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Should you be charging a convenience fee?

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Last editedJun 20232 min read

In recent years, paper money has very much become the exception to the rule, with the pandemic arguably proving the death knell for coins and notes in much of the UK. With digital payments becoming the standard, why do so many merchants still choose to charge an extra fee for those that opt to pay by credit/debit card or digital wallet?

What is a convenience fee?

A convenience fee is the colloquial term for any payment a business charges when customers use a payment method that is seen as not standard and therefore is something of an inconvenience for the merchant.

Of course, it could also be argued that convenience fees can be used to recoup some of the expenses associated with credit cards, which can prove significant for small businesses. In essence, a convenience fee is an extra fee used by businesses because they think it might save them money. However, in the long run, it might end up doing more harm than good.

Can you charge a convenience fee?

Legally, credit card convenience fees are legal but must be a flat fee rather than a percentage of the transaction. You cannot charge these fees, however, if you are an online-only merchant, as it would be rather difficult to argue that cash was the primary source of payment in a digital environment.

Different card brands might also have different regulations to consider. For example, Visa only allows convenience fees if the transaction is over an irregular payment channel (for example, online when the business is primarily bricks and mortar). It also doesn’t allow convenience fees on recurring transactions. Mastercard, meanwhile, is significantly more liberal.

Still, it could be argued that convenience fees are an altogether outdated notion. While paying by card might have been seen as beyond the norm at the turn of the century, cash payments account for only around 13% of transactions in 2021. And that was pre-pandemic. So why are some merchants still pretending that cash is still the ‘normal’ way to pay?

Costs of processing

When using credit cards, the bank always takes a fee, and if you are using a payment gateway there might also be a processing fee to consider, all of which eats into your overall profits. The exact amount here is also often unpredictable, as every transaction could involve different additional costs.

There are incidental fees to consider too. For example, there might be a small transaction fee for paying with a credit card when the transaction is under £5, or there could even be a chargeback, which can be caused by anything from an error to the customer not recognising your brand on their credit card statement. These are all additional fees that could be offset by a convenience fee.

Is it worth it?

You could spend all day arguing the value of convenience fees, and it wouldn’t change the fact that they are the product of a bygone age. It’s a policy that came into being when credit cards were the exception, but now that they have become the rule, it would be more transparent to simply raise your prices slightly than add an additional cost onto every card-based transaction.

Of course, there are always going to be cases where this is not true and convenience fees still make sense. But for most businesses operating in an increasingly competitive landscape, credit card processing fees should be seen as just another cost of doing business in the modern world, not an inconvenience that needs to be remunerated.

Or you could incentivise your customers to use a digital payment method that offers lower fees for merchants than credit cards. GoCardless boasts lower cost per transaction for self-serve domestic transactions and reduces the overall cost of taking payments by over 50%.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team has to deal with. Find out today how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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