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What should I know about IVR Payments and Charging Service Fees, Convenience Fees or Surcharge Fees to offset Credit Card acceptance costs

By: Sean Lepard

I want to talk today about charging Service, Convenience or Surcharge Fees with your IVR Payment acceptance solution. A convenience fee is a fee levied by some merchants for offering their customers the option to pay by an alternative payment method – typically charged when accepting phone or web payments.

The cost to merchants of accepting credit card payments typically range from 2-4 % of the sale amount, depending upon both the risk rating assigned by the acquiring bank to the merchant and their total volume of credit card processing annually. Credit card acceptance offers merchants the ability to collect more, both faster and with less risk of default, which brings financial value to the merchant by offsetting to some degree the cost of accepting credit cards for payment.

Despite this, your company may still find that this loss of sales margin is not acceptable, and you may be looking at potentially charging a credit card surcharge, service fee, or convenience fee in order to recoup these costs directly from the consumer. Let's look briefly at the differences between these fees.

The terms convenience fee and service fee are generally interchangeable, however slightly different card brand rules do apply to how each of these two separate programs work. A service fee is a modified version of the convenience fee that is restricted to specific merchant category codes. Recent changes by the payment card industry have relaxed these requirements and greatly expanded the merchant categories that are now eligible to charge service fees under the surcharge program. A surcharge, on the other hand, is not a convenience fee, but is simply a fee levied for purchases made with a credit cards. Credit card surcharges are also covered by a variety of complex rules that vary from state to state and countries.

In addition to the individual card brand rules for charging these different fees, that vary with each card brand, there are also state or local laws to consider that may prohibit charging these fees. In general, service fees are now permissible in all 50 US states and Canada, however it is still recommended that merchants first consult their payment processor and legal counsel for guidance about any restrictions that may apply to them.

Generally, most merchants can now impose these credit card convenience fees, provided that they also follow each card brand's rules. These fees should only be charged when paying by a designated alternative, or non-standard, payment channel for the merchant. For example – if your standard payment method is to pay at the register – you cannot charge a convenience fee for this point-of-sale transaction, but you can charge a convenience fee for customers that phoned in their payment using IVR Payments. Also, if choosing the surcharge program, note that surcharges can only be imposed on credit cards: debit card transactions are not eligible. Furthermore, for VISA cards, convenience fees cannot be charged on recurring or installment transactions.

Merchants should also consider the impact of charging these fees on both the public's perception of their brand value and on their collection rates. Consumers generally dislike these kinds of extra fees and some may even choose alternative suppliers or simply defer paying bills due to inconvenience.

Keep in mind that the card brands will all require that you be transparent and disclose your fees to consumers before any transaction is completed. You will also need to register with your payment provider that you intend to charge a fee. For competitive reasons it is also wise to consider the norm within your industry.

Once you have made a decision to adopt charging service, convenience, or surcharge fees for IVR Payment acceptance, you will need to inform both your IVR Payments provider as well as your payment processor/gateway provider so this option can be configured for you. Datatel IVR Payments (CryptoIVR PRO) supports all fee programs and can be configured to charge either a flat amount or a percentage based on the program you have selected and industry guidelines.

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