The Impact of Convenience Fees on Online Payments
When it comes to accepting electronic or online rent payments, every property management company (PMC) wants the same things: maximum convenience and choice for residents at minimal cost to property owners and staff. More than ever before, residents demand the ability to pay online – or even with their mobile phones – any way they choose.
As PMC’s adapt to changing resident demand, convenience fees have become a key component of the industry’s payments strategy. Many PMC’s now charge a convenience fee to offset their processing costs – especially for more expensive credit or debit card transactions. When formulating a payments strategy, it’s important to understand the rules governing convenience fees, as well as the impact of convenience fees on transaction volume, before determining the best strategy for your communities.
Convenience fee rules
Convenience fees are governed by the rules set by the credit card associations (Visa, Mastercard, Discover). Anyone who wants to accept payments via credit card must agree to the regulations set by these card networks. Visa, in particular, has set fairly stringent requirements regarding convenience fees. Among Visa’s rules are requirements that any fee must be:
1. Added only to a non-face-to-face transaction. You may charge a convenience fee for online or over-the-phone payments, but not if somebody brings a check, money order, or credit card into the leasing office.
2. A flat or fixed amount, regardless of the value of the payment due. You may set a convenience fee at $3 or $30, but the same fee must apply whether the transaction itself is $50 or $5,000. You cannot charge a percentage-based fee.
3. Applicable to all forms of payment accepted in the alternative payment channel. If you want to charge a fee for online credit card transactions, the same fee must apply to online ACH transactions.
4. A convenience fee must not be added to a recurring transaction. If you support recurring payments, you may not charge a convenience fee on those transactions.
5. A convenience fee may not be charged by any third party. A PMC may charge a convenience fee to offset its processing costs; however, a third party (such as the payment processor) may not charge a convenience fee directly to residents.
If you decide to accept Visa payments, it is important to keep these rules in mind. Failure to comply with these rules would be a violation of the merchant agreement and could result in legal action being taken by Visa.
Impact of convenience fees on online payments
When formulating an online payments strategy, one other factor to keep in mind is how convenience fees will impact your online payments solution. If a convenience fee drives residents away from online rent payments, it may not be worth it.
In studying transaction volume, we’ve found that many residents are very sensitive to convenience fees, and are unwilling to pay even a small fee to process an ACH payment. When given the opportunity, nearly 30% of residents choose to pay online for free. However, when charged even a small fee of $1-$5, more than half of those residents abandon online payments and choose to take a check to the leasing office instead.
(The one exception to this is in student housing, where students – or their parents – are typically willing to pay up to a $20 fee to pay rent online.)
Low-cost recommendations for online rent payments
So, what is the best way to give residents the convenience and choice that they demand without incurring too much cost to the PMC? Here are several potential models for success.
Free online ACH
The most popular option is to offer residents the ability to pay rent online for free with their checking or savings account, and not to accept credit or debit cards at all. Residents gain a no-cost online payment option, and PMCs do not have to incur expensive credit card interchange fees. This model delivers on convenience and cost, but does not give residents the choice to pay with credit and debit cards.
Free online ACH and cards
You may also choose to allow residents to pay rent online with a credit or debit card with no convenience fee. Recent regulatory changes have lowered debit card processing rates – which account for 70% of all card volume in the multifamily housing industry – so processing card transactions is less costly than ever before. Even so, card interchange rates are much higher than ACH transaction fees, and this option may be prohibitively expensive for many PMCs. It offers maximum convenience and choice to residents, but doesn’t deliver on cost.
Recurring ACH model
If you want to offer residents the choice to pay with a credit or debit card, recoup costs through convenience fees, and still enjoy the convenience of online payments, then you will want to pursue a payments model that targets recurring ACH transactions. Because Visa rules prohibit convenience fees from being levied on any recurring transactions, you may offer recurring ACH transactions at no cost even while you levy a convenience fee on all one-time transactions. This effectively gives residents the option of paying a fee to make a one-time credit card payment, or setting up a recurring ACH payment for free.
The key to this model is communication. If residents are educated about their options, they will likely be excited about recurring payments. Otherwise, they may see the convenience fee and avoid online payments altogether. But with consistent communication and marketing, PMCs who employ this model successfully can offer their residents maximum choice and convenience at minimal cost.