August 19, 2016
My Kind of Town
Payments experts and City Treasurers discuss the challenges municipalities face accepting online payments
By D.J. Murphy, Editor-in-Chief, CardNotPresent.com
As consumers become increasingly comfortable with shopping for—and paying for—retail products and services online, every entity that accepts payments is evaluating whether going online could potentially save them costs or make it easier for their customers to make payments. Municipal governments, more and more, are engaging in this evaluation process.
While the U.S. is climbing out of recession and into recovery, many of its cities and towns still are struggling with budget shortfalls and are looking for any way to increase revenues. Some city officials are looking at antiquated, paper-based payment systems and intuitively understand a more efficient system could save them money in the long run. Many have made the move to online payment acceptance already, but are working with multiple vendors for different types of payments and want to consolidate online payments to increase efficiency (hopefully saving them money) and to meet the increasing demand of their citizenry that wants to pay online.
In the end, the most important considerations for municipalities are: Who should I work with? How do I secure my system? What types of payments do I want to take? How do I handle fees?
The first three questions are interrelated. How comprehensive you want your online payment system to be will bear significantly on the vendor you choose to work with. And, whether you’re a city or town that currently has online payment acceptance capability or not, choosing a vendor with network security in mind is a must, according to Giles Witherspoon-Boyd, certified PCI Professional by the PCI Security Standards Council.
Municipalities don’t have the expertise in payments that retailers do, and data security has been a problem even for them, Witherspoon-Boyd notes. So, outsourcing the online payments function—along with the liability in the event of a breach—is vital for local governments.
“The amount of liability you have greatly increases with your online presence,” he warns. “Don’t process in a way you can’t protect. Get a system that’s tokenized, get one that’s point-to-point encrypted. Get one that’s all third-party outsourced once you put the information in so you’re taking as little liability as possible.”
Security must be part of the process of evaluating vendors, agrees Dave Gawenda, city treasurer for Madison, Wis.
“We don’t want to store any [personally identifiable information] and we never have,” Gawenda says. “When we began the process to identify a vendor for [online] utility and tax bills, that became an important part of that RFP. We want to be confident whatever vendor we chose complied with all PCI requirements and underwent regular annual audits. We’re relying on our vendor and bank to protect that information. We feel like we’ve been doing what we need to in this day and age.”
Witherspoon-Boyd acknowledges that implementing a secure system requires a significant investment, so municipalities need to make an informed choice about whether they even need online payment acceptance. But, if payments is your responsibility and you decide an overhaul is necessary, be prepared to fight for it. One thing a prospective vendor can do for an entity that might not have the right experience, he says, is help formulate a business case for the expenditure.
“Municipalities have been around for a long time,” Witherspoon-Boyd explains. “They don’t run with the same kind of margins as retailers, they don’t run with the same kind of business structure. I think they are in need of more help making business cases.”
Consolidation is Key
Many cities and towns have been accepting online payments for some time, but years of adding different types of payments (tax assessments, utilities, court fees, parking tickets, etc.) has resulted in a mishmash of vendors and systems. Dealing with that is another facet of how choosing a vendor can be challenging. Most municipalities want to simplify the process—for their citizens and themselves.
“People have been able to make online payments to the city since around 2002,” says Gawenda. “Each year we’ve tended to add a few more, but it’s been on an ad hoc basis. What we’ve tried to do, particularly since I’ve been here in the last year or two, is try to bring it under a single umbrella. Now it’s more trying to lead the consumers in a way that’s going to be beneficial for both of us. I want to provide choice for the citizen, but structure their choices in a way that will make it more likely they’ll be choosing something beneficial for the city in terms of keeping our costs down.”
Madison uses its bank to process online payments, but is in the process of selecting a vendor now to take over some of the high-volume transactions. In Virginia Beach, Va., Chief Deputy Treasurer Rickie Richards acknowledges that, once you’ve settled on your requirements, finding a vendor that can follow through is not easy.
“What we’ve been looking for is someone who could offer a one-stop shop, someone who could accept all different types of payment on one Website,” says Richards. “Everyone said they can do that, but when it comes down to the final product they can’t really do what we want them to do. We’ve looked at numerous vendors, we just have not been happy with the end product.”
In this situation, perseverance is the key. There is a vendor out there with the right product. Keep your requirements in mind until you find a supplier that can deliver, which Richards and Virginia Beach eventually did.
What Payments Make Sense Online?
Deciding what kind of payments to accept using an online system can also dictate the vendor a municipality chooses. Most start with property taxes and various recurring utility bills. As the officials in charge see that online payments positively affect revenue by making it easier for their citizens to make payments, they usually seek to add more. Gawenda points to parking tickets as an example.
“There are a higher number of unpaid parking tickets than other types of payments to the city,” he says. “So, the easier we can make that experience for the recipient of the ticket, the more likely they’re going to go through the process and pay us.”
When adding to the types of payments you accept online, make sure it makes sense for your city. Gawenda notes that, as home to the flagship campus of the University of Wisconsin, Madison has a younger population that is more likely to get parking tickets and more likely to access the Internet on their mobile devices. As a result, accepting payments for parking tickets makes sense, as does implementing a system that works on phones and tablets. For Richards and Virginia Beach, online payment might be more beneficial for other payment types.
“We’re constantly adding new products,” he says. “We recently started collecting delinquent court fines, forfeitures and restitution payments online. And, for those who have requested a payment plan, we’re going to allow those plans to be paid online using credit cards.”
What About Fees?
Another issue municipalities have to consider in a different way than retailers is how to handle interchange fees and other processing costs. Retailers can defray the cost of payment-card acceptance by raising prices on products. Local governments, especially in the case of taxes, are expected to provide a little more transparency on what they charge their “customers.” When a municipality decides to accept credit cards online, it also has to decide whether to absorb the cost or pass it on to citizens in the form of “convenience fees.” Increasingly, cities and towns are choosing the latter.
Madison, which is negotiating with prospective vendors right now to rationalize its online payment system, will move to the convenience-fee model whenever its new system goes online, Gawenda says. In the past, Madison absorbed nearly all of the cost. But, while researching other cities in Wisconsin and a dozen peer cities around the U.S. (around 243,000 people live in Madison), he found the “vast majority” charge their citizens a fee to make online payments.
For municipalities deciding to go this way, Gawenda says be prepared for criticism and offer a no-cost alternative.
“We’re in the process of moving away from a very nominal fee,” he says. “I specifically chose 25 cents because it was less than the price of a stamp, but when we first implemented it, I was surprised at how angry some people were.”
When the city finalizes its arrangement with its new vendor for utility bills and parking fines, its will add a convenience fee of $2. Gawenda says he “anticipates there will be people who object to that,” but will offer the alternative of paying online by eCheck at no cost.
One problem online retailers suffer from that municipalities don’t find as daunting is fraud. While e-commerce retailers are scrambling to protect themselves from the wave of fraudulent credit-card transactions that will hit after the implementation of EMV, Richards says that’s one area that’s not as much of a concern to him.
“I think it’s probably easier for us because we’re not providing anything [a consumer is] going to walk off with if it’s a fraudulent transaction,” he acknowledges. “We’ve had some fraud, but, in general, we know who it is that’s paying us. If someone is foolish enough to pay their property tax with a stolen credit card or if someone initiates a chargeback, we just put their payment back to unpaid. We’re going to collect the payment eventually.”
Clearly, the concerns of municipalities and other public entities that accept payments online—or want to—are very different. The motivations, however, are generally the same: make it more convenient to pay, driving more revenue.