THAT IS THE QUESTION.
As a business owner who works hard to maintain profitability, the idea of paying those pesky credit card fees always seems to be irritating. As my father used to say, “Can’t live with ‘em, can’t live without ‘em!” While Dad was probably referring to something else, the fact remains, if you want to take payments from customers, you are going to have to pay a fee to do so. But, never fear, as is nearly always the case, there are options out there.
One idea that is gaining a lot more traction is the use of convenience fees. You may be asking if convenience fees are legitimate, but the reality is, they are very legit. However, like everything else, the devil is in the details. Here are some of the more important details permitting convenience fees to be generally acceptable in limited circumstances:
- The payment takes place across an alternate payment channel, like by phone or online
- The customer is informed of the fee ahead of time
- The merchant charges a flat rate, not a percentage of the transaction.
- Government agencies and educational institutions may do so, as long as they also offer other payment channels
- All credit cards are treated the same
Convenience fees are charges levied for the privilege of paying for a product or service using an alternative payment, or a payment method that is not standard for the merchant. Movie theaters, for example, typically sell tickets face-to-face at the box office. However, if a movie theater gives customers the alternative option of paying by phone using a credit card, then that theater could charge a convenience fee. So technically, you're not paying for using your credit card, but for the convenience of using the pay-by-phone option. You may have noticed that some gas stations have one price set for credit card payments and a slightly lower, discounted price for cash transactions. This is yet another example of a permissible surcharge, albeit somewhat in the reverse, yet having the same effective outcome.
One specific area of confusion is the terminology and difference between convenience fees and surcharges. While convenience fees are allowable, surcharges are prohibited. Credit card convenience fees and surcharges are often used interchangeably, but they’re not the same thing! A surcharge is a fee charged to customers simply because they're using a credit card. Merchant credit card agreements discourage merchants from charging surcharges on transactions. Moreover, surcharges are illegal in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas, and Puerto Rico. Eventually that list of surcharge-free states may decrease, following a Supreme Court ruling on March 29, 2017, that New York's anti-surcharge law impacts merchants' free speech. So while still not permissible in some states, it seems that surcharges are gaining traction within the payments marketplace.
However, as with all things, there is a flip side to the coin. Not surprisingly, many consumers are unhappy with convenience fees and believe merchants should absorb the costs. "Paying by credit card is not a convenience for the customer," says Bob Johnson, a photographer and video producer in New York City. "It's a convenience for the company because the more ways that the company will accept payments, the easier it is for them to make more profits."
In one famous example, Verizon felt the wrath of its customers when it announced in December 2011 that it would charge customers a convenience fee if customers paid with credit or debit cards through the company's website or via telephone. The company quickly reversed its decision after a flood of complaints.
As always, it advisable to move with a bit of caution and of course, know your customer!
You are now armed with some knowledge to help you make an informed decision regarding the use of convenience fees for your online sales. If you need help with adding a surcharge to your website, just let us know and we will be glad to help.