When it comes to merchant processing, both convenience fees and dual pricing are great ways to reduce or eliminate credit and debit card processing fees, but they operate in different ways. Below is a breakdown of the differences between these two models and how they impact both businesses and customers.
What is a Convenience Fee?
A convenience fee is an additional charge added to a transaction when a customer uses an alternative payment method that isn’t typically accepted by the business for a particular type of transaction. This fee is used to cover the cost of processing a payment method that comes with additional costs, usually credit or debit cards.
Below is an example of Broward County, Florida’s disclosure of how they apply Credit card convenience fees.
Credit card convenience fees will be charging as follows:
Transaction total between $.01 to $76.66 will be $1.95. Transaction totals between $76.67 and above will be charged at 2.55%.
Acceptable Payment Methods include: Cash, Checks, Money Orders, Master Card, VISA, American Express, Discover Card and (with e-recording) ACH Debit.
Reference: https://www.broward.org/RecordsTaxesTreasury/TaxesFees/Pages/FeeSchedule.aspx
Key Features of a Convenience Fee:
- Applies to alternative payment methods: A convenience fee is usually charged when a customer opts to pay with a credit card for a transaction where the primary method might have been cash, check, or ACH.
- Usage example: A utility company may primarily accept cash or checks in person but allow online payments with credit cards. If a customer pays online with a credit card, a convenience fee might be applied.
- Fixed or percentage fee: The fee may be a flat rate (e.g., $2) or a percentage of the total transaction (e.g., 3% of the purchase).
- Disclosure required: Merchants are legally required to notify customers about the fee upfront and show it as a separate charge during checkout.
- Typically for non-standard payment channels: Convenience fees are often associated with payments made online, over the phone, or in other non-standard ways.
What is Dual Pricing?
Dual pricing refers to a pricing model where a business offers two prices for the same product or service: one price for customers paying with cash and another, higher price for customers using credit or debit cards. The difference in price accounts for the merchant’s card processing fees, without charging a separate fee as seen with surcharges or convenience fees.
Key Features of Dual Pricing:
- Two separate prices: There’s one price for cash payments and a higher price for card payments, clearly displayed to customers.
- Price transparency: The price difference reflects the cost of credit card processing, and customers can choose which price they prefer based on their payment method.
- No added fees: Unlike a convenience fee, where a specific fee is added to the transaction, dual pricing simply adjusts the price based on the payment method.
- More common for in-person transactions: Dual pricing is frequently seen in industries like gas stations, where the price for paying with cash is visibly lower than paying with a card.
- Legal and regulatory considerations: Dual pricing is legal in all 50 states, so long as businesses ensure that the higher price for card payments is the price customers see on the ‘shelf’ or ‘menu,’ with any cash discounts clearly marked as reductions from that higher price.
Convenience Fee vs. Dual Pricing: Key Differences
| Feature | Convenience Fee | Dual Pricing |
| How it’s applied | Added as a separate charge when a customer uses an alternative method | Two different prices are displayed based on the payment method |
| Usage scenarios | Usually applied for non-standard payment channels (e.g., online or invoicing) | Usually applied in-person on physical terminals or POS displays. |
| Visibility to customer | The fee is listed separately from the original price | The customer sees both the cash and card prices upfront |
| Legal considerations | Strictly regulated, must be clearly disclosed. | Legal in all 50 states, fewer regulatory challenges |
| Types of payments affected | Typically credit cards, sometimes debit cards | Applies to all types of payments, but especially cash vs. card payments |
| Types of Businesses | Mainly used with government services, educational institutions, and utilities, but others can use if non standard in their business. | Mainly used in retail and fuel stations |
Which Option is Best for Your Business?
- Convenience fees work well if your business offers a non-standard payment option, like online or phone payments, and you want to pass on the extra costs associated with these transactions.
- Dual pricing is a more straightforward approach for businesses that want to give customers a choice while maintaining transparency about the cost of card processing.
Conclusion
Both convenience fees and dual pricing help businesses cover the cost of credit card processing, but they differ in how they’re applied and perceived by customers. AllayPay can assist you in determining which method works best for your business model, ensuring compliance with relevant laws while keeping your payment processing costs manageable.
