Surcharging, Convenience Fees, and Service Fees: What Merchants Need to Know

As credit card transactions account for 63% of retail sales and 81% of shoppers prefer card payments over cash, it’s clear that the U.S. is rapidly transitioning to a cashless economy. While the convenience of cashless payments benefits customers, credit card processing fees often place a financial burden on merchants. To offer payment flexibility without sacrificing profits, merchants can consider implementing acceptance fees on credit card purchases. However, it’s crucial for companies to understand the key differences between service fees, convenience fees, and surcharging fees to effectively boost their bottom line while maintaining compliance.

Why Understanding Fees Matters for Merchants

Amidst the rise of cashless payments, merchants can implement fees on credit card transactions to offset processing costs and enhance fee recovery. Although they may appear similar to the untrained eye, service fees, convenience fees, and surcharges each serve a different purpose, are equipped with distinct benefits, and are governed by various regulations—posing unique challenges for businesses adapting to the cashless (and increasingly digital) payment landscape.

Recovering credit card fees isn’t a one-size-fits-all process. Because these fees are distinct and not interchangeable, merchants should consider how each solution can impact their bottom line and meet their unique business needs. We’re here to break down these fees and the regulations that govern them—empowering merchants to manage these costs effectively and compliantly.

The Nuances of Convenience Fees and Service Fees

Convenience fees are charged on all payment types by a merchant for the “bona fide” convenience, such as allowing payments through a channel outside the merchant’s usual payment method. This fee consists of a fixed dollar and cents amount applied to every transaction, separate from the acceptance of a specific payment type. As one common example, a movie theater box office may charge its customers a fee for buying tickets online instead of in-person.

These charges are regulated by Visa, Mastercard, Discover, and American Express card brand rules, and there are several key characteristics that distinguish convenience fees from other methods of fee recovery. For example, merchants must charge the same flat fee for every transaction and payment method, giving payers the opportunity to cancel the transaction if necessary. Additionally, when implementing these fees, merchants must clearly disclose the charge in a separate line item, defining the flat dollar/cents amount as a charge for convenience levied by the merchant.

Service fees apply to any payment type for merchants or Third Parties in specific Government and Education merchant categories (MCC). These fees are inapplicable to B2B merchants and are only allowed for certain Government and Education entities as defined by Visa, MasterCard, and American Express brand rules.

Like convenience fees, service fees must appear on a separate line item as a flat dollar/cents amount or percentage levied by the merchant or Third Party. The rate can vary according to payment type, payment channel, and card brands. Merchants must give payers the opportunity to cancel the transaction and may not discourage the use of a particular card brand through any means.

Surcharging as the Most Effective B2B Fee Recovery Solution

Surcharging is the most flexible option for B2B merchants. Where other methods are exclusive to certain businesses, surcharging is a strong solution for all merchants. Surcharging applies to credit card payments only—designed to offset the cost of accepting credit cards across any payment channel.

Navigating the cashless payment landscape can be complicated, but surcharging makes recovering the cost of credit card fees straightforward. Unlike service and convenience fees, surcharges are directly tied to credit card payments, giving merchants a transparent and compliant way to pass the fees onto consumers without compromising the customer experience.

When surcharging, merchants charge a percentage of the transaction amount specific to each payment while still providing cardholders an opportunity to select an alternative payment method and cancel their transaction as needed. This method provides the greatest flexibility for merchants, especially when transaction amounts have significant variance. Also, surcharging offers merchants a solution that scales with their credit card acceptance costs, making it the most effective and beneficial method available. By providing immediate, measurable, and significant positive ROI, sellers can focus on developing their business and investing in their goals.

The InterPayments Advantage

InterPayments can help merchants understand the nuances and relative benefits behind each fee type. As a Managed Surcharge Provider, we empower businesses to find the best solution for their specific needs, focusing on providing transparency, fairness, and customer options while minimizing risk for merchants and payment providers.

Like all these margin-improving options, surcharging is more than just a fee and requires more than just a feature that enables a line item on an invoice. Along with compliance considerations, there are also many business considerations, from educating sales and customer success on customer acceptance to changes to the general ledger to customer support training and beyond. Because of this, businesses need more than just a feature, they need a program that only a Managed Surcharge Provider can provide.

Our platform, of course, also helps you recover up to 100% of your credit card processing fees with no disruption to the customer experience—without replacing your current payment or e-commerce platforms. With InterPayments, you have complete control over when, where, who, and how you surcharge or apply fees, allowing for full customization and flexibility. Every InterPayments Certified transaction is guaranteed to comply with all applicable laws and regulations, backed by indemnification.


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