t worth the annoyance most customers feel for being discouraged from using their primary payment method.
Everything is bought with cards now. Even vending machines have card readers so why are businesses still pretending that paying with cash or check are the “normal” ways?
The reason that many venues charge a convenience fee is that the bank and processor service both take a small percentage from each credit card payment the business processes. Worse for companies, this is not an absolutely predictable amount because each individual transaction could come with additional costs.
There’s the initial transaction fee which is usually about 2%, then there’s the processor markup charged by their payment processing services.
In addition to your base transaction and processor costs, there is also a collection of incidental fees that could occur with any particular charge. Fees for small transactions, for instance, are the reason there is usually a minimum purchase when paying with a credit card.
However, the most troublesome incidental fee for any business is a chargeback which occurs when a customer’s card is accepted but the payment bounces and is charged back to you, the merchant. Chargebacks can be caused by a lot of things from bank errors to refunded returns but it always results in additional costs.
Then there are payment fees associated with your type of venue. Physical stores often pay a terminal fee for using a swipe station while e-commerce transactions pay a gateway fee instead.
Altogether, if your business processes digital payments, you can count on paying a small amount in your own fees for each transaction.
In this scenario, it’s understandable that businesses would want to recoup those costs by passing the charge on to the customer. There’s no denying that processing has become a part of your overhead costs that must be made up for in sales revenue but convenience fees are not the solution.
When cards were something only wealthy people carried around and most people paid in cash, it made sense for stores to follow their impulse to recover from the occasional processing loss and encourage most customers to pay in cash.
However, payment has changed drastically since then and adaptive businesses have to accept that most people will pay in credit cards and it’s unreasonable to penalize them for the privilege.
So your store feels that approximate 2% processing charge every time a customer pays with a credit card and you want to charge a convenience fee. The next question is: can you?
12 states have laws against charging a fee for credit card payments including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas, and Minnesota. Puerto Rico, while not officially a state, also prohibits convenience fees. Only ten of these states will even let you provide a discount to cash and check users.
Even if your state allows convenience fee-charging, there are other rules as well, as specific credit card providers like Visa or MasterCard have their own requirements.
Visa is particularly picky, disallowing convenience fees for face-to-face interactions and only for alternative payment methods which also rules out e-commerce purchases where credit is the primary payment method.
This means that if you run a store that accepts Visa, you probably can’t charge a convenience fee.
There are also a few general rules like the requirement to charge the same convenience fee, either through percentage or a flat fee, for every card type even if they cost you differently when processed.
Next, every card type, even if the processing cost percentages are different, must have the exact same convenience fee applied. You may or may not have to process the convenience fee separately and you can even get in trouble for calling this fee by the wrong name in some circumstances.
Finally, it’s usually required that you disclose your convenience fee to customers before they pay, giving them the option to choose a different payment method. That’s a lot of hoops to jump through for a dollar or two per purchase and a lot of irritated customers.
The fact of the matter is that times have changed. The convenience fee came into existence when credit cards were rare and those who used them understood that venues went out of their way to accommodate.
Now, people use credit cards for everything all the time. It’s time to start expecting credit card payments and changing your policies to adapt to this. If for some reason you can’t cover the minor costs of payment processing, you may want to seriously rethink your business strategy.
The simplest solution is just to slightly raise prices and, if allowed in your state, offer a small discount to customers who make the now unusual choice to pay in cash.
Convenience is part of the service you offer customers along with the flexibility to take payment in whatever form they have available. It’s time to adapt, update, and accept that credit cards are here to stay.
Why create procedural headaches for yourself and irritate your customers with an outdated policy? Credit card processing in the modern world is just another cost of doing business. Venues provide all sorts of things for customer convenience free of charge like paper towels in the bathroom or pens to sign receipts with. Why should paying with a credit card be any different?
To stay in your customer’s good graces and save yourself a financial hassle, skip the convenience fees, and adjust your prices accordingly.
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