Surcharging vs Convenience Fee: What’s the Difference?

If you’ve ever wondered how businesses manage the costs of payment processing without eating into their profits, surcharges and convenience fees are often the answer. While they might sound like the same thing, these fees serve different purposes and come with their own sets of rules.

In this post, we’ll take a closer look at surcharges and convenience fees, explain their key differences, and share tips on how to use them effectively and legally. Whether you’re a business owner or just curious, you’ll walk away with a clear understanding of these two fees.

Surcharges: The Cost of Convenience for Cards

Surcharges are percentage-based fees businesses add to transactions when customers pay by card. This extra charge helps cover the cost of processing credit card payments, which can cut into a business’s bottom line.

However, there’s a lot more to surcharges than just tacking on a percentage. Here’s what you need to know:

• Card Scheme Rules: Different card networks (like Visa, Mastercard, and Amex) have specific rules about surcharges. For instance, surcharges must never exceed the cost of processing the payment, and the maximum allowed percentage varies.
• Legal Restrictions: Surcharges are not allowed in all countries and can vary within that country by region. For example, some places like California and Colorado have laws that prohibit them entirely. Make sure to check the regulations in your area before adding surcharges.
• Advance Notice: You need to inform your card provider at least 30 days before charging surcharges.
• Customer Transparency: Customers must be informed about the surcharge clearly and visibly—usually with a notice in-store or online.
• Receipt Breakdown: The surcharge must appear as a separate line item on receipts.

If you’re thinking about introducing surcharges, it’s important to weigh the pros and cons. While they can help you recover processing fees, they may also turn off some customers if not communicated properly.

Convenience Fees: Paying for Payment Flexibility

Convenience fees are flat-rate fees charged when a customer uses a non-standard payment method. For example, if your business primarily accepts in-person payments but a customer chooses to pay online or over the phone, you might add a convenience fee.

Here’s what makes convenience fees unique:

• Flat Rates Only: Unlike surcharges, convenience fees must be a fixed amount—no percentages allowed.
• Legal Everywhere: Convenience fees are legal across all states, but they still need to follow card network rules.
• Not for Standard Payments: You can’t charge a convenience fee for a method that’s already your primary way of doing business. For instance, if your usual method is in-person, you can’t add a convenience fee to in-person payments.

Convenience fees can be a win-win for businesses and customers, offering payment flexibility while covering the extra costs associated with alternative methods. Just be sure your customers know about the fee beforehand to avoid surprises.

Surcharge vs Convenience Fee: Breaking Down the Key Differences

If you’re trying to decide which fee is right for your business (or just curious about how they work), here’s a simple comparison:

How Nexxtap Makes Surcharges Easier to Manage

At Nexxtap, we understand that each business is unique. That’s why Nexxtap offers businesses the flexibility to either oncharge the surcharge to customers or absorb it into their costs.

Here’s how it works:

• Oncharging the Surcharge: If you decide to pass the surcharge on to your customers, Nexxtap allows you to easily add this fee to transactions. The surcharge can be applied automatically.
• Absorbing the Surcharge: On the flip side, if you’d rather absorb the surcharge and keep the cost to your customers down, Nexxtap lets you cover the fee as part of your overall pricing structure. This can be a good strategy if you want to keep customer satisfaction high while keeping your prices competitive.

With Nexxtap, businesses get the option to balance these choices based on what works best for their model, customer base, and payment preferences. The key is to communicate clearly about your decision, whether you’re absorbing or oncharging the surcharge.

Why You Need to Be Clear and Compliant

Both surcharges and convenience fees have rules that businesses must follow. If you don’t, you could face penalties or even lose the ability to process certain types of payments. But beyond compliance, being transparent with your customers about these fees is just good business.

Tips for clear communication:

• Signage and Notices: Display clear signs in your store or online explaining any additional fees.
• Customer Conversations: If a customer is surprised by a fee, explain why it’s necessary. Most people understand when fees are fair and justified.
• Keep It Simple: Use plain language to describe the fee—avoid legal or technical jargon.

The more upfront you are, the more likely customers will accept the fee without frustration.

FAQs: Surcharging vs Convenience Fee

Q: Can I use both surcharges and convenience fees in my business?
Yes, but only for different situations. For example, you might use surcharges for in-store credit card payments and convenience fees for online transactions.

Q: Are surcharges or convenience fees better for my business?
It depends on your payment setup. If you process a lot of credit card payments, surcharges can help cover costs. If you’re offering alternative payment methods, convenience fees might make more sense.

Q: How do I stay compliant with surcharge rules?
Check your state laws, notify your card network in advance, and always make surcharges visible on receipts and signage.

Q: Do convenience fees apply to all payment methods?
No, only non-standard payment methods. For example, you can’t charge a convenience fee for a method you already use as your primary payment option.

Q: Can I charge a convenience fee for cash payments?
No, convenience fees are only for non-standard electronic payment methods, not cash or standard card payments.

Final Thoughts

Surcharges and convenience fees can be valuable tools to manage payment costs, but they’re not interchangeable. By understanding the rules and clearly communicating with your customers, you can make the most of these fees without creating confusion or frustration.

The takeaway? Whether you’re adding a surcharge or a convenience fee, keep it clear, fair, and compliant. That’s how you keep your customers happy while protecting your bottom line!