Delaware.Net has built many websites for municipalities, and one of the major reasons why we are chosen for projects is our integration of the public website with complaint systems, content management systems, mass emailing systems, intranets, project management and – online bill-pay systems (or OBPP). A solid municipal website design effort requires all of these components to be successful, and an online bill-payment is one of the most important features that municipalities need. In this article, I will provide an overview of what is involved in building one of these systems, so that your city/town can plan how to integrate a bill-pay system.
Cities need to provide real-time bill payment options online
Municipal customers expect to find convenience features in their local municipal website. With the mass adoption of broadband, online banking, ecommerce, and web applications, it is no longer a novelty to add an online bill-pay system to a municipal website. Delaware.Net builds real-time online bill-paying services for small and large towns, as well as corporations and utility companies. When complete, city customers can look up their account online securely, and pay their outstanding balances using a credit card. We can integrate with any popular billing package that runs on an SQL database server, or that has an import/export API (Application Programming Interface). The API serves as a gateway that allows us to look up and insert successful payment information into a municipal billing system.
Who pays for credit card fees?
An important challenge we have seen in working with large municipalities and utility companies is determining who will pay the fees that merchant providers charge. To accept credit cards online, there will be typically two fees involved; the merchant account fee, which is a percentage of each transaction, and the payment gateway service (such as Authorize.net), which makes the transaction real-time in your website. If you simply tack-on these fees to the bill amounts that your customers are paying, then they will generally not use your online bill-pay system. Why? Because postage stamps are always going to cost less than the fees that you add to the transaction if they are percentage-based. Since your customers are able to gain convenience by using the website, and since your city employees won’t need to open paper envelopes and process checks (expensive in labor costs), the online fee amounts are generally a wash if the transaction amounts are under $500 on average. For this reason, you may want to limit the total amount that can be transacted through the website, to minimize fee exposure, or you can calculate your total cost of providing the online bill-pay service and incorporate it into your fee structures across the board.
How NOT to introduce online bill-pay to your customers
I witnessed one utility company that had a successful online bill-pay system, and then outsourced it all to a separate bill-pay company so that they would not have to worry about the fees any longer. The problem was, each bill had $20 tacked on as a service fee. It really looked and felt like a bait-and-switch to the utility company’s customers, because they would start to enter payment information and then get hit with the $20 transaction fee. As you can imagine, customers stopped using the service almost immediately.
How much are the credit card fees?
There are two primary fees involved in accepting credit cards online. The first is the payment gateway service, and the second is the merchant account fee.
The payment gateway service is straightforward and inexpensive. Typically they are $90 – $140 to setup, and then you have a $10 per month fee, and a 15 cent transaction fee. The payment gateway talks to the card issuing bank, the card companies (Visa, MC, Amex, Discover), and your merchant account. The payment gateway service is required for real-time transactions.
Merchant account fees are where things can get expensive. With fees generally between 1% and 3% of the total transaction amount, with the average being about 2.3%. In my opinion, a municipality should never pay more than 2% for merchant account fees. This is because merchant account providers use a risk assessment chart to calculate your fees. I have seen these charts, and you can find them if you do a web search. The lowest credit card fees are 1%, and this is typically the rate for a grocery store – they ALWAYS get the lowest rates. A typical mom-and-pop web business can get about 2.3%. As a municipality, your transactions are much more trustworthy than a typical online retailer. It is important to note that ALL MERCHANT ACCOUNT FEES ARE NEGOTIABLE so you MUST shop around.
Why you shouldn’t just sign-up for a merchant account from your bank:
A common mistake that I see is when an organization goes to their bank for a merchant account. This is because the vast majority of banks simply RESELL merchant accounts from one of the large merchant account providers. You should shop around and get a quote from several companies so that you can get the best rate. Even a fraction of a percent difference in cost can add up to big dollars in savings when you obtain a merchant account. I have dealt with MANY different merchant account providers over the years, and you need to be careful to make sure that they have experience with online transactions. Surprisingly – many do not. We have worked with PNC Bank corporate as a reseller of their merchant account, but we in the end, they too were simply reselling someone else. Today, we have a close relationship with a merchant provider that has superb rates, and they offer great customer service. I can’t post the name here, but contact me directly (888-432-7965 x100) and I can give you their name.
Integration with billing systems
While it may sound impressive to have a real-time synchronization between your billing system and your website, this is typically not how the two systems interact with each other. A batch import/export system that can be automated to run each day (or each hour) is much more reliable than a live data connection between both servers. This is the only way that we build our payment systems. The payment transaction is real-time, but the synchronization with your billing system is not.
Security and Data Storage
Unless requested by our customers, we do not store any credit card data or financial data that comes through the payment systems. We simply pass the transaction information to the payment gateways, and insert the “approved” or “declined” codes into the data tables that we synchronize with your billing system. All of our web accessible payment forms are secured with 128bit SSL security, which is the same as an online banking website.
If you have any additional questions about municipal online bill-pay systems, visit our website at www.delaware.net and shoot me an email.
