Convenience Fees and Surcharges Simplified

Apr 30, 2024 by Kelsey Banerjee

🚨 Paystand does not do surcharging.

Imagine this:

A customer finally reaches the final step of a business’ payment process, only to discover an added surcharge, without much explanation, at the bottom of their purchase review. And, like 71% of other customers, they decide they want to avoid that fee. They abandon the purchase. 

But not all fees are created equal. And many customers may choose to pay the added charge if they understand it.   

The terms "convenience fee" and "surcharge" often spark confusion among consumers and businesses alike. Understanding the distinctions between these two additional charges is crucial for making informed decisions and avoiding unexpected costs when accepting credit cards

This article delves into the intricacies of convenience fees and surcharges, shedding light on their impact on transactions and clarifying their uses. By breaking down the definitions, we can glean the pros and cons of each fee type, as well as which makes the most sense for a solid business strategy. 

Defining Convenience Fees and Surcharges

The differences between convenience fees and surcharges are straightforward. However, since these terms may sometimes be used interchangeably, the clear distinctions between the two have blurred. 

Before we begin highlighting the nuances between the two types of charges, let’s look at the clear definitions:

  • Merchants charge a convenience fee to cover processing a credit card transaction. This fee is a percentage of the purchase and is disclosed as the time of purchase.

  • Credit card issuers charge surcharge fees to the merchant, who then passes them on to the customer in the original transaction price. These charges are typically fixed amounts and are not always disclosed to the end customer. Surcharges are not legal in all 50 states.

5 Key Differences between Convenience Fees and Surcharges

While both fee-types pass on the cost to the customer, they have several differences. We can see that there are 5 major ways these fees differ in breaking the definitions down to their core elements:


Convenience Fee

Surcharge Fee

Charged by


Credit card issuer


To cover the cost of processing the credit card transaction

To generate revenue for the credit card issuer


Typically, a percentage of the total purchase amount, often around 2% to 3%

Typically, a fixed amount, usually around 2% to 3%

Disclosure to customer

Usually disclosed at the time of purchase

Not always disclosed at the time of purchase, but it must be disclosed in-store or on the business’ website


Legal if disclosed to the customer

Legal if the customer is given prior notice and the surcharge is reasonable.


Are These Fees Legal? 3 Legal Documents to Know

Merchants looking to optimize their payment strategy with surcharges or convenience fees need to consider legal compliance. For example, several states now discouraged surcharging, either through anti-surcharge laws or full-out bans.

But no matter what state you are in, there are 3 essential federal laws to consider:

  • The Truth in Lending Act (TILA) requires merchants to disclose any fees associated with credit card transactions, including convenience fees and surcharges.

  • The Fair Credit Billing Act (FCBA) prohibits merchants from imposing surcharges on credit card transactions unless the customer is given prior notice and the surcharge is reasonable.

  • The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the FCBA to further restrict surcharges on debit card and prepaid transactions.

Another potential bill, the Credit Card Competition Act of 2023, would apply similar restrictions from the Dodd-Frank Act to credit card transactions. At the time of writing, this bill had only been introduced to Congress and had not yet been passed by the Senate or the House. 

The most important elements to take into account from current legislation are:

  • Disclosures are a best practice for both fee types

  • Fees must be reasonable and align with state law

In fact, fee disclosure is also one of the best ways to offset negative customer perceptions of higher costs. A study from PYMNTS found that 85% of cardholders agree to surcharges if they are disclosed. That number plummets to 12% if the customer is not aware of the fee or has never paid it before. 

Using Fees in Your Payments Strategy 

Understanding how each fee type works enables you to better craft a strong payment strategy—and select the right payment solution to execute it. 

Both options are used to offset fees, but a full review of the pros and cons showcases significantly different risks involved. 

The Pros and Cons of Convenience Fees

Convenience fees provide a vast amount of benefits for the merchant, and can be applied so long as they offer different payment channels. 

These fees are based on cost recovery—so they are less about generating extra revenue (although they can) and more about offsetting operational costs. This approach is often easier to accept or explain to customers, especially since merchants control their fee structure.

Convenience fees are also ideal for discouraging credit card payments and incentivizing lower-cost, alternative methods, such as ACH. In this scenario, customers who wish to avoid the convenience fee by using different forms of payment for credit card purchases save money without merchants sacrificing additional revenue. 

It’s also important to note that convenience fees, while usually related to credit card payments, can be attached to other payment methods as well. For example, if you prefer customers to pay online rather than by phone, you may apply a convenience fee to phone-based transactions. 

However, convenience fees can also elicit negative customer responses—and this reaction occurs regardless of the fee introduced. 




Lower credit card processing costs

Potential customer turnover

Incentivizes alternative methods

Potential cart abandonment

Custom fee structure


Increased flexibility for accepting payment methods



The Pros and Cons of Surcharge Fees

Credit card surcharging fees are passed on to the customer, and while they are also meant to offset costs, they are far more limiting.

First, surcharge fees are legal in some states, which automatically creates more complexity in the pricing structures. Surcharges may be higher than convenience fees and are only sometimes disclosed on the purchase itself, thus reducing transparency. These factors can further turn away customers, leading to turnover and confusion.

Furthermore, surcharges are rooted in credit card processing costs and do not include other operational expenses. Nor are they necessarily used to incentivize alternative payment methods, as they are only related to credit card processing costs. 




Offsets credit card issuer fees

Banned and restricted in some states

Incentivizes payment methods other than credit cards

Potential customer turnover


Potential cart abandonment


Lack of transparency


Limited use 


Convenience Fees vs. Surcharges: Which is Better?

The fee structure that makes sense for your business depends on several custom factors, but convenience fees often offer the most flexibility and lower risk. Surcharges and convenience fees lower immediate payment costs, but only one provides additional benefits. 

Convenience fees need more legal controversies of surcharges, making them easier to implement immediately. As a merchant, you would determine the fee structure. As a result, you could use the fee to recover costs from more than the narrow credit card processing fee.

You can also use convenience fees in conjunction with a Zero-Fee strategy. In this instance, you would absorb the costs for desired payment methods, such as ACH or bank transfer, while adding a convenience fee to higher-cost payment methods. As a result, it is possible to encourage consumers to use your preferred payment method. Other factors, such as saving payment method information and recurring billing, can further reduce friction with lower-cost payment methods that require more of your customers' time. 

Taking Payments to the Next Level

If adding a convenience fee makes sense for your pricing model, having a payment solution that seamlessly integrates convenience fees with other revenue-growth features is essential. 

Zero-fee bank networks, real-time fraud verification, automatically notarized records, smart lockboxes, and one-click payment portals work with merchant fee structures to create a fast and frictionless experience. Paystand customers can leverage all of these key features and more to optimize their unique payment experience. 

Ready to see how Paystand can revolutionize your payment process? Book a demo with us today, or get more tips on removing friction with our guide for streamlining payments