Convenience Fee vs Surcharge: Your Quick Guide

Aug 14th, 2023

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Guests expect as much convenience and simplicity as possible, which means the ability to pay for a vacation rental with their preferred method. However, taking payments, especially online, comes at a cost to rental managers, who understandably want a way to negate those fees.

Convenience fees and surcharges are two options available to mitigate these charges and keep them from eating into your profit margins. Other ways to offset or reduce processing fees include cash discounts, booking fees, and more.

If you are considering whether you want to levy a convenience fee vs. surcharge to protect your business from payment processing fees, here’s what each one does and how to decide which is best for you.

 

What is a Convenience Fee? 

A convenience fee usually takes the form of a flat fee, although it can also be a percentage. It must be associated with a bona fide convenience in the form of an alternative payment channel.

In other words, you can’t just charge guests the fee for the convenience of using a credit card. Instead, it might be the convenience of paying through an online portal as opposed to mailing payment or paying in-person. The fee would be charged to all payments through that channel (i.e., the online portal). 

An example of a convenience fee would be a small charge that helps offset the cost of online payment processing. This might be as a flat-rate of $5 to $20 tacked onto the cost of the rental when a guest pays for their booking online. 

 

What is a Surcharge?

A surcharge is one way to avoid credit card processing fees by passing that cost onto the guest instead. 

Surcharges are only for credit card payments. Debit cards and prepaid cards cannot be charged a surcharge, so it’s crucial that your system can accurately recognize the guest’s payment type before adding the surcharge.

An example of a surcharge would be adding a 3 percent fee to the total cost of the booking. If your booking was for an even $1,000 for the week, this would equate to a $30 surcharge for guests who wish to pay with a credit card. 

 

Surcharge vs. Convenience Fee: Pros and Cons

With all of that in mind, how do you decide whether to charge a surcharge vs. a convenience fee? While they have some similarities, there are some pros and cons to each that you will want to consider. 

 

Which One Better Covers Your Costs?

Both options will help mitigate your expenses on the backend of bookings. That said, a fixed convenience fee vs. a variable percentage surcharge will impact how much of your costs are covered.

Most property managers prefer to implement surcharges as a way to avoid paying credit card processing fees themselves since a vast majority of their payments come via credit card. If set correctly, the surcharge percentage should consistently cover credit card processing fees.

Surcharges on credit cards can also encourage guests to make their booking with a method that is more cost-effective for you such as ACH, e-checks, debit cards, cryptocurrency, or prepaid cards. This cuts back on the final dollar amount that you will spend on fees.

On the other hand, convenience fees may not always cover the full administrative costs associated with processing credit cards. Since the fees are the same across all payment types within the channel (debit, credit, ACH, etc paid through an online portal), the fee may be too large on some bookings and too small on others. The guest can also choose to avoid the fee entirely by using an alternative method, such as paying in person or by mail. In this case, the rental manager can’t charge the convenience fee and must cover the processing costs from their own pocket.

No matter which one you choose, you do not want to create a revenue stream from these fees. It should only be in place to cover your real costs of processing certain payment types. You should not aim to make money off these fees. 

 

Which One Do Guests Prefer?

Customer experience is an essential consideration in the surcharge vs. convenience fee debate. 

Surcharges will scale up and down with the guest’s booking cost, while flat convenience fees are set in stone regardless of the total cost of the booking. This means that guests who book a shorter, lower-cost stay may be annoyed by what seems like a disproportionate convenience fee. 

Furthermore, in today’s modern age, paying for purchases online is so commonplace that customers may be frustrated to hear it’s considered a “convenience” rather than just the norm.

Percentage-based fees, on the other hand, may appear more fair since the cost is directly associated with the cost of their rental. Guests may also prefer a surcharge since it’s easier for them to avoid by simply switching to a non-surcharge option, such as a debit card or ACH bank transfer. 

 

Which One Is Easier to Implement?

Both surcharges and convenience fees have compliance rules and regulations that your business must adhere to. 

Some of these rules are similar, such as requiring disclosure to the consumer. Convenience fees and surcharges both require you to clearly communicate the fee at checkout so guests can make an informed decision, then cancel or opt for another form of payment if desired. 

Just to name a few, some convenience fee regulations include:

• Can be a fixed dollar amount or a percentage
• It must be associated with convenience in the form of an alternative payment channel, then charged on all forms of payment within that payment channel
• It can only be assessed on non-face-to-face transactions. You must also provide alternatives to online payments that do not have a convenience fee attached, such as in-person or via mail
• It cannot be charged in addition to a surcharge
• It cannot be charged on recurring or installment transactions 

Surcharging regulations will vary based on location and card brand, but some common regulations include:

• It must be added as a percentage of the total purchase and cannot be more than your actual cost of acceptance.
• It cannot exceed 3%.
• You must notify credit card companies that you will be charging this fee at least 30 days in advance of implementation.

Massachusetts and Connecticut do not allow credit card surcharges at all.

It’s crucial that your business adheres to compliance rules and regulations, as a non-compliant surcharging process can lead to significant penalties. Luckily, the right technology can make compliant surcharge implementation frictionless–even if you don’t know much about the process. Payment processing solutions like Ascent make the transition easy.

You can read more about the regulations for surcharging and convenience fees here. 

 

Revolutionize Your Payment Process with AscentZeroCost

With AscentZeroCost, you can cut your credit card fees to nearly nothing and ensure that more revenue stays where it belongs – in your pocket.

Our system incorporates a compliant surcharge at checkout for credit card payments, then offers guests the freedom to select alternative payment options and avoid the surcharge entirely. Our solution maintains full adherence to all federal, state, and card brand regulations, keeping you compliant and stress-free.

For more information on how AscentZeroCost can benefit your business and your bottom line, request more information here!