HomeMy WebLinkAboutItem 91
City of Lakeville
Finance Department
Memorandum
To: Mayor and Council
From: Jerilyn Erickson, Finance Director
Date: July 24, 2017
Subject: Utility Billing Credit Card Fees
The purpose of this agenda item is to discuss the current practice of charging a convenience
fee to online credit card payments for utility bills. This was originally brought before the
Council at their October 24, 2016 work session. Council advised at that time to continue the
fee for credit cards and promote the other methods of payment.
Staff has conducted additional research and analysis on credit card fee options as well as the
concept of absorbing the credit card processing fees for utility bills and the impact that it would
have to the budget.
One option that was not previously presented was the special rate eligibility. If the City were
to absorb the credit card processing fees, we would qualify for a special rate that is offered to
government utilities by the credit card companies. We do not currently qualify for this special
rate because we pass along a convenience fee nor would we qualify if we passed on a service
fee (percentage) – VISA rules forbid charging any fees to the customer under this model.
Below is the estimated impact by using the special rate that is offered and removing the
convenience fee.
Special Rate – No fees paid by customers
Current 2017 2018 2019
Estimated adoption rate 6% 11% 14% 17%
Estimated Annual Cost $6,200.00 $12,400.00 $15,500.00 $18,600.00
Number of Accounts (approx.)19,000 19,000 19,000 19,000
Number of bills (approx.) 76,000 76,000 76,000 76,000
Cost per account $0.32 $0.65 $0.82 $0.98
Cost per bill $0.08 $0.16 $0.20 $0.25
The estimated transaction fees could range anywhere from approx. $0.95 to $4.35 with most
settling, on average, less than a dollar.
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Based on discussions with vendors, under the convenience fee model it appears credit card
payments will peak in 2018 at about 10% of total collections; whereas, if the fee is removed, the
adoption rate apex is estimated to be reach 18% to 20%.
What the above calculation doesn’t consider is the probable movement of these same
customers from paper billing to electronic billing and the savings of approximately $0.55/bill
or $2.20/account/year. This would more than offset the cost of absorbing credit card fees.
It’s important to also note the continued growth of the City and the corresponding increase in
the number of utility accounts being administered. Since the end of 2013, we have added over
1,600 accounts.
Based on survey conducted by PSN of their 769 municipal/utility clients, less than 50 percent
of them pass on the service fee. In Minnesota, of their 95 municipalities, only 25 percent pass
on the service fee model and less than 7 percent pass on the convenience fee model. The
majority of cities are absorbing the fees as a cost of doing business and increasing their
adoption rate of both electronic payments and bills. The cities that were listed as passing along
a fee were much smaller (population less than 15,000).
In the LOGIS consortium, only Lakeville and Coon Rapids are currently passing along a
convenience fee to their customers for using a credit card for utility payments. Our
neighboring cities (Eagan, Apple Valley, Burnsville) absorb the fee as a cost of doing business.
Our citizens have been asking for a more user and payment friendly option and this would
remove the barrier for them. This will significantly reduce staff time spent on processing
manual transactions (checks/cash) that can be reallocated to addressing customer needs for a
rapidly-growing customer base
This fee change would be implemented as part of the roll-out of the new Utility Billing portal
which is being required by LOGIS before yearend 2017.
Recommendation
1. Remove the convenience fee for utility bills on the fee schedule; city would absorb the
transaction fees;
2. Promote both the electronic payments and electronic bills to citizens.