25 OCTOBER, 2022

There is no denying that the use of credit cards makes life easy. Who doesn’t enjoy buying now and paying later? Seeing the popularity of credit cards, most consumer goods companies partner with credit card issuers to provide exclusive discounts and cashback offers. However, two types of expenses are associated with credit card payments: surcharge fee and convenience fee.

The government and credit card companies administer these charges to regain the money they may spend for the convenience they provide you. Therefore, if you are an active credit card user, you should be aware of: what is surcharge fee, what is convenience fee, the difference between surcharge and convenience fee, and other factors associated with credit card convenience fee and surcharge fee.

Most credit card issuers offer a variety of cards based on the benefits they offer. For example, Kotak Mahindra Bank provides nearly 27 types of credit cards to suit the various needs of our customers. And accordingly, the surcharge fee and convenience fee vary from card to card. That’s why, when choosing a credit card, customers should know what is surcharge fee and what is convenience fee.

Here’s everything that you need to know about surcharge fee and convenience fee meaning and the difference between surcharge and convenience fee.

What Does a Surcharge Fee Refer To?

Before understanding the convenience fee meaning, let’s first find out what is surcharge fee.

The use of credit cards to shop is all about the user’s convenience. But do you know how merchants meet the cost of processing payments through a credit card? They take a surcharge fee or checkout fee from all credit card users. The surcharge fee is added to your every transaction. So, excepting a cash payment, the merchant takes a surcharge fee on payment made through every other mode; be it a cheque, credit card, debit card, or even a charge card. It saves the merchants from paying anything from their pocket and attain zero costs for processing credit card payments at the point-of-sale (POS). In other words, merchants pass the transaction costs charged by the credit card issuer on to the customers during the payment process.

Since the surcharge fee is an additional burden on the customer, many card issuers lay down guidelines for the merchants to keep them in check. To avoid extra costs and legality, some retailers may offer additional discounts on cash payments. Additionally, credit card companies and state governments, determine the applicability of surcharge fee. Businesses need to adhere to these guidelines to avoid penalties.

From a customer’s point of view, the surcharge fee is the additional cost you pay to avail the benefit of buying now and paying later for in-person transactions. It is, therefore, advised to always check the surcharge fee when calculating the total cost of the transaction. This way you can easily decide the best economics of your mode of purchase.

What Do Convenience Fees Refer To?

In spite of its increasing popularity, the credit card comes under the category of luxury products. And that’s why, you have to pay the convenience fee, to be able to enjoy this luxury. The convenience fee may cover processing costs, costs of regulating an online portal or making phone payments.

But what is the exact meaning of convenience fee. A convenience charge meaning is a fee charged to customers when they use a non-standard mode of payment, usually online or by phone. It can be a fixed charge or percentage-based.

Let’s understand with the help of an example. When buying movie tickets from the comfort of your home, with a credit card, you have to pay a credit card convenience fee. Because the standard mode of movie ticket booking is through ticket counters, that is through an offline mode. So, if you want to avoid pre-booking the tickets for your favorite movie without standing in annoying queues, and use a credit card to do the same, you have to pay a convenience fee for it.

Another example could be when paying tuition fees. The standard payment mode for tuition fees could be cash or cheque. But when you pay via credit card, you may be charged a convenience fee. Most credit card companies administer the payment of convenience fee only in certain situations like government payments, tax-related bills, and schooling, to name a few.

Alternatives to Convenience Fees and Surcharges

Although credit cards have more pros than cons, having to pay a surcharge fee or a convenience fee can be annoying for some.

To reduce this burden on the customer, many merchants take customer preferences into consideration and offset surcharges by methods like discounts on cash payments, uniform pricing to avoid any surcharge on all modes of payment, uniform convenience fees, and third-party payment processors. Alternatively, you can link your bank account or debit card to those payment channels where convenience fee is charged, such as movie tickets and schools to avoid paying an extra fee.

To avoid a surcharge or convenience fees through alternative methods is a choice you have to consciously make between what costs you less.

How Can You Avoid Having to Pay Convenience Fees and Surcharges?

Now that you are aware of the convenience fee meaning and surcharges, you would want to minimize them or skip them altogether to enjoy the total benefits of using a credit card. You should talk to your card issuer’s customer care to understand the precise convenience charges meaning. If you find no monetary benefits, you can pay differently to merchants who levy the convenience fee.

It is the legal responsibility of a merchant to inform you that they levy a surcharge fee. You may either notice the surcharge fee at the store, or the cashier might inform you about the same. If you come across such merchants, you can opt to pay through a debit card or cash and avoid hefty surcharges to stay profitable.

If you are planning to use your credit card to purchase something in places such as auto shops, drug stores, retail shops, etc., always ask if they offer cash discounts. You can save quite a bit more than you generally might with credit card rewards.

Also Read: 7 Strategies to Reduce Your Credit Card Processing Fees

Summing Up: Surcharge Vs. Convenience Fees

Now that it is clear what is convenience fee and what is surcharge fee, let’s understand the exact point of difference.

A convenience fee is charged in case of remote transactions as it facilitates you. Whereas, a surcharge fee is essentially charged for in-person transactions to cover the costs incurred by a merchant on the credit card transaction.Surcharge fee is much lower compared to convenience fee. Further, convenience fee is mandatory and regulated by the government.

Having awareness of these charges and the difference between them empowers the customers to choose the appropriate payment modes and avoid paying high fees when it is possible to avoid them.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.