People often think surcharges and convenience fees are the same thing, and use the terms interchangeably. However, they are very different. Find out how these two types of fees are different and if your business should start charging a surcharge.
What is Surcharging?
A surcharge is a fee that a merchant charges a customer to offset the cost of processing the transaction. It can only be applied to credit card processing fees, not to prepaid cards or debit cards.Surcharging isn’t an option in every state. In states where businesses are not allowed to charge a surcharge, they may simply not even take a credit card.
To understand surcharges, think of a small business, such as a jewelry artist whom you would find at a street fair. The artist will take many small transactions and may feel like it cannot afford the credit card processing fees. The business could decide to add a surcharge to cut down on its credit card costs or require a minimum in order to accept a credit card.
What are Convenience Fees?
A convenience fee is a fee charged for the customer conveniently being able to use an alternative payment channel outside of the merchant’s usual payment channel.A convenience fee cannot be applied to an in-person transaction and the payor must be notified of it prior to finalizing a payment. For example, if the merchant typically takes face-to-face transactions, it may charge a convenience fee for online purchases. This is widely the case when purchasing concert tickets or movie tickets online, for instance.
Should Businesses Charge a Surcharge Fee?
We wouldn’t recommend it. It’s simply not a good business practice. In this day and age, people want to use their credit cards and not incur an additional cost for using one. Credit card processing fees are part of your cost of business. Passing those off to your customers means higher costs for them, which means they may decide to jump ship and go to your competitor instead.
Convenience fees, on the other hand, are a different story. The customer is getting something out of this “up-charge.” They are paying for a convenience, and they can choose whether or not to pay for this alternative method.