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Utility companies accepting card payments is an extremely important topic that unfortunately doesn't get covered nearly enough. Thanks for stepping up to the plate to educate your readers on this crucial issue!
July 19
At least one city facing rising costs and falling revenues is eliminating broad credit card payment acceptance for utilities, underscoring a growing dilemma for many municipalities.
The city of Scottsdale, Ariz., on Sept. 1 will end its 15-year policy of accepting credit cards for utility-bill payments made by telephone or via its own website because of transaction-fee costs and security concerns, a city spokesperson says.
When the new policy takes effect, the city will accept only in-person credit card payments for monthly utility bills during business hours at its headquarters, the spokesperson says. Scottsdale residents pay one utility fee monthly for water, sewer and solid-waste removal services; bills routinely average $148.46 monthly.
Scottsdale officials say the new policy will save the city more than $350,000 annually and will reduce its potential exposure to fines and fees for credit card data-breach risks by millions of dollars.
The city has received many complaints from customers about the policy change, the spokesperson tells PaymentsSource.
“People are mad,” he says. “They don’t like the change, and a lot of them are saying they will punish us by going back to sending checks, which they think are a bigger hassle for us.”
But checks cost the city “far, far less” to process. And because the payments are associated with utilities, fraud and bad checks are “inconsequential,” the spokesperson says.
Other municipalities also may face consumer ire by cutting off credit card payments, Nancy Atkinson, a senior analyst with Boston-based Aite Group, tells PaymentsSource. “Consumers like paying their bills with credit cards because they look to make routine payments like utilities as late as possible, and credit cards accomplish that pretty neatly while also delaying their out-of-pocket expenditures,” she says.
But cities nationwide are “feeling the crunch of tight budgets,” and more cities may follow Scottsdale’s lead, Atkinson says.
“Organizations looking at their costs are focusing on credit card transaction fees, which include a chunk of interchange, and municipalities are in the unique position of being able to say no to cards because their customers are obligated to pay one way or another. That’s not true of retailers; they have to take card payments or risk losing a sale,” Atkinson says.
MasterCard Worldwide says it does not view Scottsdale’s new policy as evidence of a trend. “In fact, consumer bill payments and payments to government entities via payment cards are both categories that have been growing for us,” a MasterCard spokesperson says.
A Visa Inc. spokesperson says thousands of utilities around the country continue to accept Visa as a convenient, reliable and secure way for consumers to make payments. In addition, utilities can gain efficiencies by accepting cards, including on-time payment, streamlined account management and potentially reduced expenses compared with those that would normally be associated with cash and check handling, he says.
“Visa payments provide tremendous value, and in the long run reduce costs for handling checks and cash,” the spokesperson says.
Scottsdale’s data show otherwise.
Some 20% of the city’s 90,000 utility customers routinely pay via credit card, primarily by phone and online, according to a city report. Another 44% pay their bills via paper check, 24% through online-banking services, and 12% directly from their bank accounts via the automated clearinghouse system through SurePay, a third-party service the city provides.
But credit card utility payments cost Scottsdale approximately $1.67 each to process, far more than other payment options, amounting to more than $350,000 annually on more than 200,000 individual credit card payments, according to the city’s data.
Paper checks and ACH payments cost the city approximately 5 cents each to process, while payments through online-banking sites cost a fraction of a cent each to process, according to the city’s report.
Scottsdale officials also calculate that the city risks exposure to approximately $70 million in potential fines and fees in case of a major credit card data breach, based on requirements to comply with the Payment Card Industry Data Security Standard. Eliminating routine credit card acceptance for utility payments by phone and online from the city’s Web site will reduce Scottsdale’s exposure to potential data-breach costs by about half, the city says.
“Simply moving most credit card payments to in-person transactions will reduce a lot of the potential card-fraud risk,” Atkinson says.
Utility payments account for the majority, about 57%, of Scottsdale’s estimated $41 million in credit card payments received annually, the city says. Court fees represent 26% of card payments, and community services and other miscellaneous fees make up the remaining 17% of credit card payments. So far, the city plans to continue accepting credit cards for nonutility payments, the spokesperson says.
To help ease the transition from credit cards, Scottsdale is establishing a new website payment option that enables customers to pay utility bills directly from their bank accounts through ACH channels, augmenting its existing SurePay service. The new service will cost the city 25 cents per customer per month for those who use it, plus 5 cents per transaction.
The city will require those choosing its new ACH option to sign up for electronic billing, and costs will be offset by reduced bill-mailing expenses. Scottsdale estimates that it costs about 50 cents to mail each customer utility bill.
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