If you’ve read past issues of this newsletter, it should be obvious by now that I firmly believe utilities should accept credit cards. If you missed them, please see Issue #4 or Issue #7 for past discussions about accepting credit cards.

So, now that you’ve been convinced to accept credit cards, you may be wondering if you can recoup any of the costs of offering credit cards by charging a convenience fee. The answer is “It depends…”. This issue will help shed some light on the confusion surrounding convenience fees…

If you’ve been reading these newsletters for a while, you’ve probably realized that I have some pretty strong opinions about a number of business practices. The topic of convenience fees is one that I have completely changed my mind about. I used to be of the opinion that utilities shouldn’t charge convenience fees because customers aren’t accustomed to paying a convenience fee to pay by credit card anywhere else they do business.

Having seen how well-received our WebPay and PhonePay have been for several of our customers that do charge a convenience fee has changed my mind. Our largest customer has seen payments by WebPay and PhonePay increase to nearly 10% of their customers and a $3.50 convenience fee has not deterred any of them!

When can’t you charge a convenience fee?

When looking at convenience fees, the first thing to consider is how the credit card payment is being received – what Visa and MasterCard call the “payment channel”. Visa and MasterCard define the “traditional payment channel” as credit card payments received over the counter or through the mail. Without specific legislation in your state giving you the authority to charge a convenience fee, Visa and MasterCard will not allow you to charge a convenience fee for payments accepted via the traditional payment channel.

When can you charge a convenience fee?

Eliminating payments made over the counter and through the mail leaves the following types of payments eligible to be assessed a convenience fee:

  • Phone, with a person answering the phone
  • Interactive Voice Response (IVR), automated phone payments
  • online bill pay
  • Kiosk

How much can you charge for the convenience fee?

The purpose of a convenience fee is to recover the cost of providing alternative ways for your customers to pay by credit card, not to recover the merchant fees associated with credit card payments. Now that I’ve said that for the record, I do realize that many utilities use the convenience fee to recover the cost of merchant fees.

Do the same rules apply to all credit cards?

Of course not, because that would make things easy!

Visa has more stringent requirements than either MasterCard, Discover, or American Express. Among other requirements, Visa stipulates that the convenience fee must be a flat amount. The website cardfellow.com has an excellent discussion of convenience fees.

Can we charge a convenience fee as a percentage or does it have to be a flat amount?

As noted in the previous section, Visa will only allow a convenience fee that is a flat amount. So if you want a consistent policy for all credit card payments, it seems only logical to assess the convenience fee as a flat amount.

What happens if we charge a convenience fee for all credit card payments?

So, what happens if you’re currently charging a convenience fee for all credit card payments, including over-the-counter payments? I am aware of one utility that assessed a convenience fee for in-person credit card transactions. One of their customers reported them to Visa. The utility received a very stern letter from Visa advising them to stop assessing the convenience fee immediately or face revocation of their ability to accept Visa payments. Needless to say, they stopped assessing the convenience fee for over-the-counter payments immediately.

Editor’s note: As a result of the Interchange Settlement, checkout fees are now allowed for some utilities effective January 27, 2013.