On-Line Credit Cards
Dear Management Doctor:
At the City of Troy, Michigan we are continuing to improve our development approval process to provide fast, fair and predictable development decisions. We also call it, creating an environment for investment. Our Coordinator of Continuous Improvements is finding it difficult to implement online credit card payment for our Building, Engineering and Planning Departments. There just seems to be many obstacles: auditors, Financial Services Division and the lack of communities to ask how did they do it. Are there any Management Doctor users who we could reach out to and ask a few questions on how they implemented online credit card payments.Mark F. Miller
We recommend that all development applications move to the Internet which requires on-line payment by credit card. None of our clients have had credit cards via Internet during our studies, but in all cases we recommended they do so.
One of our clients, Columbus, Ohio is now accepting Internet Credit Cards and it took them over two years to get it accomplished. They are using Accela Automation as their permit system, and although Accela has a credit card component, it did not work the way the Columbus Finance Department wanted it. So, Accela had to be modified to accommodate Finances needs. This took time but is finally operational.
I’ll ask our emailers that are using credit cards over the Internet to let us know and you can contact them. Others that are using credit cards include San Jose, California; Salt Lake City, Utah; and Calgary, Alberta.
I’m not positive about this additional list but they are also likely using credit cards: Apex, North Carolina; Atlanta, Georgia; Bend, Oregon; Cape Corel, Florida; Clark County, Nevada; Denton, Texas; Elk Grove, California; Gwinnett County, Georgia; Lincoln, Nebraska; Lynwood, Washington; Mountain View, California; Osceola County, Florida; Santa Clarita, California; and Seattle, Washington;
I don’t have much patience with auditors and financial departments dragging their feed on this. You shouldn’t have to be pushing them, they should take the lead. After all, we are in the information age. A high percent of businesses today take credit cards over the Internet. What do they know that we don’t know? Even my little firm, Zucker Systems, takes credit cards.
The Management Doctor
A city where I worked accepted credit cards for payments back in the 1990s. The CFO simply went to the bank and said, “you guys are holding $X millions of dollars for us every year. Our citizens use your debit and credit cards and pay you interest. We are here to serve our citizens, who are your customers too. What can you do for us?”
The bank, Wells Fargo, came back with a 0.25 percent (one quarter of one percent) fee. They told us that the balance was considered part of their CRI. That was a dollar amount we could absorb, and we started taking Visa and MasterCard. American Express matched it, so we added them to the list. Discover would not, and we did not take Discover.
Eric Jay Toll
We have been taking credit cards for years in San Jose as you noted Paul. We ran into the issue that Charles B. noted with our finance department in 2008 who was worried about the surcharges and wanted to charge the convenience fee that government at least in California have been allowed to charge to recovered the fee. That got me wondering about the number of transactions we do each year by the type of payment and amount of the transaction. What we found was that of the 1140 credit card transaction in Planning, 1000 of them were for less than $1,000 and 882 were less than $500. Assuming a 3% transaction fee (we have a better rate by contract) on a $1,000 fee is $30. We have the same ratios in Building, Fire and Public Works. I then asked the Finance Director what was our costs for staff to accept that same amounts of money by check and cash including collection costs to where it shows up in the program checking account. He never raised it again. We have toyed with a cap of $5,000 for credit cards but we do not have that big of an issue of large fees being paid by credit card.
The point is look at total cost of transactions. You have hidden costs built into your organization to wire receipts, handle cash, and chase bounced checks. When you look at total cost, credit cards are cheaper even with the 3% as we do not have bounced checks. Lastly, we are very deliberate at finding incentives for our customers to transact business on-line. The ability for our customers to go on-line to add inspection time or pay off balances without having come into the office is money saved as we do not then have staff writing out receipts and such. They can be working on projects. Lastly, we just adopted new building fees that cut in half our permit fees for certain applications that do not require plan review like water heaters when the permit is pulled on line vs. walking into city hall. Reward the behavior you would like to see.
This reminds me of what we go through internally with electronic signatures. I work in a field office and am always sending routine things like timesheets and leave slips back to the mother ship. We still require original ink signatures on these things for some reason. I can sell my house without an original signature. I can get a $50,000 car loan without an original signature, but I can t sign a leave slip. Go figure.
We’ve accepted in-person and over-the-phone credit card payments for the past six years and on-line payments for the past two years (for GIS maps) using PayPal. Feel free to pass my contact info along to Mr Miller.
The issue that we’ve had with the idea of taking credit cards is the fee. My understanding is that the fee is a percentage of the transaction cost (I think it’s typically 3%), and that it is illegal to pass this fee on to the customer. Therefore, the City must budget for this fee. For small amounts, such as user fees charged by Parks and Recreation, the fee is probably insignificant. But when you’re talking about large building and planning permit fees, the credit card fee can add up quickly. As an example, our Building Division collected over $2.8 million in fees last year. If all of those had been paid with credit cards (not likely, of course), at 3%, we would be looking at over $84,000 in credit card fees that the City would have to pay. We can’t afford that!
