Personal Finance

Convenience free rip-offs

Today’s tirade: Convenience Fees.

It sounds appropriate, the business or organization goes out of it’s way to provide you a new or extended service that saves you time and money and you pay a small fee for this added service.

But most of the time this “convenience fee” is applied to something that is actually saving the business or organization thousands, tens of thousands, even millions of dollars a year. Not only are they cutting costs but they are increasing revenue by socking you with another fee for a service you already pay for through your regular payments or fees.

This tirade was sparked by my having to pay a $2 “convenience” fee to pay some state sales taxes. While $2 isn’t much and it was more convenient to be able to pay on-line rather than having to write a check, find a stamp and remember to mail it, I am annoyed that it was charged in the first place.

Since the transaction was done entirely on-line, the state saved on payroll costs for a state employee that would have to open my letter, extract the information, figure out what the payment was for, lookup my account on their computer system, enter the payment information, and prepare the check for submission to the bank.

This may only take a state employee a grand total of 10 minutes, but if that is all the person does all day long and they get paid $10 an hour (though most likely it is much more when you add in all those great state benefits), then it would cost the state $80 for that day’s work.

But if I do the work myself through my on-line payment as do another 48 people, not only does this poor employee have nothing to do that day, but the state saves $80+ in payroll costs. But also the state charges each of these 48 people a “convenience fee” of $2. So the state also increased revenue by $96. For a total net gain to the state of $176+ per day.

What is interesting is that the $80+ dollars that was saved is less than the total of the convenience fees.

But I can see a reason for the convenience fee. If I owe $100 taxes and I want to use my AmEx card to pay it, AmEx charges for the transaction. So the state is right in charging me extra for the “convenience” of using my credit card.

But if I just saved the state by doing the transaction and recording the information myself on-line, didn’t I just save the state some money. If AmEx charges the state a high 3% fee on tranactions, my $100 trasaction would cost the state $3. If the total cost for the 10 minutes the state employee to open and process my payment is more than $3 then the state saved money.

If the state pays the employee a measley $10/hour plus benefits and we estimate the total payroll costs at $14/hour and add in half again for the costs of the building, utlitiles and equipment that employee uses we get a total of $21/hour cost.

So the 10 minutes it would have taken the state employee to process my payment would cost the state about $3.50. If the state saves $3.50 by giving me the convenience of paying my bill on-line and it costs the state $3.00 for the credit card processing fee, didn’t the state just save an additional $0.50 on my one transaction alone.

$0.50 is not much but add that up over the state population and over several years and it is significant savings. Also, it these times of tax increases and government budget woes you would think that any savings or reduction in expenses would be a welcomed thing.

So why is the state being stingy and additionally charging me a “convenience fee” when I am helping them to save money? Should they give me a discount to encourage me to try their new system.

Once I have used the system (if it is a well designed system) I will probably use it in the future, thus saving them additional money for years to come. People should be encouraged and rewarded for going out of their comfort zone to try something new, especially if it saves the business or organization money.

And don’t even get me started on bank ATM fees. This same argument can be used on banks and their ATM “convenience fees”. Everyone knows that they saved billions of dollars over the last 20 years with ATMs.

In the meantime, I will use and even appreciate the convenience of paying my tax bill on-line, but I will cringe each time I am charged a “convenience fee” for helping my state save money. Tax breaks anyone?

About the author
© Simple Joe, Inc.
David Berky is president of Simple Joe, Inc. a marketing company that sells simple software under the brand name of Simple Joe. One of Simple Joe’s best selling products is Simple Joe’s Money Tools – a collection of 14 personal finance and investment calculators. This article may be freely distributed so long as the copyright, author’s information and an active link (where possible) are included.