A client recently asked me about adding a credit card fee to their customers’ payments. Since most of their customers pay less than $10/transaction, the charges from the credit card companies take a substantial portion of their revenue. Adding this fee would be a massive boost to their margins.
I didn’t have a strong opinion on the matter at the time, but it started me thinking and studying. I asked my LinkedIn colleagues what they thought. There was a clear consensus that fees are bad and customers hate them. However, that felt too easy.
Airlines are profitable because of fees. Hotels have resort fees. Government agencies, educational institutions, and many other places use credit card fees. (Start watching for credit card fees as you shop, you might be surprised.)
Yes, customers hate fees. But they also hate price increases and we do them anyway. (You do, don’t you?)
My friend, Jon Manning, sent me a paper he wrote on the use of fees. I read even more opinions on the topic. Now, I have a much stronger opinion.
Fees are OK if they are both optional and justifiable. Think of a fee as paying for a feature.
Airlines started charging for checked luggage. That’s thought of as a fee, but it’s really just a payment for a service. If you don’t want to pay for it, don’t check your luggage. On the other hand, I despise hotel resort fees because they are not optional. You can’t get a room for the night without paying the resort fee.
In the case of credit card fees, you are paying for the ability to pay with the credit card. That means, if my client wants to charge credit card fees, they should make the use of a credit card optional. They could offer direct ACH payments or Zelle payments for free. Using a credit card costs extra to the customer, but it’s their choice to use it. That feels right to me. If they require everyone to pay with credit cards, then charging a fee feels devious.
A fee should also be justifiable. My client could explain by saying something like, “The cost of credit card processing is very high. We would be happy to continue at the same price point if you are willing to pay using Zelle, but we have to start charging to use a credit card.”
The next time someone asks my opinion on fees, I now have an answer. Use them if they are optional and justifiable. Where do you stand on charging fees?
Share your comments on the LinkedIn post.
Now, go make an impact!