One option, of course, would be to factor this in as an “overhead” expense and increase all of our fees proportionally to cover it. Is that the same as passing the fee on to the customer, which is illegal? Another option that some retailers use, especially gas stations, is to offer a “cash discount”. Thus, credit card customers pay one price, and cash customers pay 3% less. This amounts to passing the credit card fee on to the customer, but for some reason it’s not illegal. Go figure.
We have talked about the possibility of having two columns in our master fee schedule, one “discounted” fee for payments by cash or check, and one “regular” fee for credit cards, although that seems a bit convoluted.
This fee issue is what our Finance Department always raises whenever we ask about taking credit cards. How have other cities dealt with this issue?
Charles S. Bryant
I recommend checking out Govpaynet at www.Govpaynow.com.
We just got it set up to allow people to pay for their permit and PC Fees via credit card but only in office right now. We can also take info over the phone just not the web. There is a fee but the fee is placed onto the customer using it. It was the easiest way to provide the “easy” convenient way to pay but not change our rates due to cost we would have to pay.
I know our County, Shelby County Indiana, has it setup that you can enter certain information via website and pay your tax bills so I assume there is a way to set it up for filing fees and permits.
Thanks for discussing this.
The response we have been given is the cost associated with the fee the credit card company charges for the convenience - something about we can't use tax dollars for this.
It'd be helpful to know if communities are simply eating this cost in their budget or passing it along to the customer as a "convenience fee" like colleges use for paying tuition.
David E. White
Accepting credit card payments whether online or at the counter for permits adds a new level of customer convenience but comes with some significant baggage. It will take more than superficial due diligence to peel back all of the layers of issues involved with credit card payments. Others have touched on some of the issues so I will focus on some things that were not mentioned.
Fee and Revenue Policy – Deciding to accept credit card payments represents a new and added cost of doing business. How the jurisdiction decides to recoup or cover the additional costs will ultimately be a policy question for the legislative body as part of the budget process. With some exceptions it has not been possible to directly charge a credit card transaction fee so the cost has to be absorbed somewhere. Like private sector businesses some jurisdictions estimate the annual cost and roll it into their cost basis. This has the effect of spreading the cost across all customers along with other sunk and overhead costs.
Bank Merchant Agreement – Whether the jurisdiction is entering into a new agreement or using an existing agreement, it is important that the conditions be fully understood before launching credit card payments for permits. Perhaps the most significant gotcha is the fact that most standard agreements stipulate that the jurisdiction cannot impose an upper limit on credit card payments. Probably not an issue for residential utility bills or recreation classes, but it could be a major issue if a corporate credit card is used to pay for a five, six or even seven figure permit fee.
Bank Merchant Fees – As others have mentioned, the merchant fee imposed by the bank can be negotiated. Less understood is the fact that the bank/credit card company will tack on many additional monthly fees that are all but indecipherable. A couple of examples from a recent city reconciliation report included Web Access Fee, $5.95, VISA Network APF ($0.0170XAUTH), $54.16 and others. On top of that even though the city has negotiated a base credit card fee, the actual final fee is dependent of the card issuer. This particular reconciliation report showed rates ranging from .05% + $0.22 (debit card) to 2.95%.
The Durbin amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 added new provisions that reduce the swiped costs for debit cards. The new interchange rate is $0.21 + .05% (or $0.22 + .05% in some cases). Use of a debit card requires the use of a PIN so its use is primarily limited to a physical point of sale.
Security – The Payment Card Industry (PCI) requirements for transaction security increase substantially as transaction volume/revenue increases. The use of a third-party payment service does not completely relieve the jurisdiction of all PCI security requirements; IT will need to be involved and may need to mitigate data transmission risks. IT operational and risk management policies also need to be in place up to date.
Credit Cards with Transaction Fees - If these issues are not enough, things are changing within the credit card industry. In the past couple of years the major credit card providers have been rolling out a new service which does allow certain government services to impose a separate transaction fee for the use of a credit card. Unfortunately this option alone is probably not going to be a magic bullet solution. Based on information from earlier this year the VISA solution required a fixed dollar amount for the transaction fee and Master Card allowed for either a fixed fee or a percentage. Given the extremely wide range of permit fees, it would be impossible to model a “fair” fixed transaction fee.
Payment Options and Channels – With credit cards added to the mix it is important to evaluate and understand that not every payment option will work in every situation. Cash or check payments will not work online for instant no-review permits, but might be an option for an online review type permit if an invoice can be produced. Other payment options include:
A recent class-action settlement with VISA and Master Card regarding merchant fees may bring more changes in the future. Whatever the mix of payment options it is critical that finance, IT and the department(s) are all on the same page and there is clear understanding of roles and responsibilities. It is unfortunate that this is all becoming complex and expensive but it is the reality of today.
Over the past 10 years MyBuildingPermit.com has issued and accepted credit card payments for over 70,000 online permits for 13 jurisdictions. Our experience has been that applicants are willing to pay for convenience and to save time. In an era that makes it difficult for staff to go to council with a request to increase fees we have been successful with enlisting the support of the development community to advocate for service enhancements and the fee increases needed to support the new services that the customer wants.