Roughly 70% of Americans carry a credit card wherever they go, which is why small businesses know that accepting card payments is an important part of maximizing their sales. Of course, small businesses have long been plagued by high processing fees, which cut into profits and leave owners in the surcharge vs convenience fee debate. 

For the average transaction, a small business could pay as much as 2.5% in addition to a fixed fee of 5 to 10 cents per sale. Over time, these processing fees start to add up. In an attempt to recoup these costs, many businesses want to consider a surcharge vs convenience fee–but it’s important to know the difference and how they can impact your business. 

What is a Surcharge Fee?

Surcharges are a staple in business accounting. Many industries use surcharge fees to cover increased expenses, like the cost of fuel in airline travel or even costs associated with adhering to new regulations. Surcharges are effective at reducing expenses by passing them right along to the consumer, but credit card surcharges are not legal in all states.

After recent court rulings in the surcharge vs convenience fee debate, there are ten states and one jurisdiction where surcharging still isn’t allowed at all: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, and Puerto Rico. In all other states, you can add a surcharge, but you need to make sure you follow the letters of the law and the rules set forth by Visa, Mastercard, American Express, and Discover.

In general, you must post notifications at the point of sale letting customers know that they’re going to pay a surcharge. Your sign also needs to specify the amount of the surcharge fee. It’s worth noting that you can never profit from this fee, meaning that it cannot exceed the actual amount you’ll pay on the backend. In fact, the fee is usually capped at 1.3% to 3.5%, so it may not cover your processing costs in full. 

What is a Convenience Fee?

A convenience fee is charged to buyers who choose electronic payment, like a credit or debit card, over a standard payment option, like cash, check, or ACH transfer. Like a surcharge, a convenience fee can be used to help recoup backend processing costs. However, convenience fees are generally reserved for special circumstances where the buyer truly is opting for an “alternative” to the standard form of payment.

Grocery stores and a lot of retailers can’t add a convenience fee because card payments are the standard. However, a bank can argue that a check or transfer is the standard way to pay your mortgage, so using a credit card in the online portal may be subject to a convenience fee. Likewise, a sports stadium might sell most of their tickets at the box office, so they’ll charge a convenience fee to those using a card online. Paying taxes or tuition with your card can also entail a convenience fee. 

A convenience fee can cover processing costs, but it can also help cover the cost of running an online portal or taking payments over the phone. Because of that, businesses have the freedom to set their own fee and charge either a fixed amount (e.g. $5) or a percentage rate. 

Surcharge vs. Convenience Fee: Pros and Cons

When it comes down to surcharge vs convenience fee, it’s important to note that either option increases the cost for your customers–and that can drive away business. Here are the pros and cons to consider with these two fees:

  • Surcharge fees are lower, but convenience fees cover more. If you’re in a position where you can choose between these two fees, convenience fees are more flexible because you can set the amount yourself. Of course, customers will always prefer the lower fee (i.e., a surcharge fee).
  • You need to disclose either fee type up-front. There are more regulations imposed upon surcharge fees, and they aren’t even legal in all states, but you’ll have to disclose either fee to the customer up-front. Any sort of fee signage could drive away business, especially if you have competitors next door that doesn’t charge fees.
  • Businesses shouldn’t profit from the fees they charge. Either fee can increase your profit margins by cutting expenses, but you shouldn’t try to inflate the cost of goods in the form of fees. You should only charge up to the amount you need to recoup and adjust the fee periodically as your costs change.

Reducing Your Processing Costs

Ultimately, comparing surcharge vs convenience fee isn’t easy. Many businesses hesitate to add fees at all because of the negative impact on their customers, but if your processing costs are simply too high to keep up these days, it might be something to consider. Another thing you can do is make sure that you’re partnered with the right merchant account to ensure you aren’t paying unnecessarily high fees. 

NMA is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company. For more information, visit us at our or by calling (866) 509-7199.