One of the most common points of confusion for local governments setting up online payment processing is understanding the difference between convenience and service fees. Most agencies don’t even realize they’re confusing the two, but it’s important to know the difference.
If you accept payments and are out of compliance with the Card Acceptance Guidelines for Visa Merchants, you run the risk of having Visa tell you to change part of your process, or potentially even fine you or terminate your ability to accept Visa cards. But even if you’re in compliance, knowing the card rules can help save you money with every transaction.
Fee Definitions and Common Mistakes
Convenience Fees
For in-person transactions, a convenience fee is charged for what Visa refers to as a “bona fide convenience to the Cardholder”. As a merchant, that means you can only charge a convenience fee for using a card at the counter if you currently offer other methods of payment.
When conducting a card-not-present transaction, however, convenience fees are always charged. In layman’s terms, that means any transaction where electronic data isn’t being captured at the time of sale through someone inserting their card, dipping their card, or tapping their card at a machine (eg. online and phone transactions).
In addition, transactions are not eligible for convenience fees if they are recurring (for example, using a stored credit card for a monthly auto-payment on an electricity bill).
Service Fees
Only merchants in education or government are allowed to charge service fees, as defined by your Merchant Category Code (MCC). Below are the MCCs that are eligible to charge service fees.
Government Merchants:
- MCC 9311- Tax
- MCC 9222- Fines
- MCC 9211- Court costs including alimony and child support
- MCC 9399 – Misc. government services
Tuition Payments for Higher Education:
- MCC 8220 – Colleges, universities, professional schools, and junior colleges
- MCC 8244 – Schools, business and secretarial
- MCC 8249 – Schools, trade and vocational
While the rules are more restrictive about who can charge service fees, they are more flexible in other ways.
For instance, there are no limitations on the payment channels where eligible merchants can charge service fees. You can also charge service fees on recurring payments, such as monthly payments toward a property tax bill.
Fee Structures and Rules
While easily overlooked, there are some important rules regarding convenience and services fees that merchants should always be aware of.
A convenience fee must be a fixed amount (e.g. $2.95). It cannot be a variable amount, such as 2% with a minimum of $1.
In addition, you must charge the same convenience fee across all methods of payment. So if you command a $2.95 convenience fee for credit card payments online, the same amount should be charged for eCheck payments as well.
Again, service fees are more flexible when it comes to fee structure. While service fees are only applicable in a limited number of scenarios, there are very few restrictions on what that charge can look like.
Service fees can be fixed or variable amounts (for instance, 2% with a minimum of $1). Additionally, you can be more flexible in how you apply those fees. If you’re taking both credit card and eCheck payments on your website, you could charge a 2% service fee for cards and while charging no fee for eCheck users.
Convenience vs. Service Fees At a Glance
Here’s a quick breakdown of the differences between convenience and service fees.
| Convenience Fee | Service Fee | |
| Who can charge? | All merchants, except MCC 4900 when participating in the Visa Utility Rate Program | Select government and education MCCs |
| Fixed or variable? | Fixed | Fixed or variable |
| Channels | “Bona fide convenience to the Cardholder” when card present, or anytime when card not present | All channels |
| Other forms of payment | Must be the same for all forms of payment | Can vary by form of payment |
| No. of transactions | One – payment and service fee processed together | Two – payment and service fee processed as two separate transactions |
| Recurring transactions | Not eligible | All transactions eligible |
How Knowing the Rules Can Save You Money
Interchange fees are charged by card issuers to compensate for the cost of handling funds and risk associated with processing credit cards. These fees have variable rates that are set by the card brands and paid for by the merchant, but those operating in the utility space can enjoy lower interchange rates if they opt into the Visa utility rate program (providing they aren’t charging a convenience fee).
If you follow the rules of setting a fixed convenience fee, you can determine if it makes sense for you to add that extra charge or not. Based on your average transaction size, you can calculate whether you should charge a fee — and what that dollar amount should be.
In the chart below, you can see the break-even point for a hypothetical utility company with an average transaction size of $1,000, which would get a (hypothetical) reduced interchange rate of 1.8% in the utility rate program.
| Not in Utility Rate Program | In Utility Rate Program | |
| Average Transaction Size | $1,000 | $1,000 |
| Interchange Rate | 2% | 1.8% |
| Interchange Fee (Cost to Merchant) | $20 | $18 |
| Convenience Fee (Cost to Customer) | $2 | $0 |
| Total Cost to Merchant | $18 | $18 |
Using this model, you’ll be able to see if there’s value to charging convenience fees to your utility customers. The important first step is to understand just how you’re allowed to set those fees, and whether it helps you (and your customers) in the long run.
The Final Word
Understanding the ins and outs of convenience and service fees is a strategic move that can directly impact your agency’s bottom line and your constituents’ satisfaction. While the rules may seem like a maze at first, they’re actually a roadmap to smarter payment practices. By aligning with card brand guidelines and carefully considering your fee structures, you can reduce costs, remain compliant, and even enhance the payment experience for your users. In essence, the key is in knowing what you can charge, when, and how. It’s a small detail that can make a big difference.
Euna Solutions, a leader in government technology, designs, builds, delivers, and supports trusted procurement, payments, grants management, and budgeting software for the public sector.