PURPOSE

To update the City Council (Council) on credit card fee reductions and to request approval of an agreement with Official Payments Corporation to accept electronic checks.

BACKGROUND

At the March 16, 2004 meeting, the Council approved an agreement with Official Payments Corporation (OPC) to act as the City�s third-party administrator for the acceptance of credits cards.  Using a third-party administrator allows each customer to make a personal choice for management of their finances and ensures that the cost for this convenience is borne by those that use the service, rather than the entire rate paying community.  

Staff explained that if BWP were to absorb the fees related to credit card payments, the liability could grow significantly; this is particularly true if the customers with larger bills choose to pay their Municipal Services bill with a credit card.  There are quite a few businesses in the community whose monthly bill falls within this range and several had expressed interest in paying with a credit card.   If BWP were to absorb the credit card fee as a cost of doing business, a single payment of $50,000 would cost $1,000 to process and a $300,000 payment, over $5,000. Over the course of one year these fees would certainly add up and staff recommended that it would be fiscally imprudent to assume this liability.  The majority of utilities accepting credit cards at this time use a third-party administrator for precisely this reason.  Two large utilities currently absorbing the fees are considering switching to a third-party as their costs soar.

Upon implementation in April, OPC�s fee structure was $4.95 for the first $100 payment.  The fee went up for each $100 payment increment so that a $300 payment would cost a customer $15.95; $1,000 payment would cost $59.95.   Council expressed concern that the fees would deter customers from using credit cards and asked staff to return with a report on customer acceptance.

ANALYSIS

When staff addressed the Council in March, the expectation was that BWP would accept MasterCard, American Express, and Visa credit cards.  However, as we began implementation we found that Visa would not participate in a sliding scale fee program.  This was a great disappointment since most of BWP�s customer use Visa to pay their bills.  During the weeks after the April 1 implementation date customers were very vocal about their dissatisfaction with the new program.  It is true they did not embrace the concept of the fees but more than that they wanted us to accept Visa.

Prior to using OPC, about 500 customers each month paid their bill with a credit card.  In April, usage fell to 43 transactions and increased slightly in May to 85 transactions. Based on Council and customer input, staff contacted OPC to talk about ways to include Visa in the credit card program and to lower fees.   After several weeks of negotiation OPC lowered their fees and offered a new schedule in which all card companies were willing to participate.  The new schedule is a win-win for BWP and its customers!   The fee is $4.95 for every payment up to $300.  Here is a quick comparison of the old schedule to the new schedule.

The new fee structure and acceptance of Visa went into effect on June 15 and we saw an immediate increase in credit card activity.  By the end of June 238 transactions had been completed.  July showed a similar increasing trend with 300 transactions.  Staff has confidence that usage will continue to increase over time as customers become more aware of the option to pay with a credit card over the telephone and internet.

During the negotiations, OPC also revealed another convenient payment option for our customers, electronic checks.   Electronic checks are used through the internet making them as convenient to use as credit cards.    However, the fees for using electronic checks are considerably less than the regular credit card fees.  With an electronic check a customer would pay a $5 fee for amounts up to $10,000 and $20 for amounts over $10,000.  

Electronic checks can be used in two ways.  Either direct debit from a bank account or direct charge to a credit card through the use of convenience checks.  Convenience checks are offered through credit card companies for customers to use with retailers that don�t accept credit cards.   The customer uses them like a check but the transaction gets applied to the customer�s credit card. 

Enhancing our payment options by accepting electronic checks provides another convenient option for our customers and moves us another step closer toward achieving an environmentally friendly, paperless customer service operation.

Here is a quick summary of all our payment options:

FISCAL IMPACT

There will be no fees or charges incurred by the City.

RECOMMENDATION

Staff recommends that Council adopt the resolution authorizing Official Payments Corporation to handle electronic checks on behalf of the City of Burbank.

RD:JF:jf

Fee update-electronic checks-stf rpt 8/31/04.doc

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