This item stems from an October 13, 2021 referral (attached) initially sponsored by then Commission Ricky Arriola and now sponsored by Commissioner Alex Fernandez. The City is implementing a modern payment service to enhance the utility billing (UB) and other financial services for both residents and businesses. This initiative aims to provide a consolidated, one-stop shopping cart experience in the Resident Access Portal, thereby modernizing and streamlining the City’s digital services. The following outlines the proposed service, including an exploration of fee structure options, industry standards, and the financial implications of these options. Traditionally, the City has employed a segmented approach to collecting payments for various services, including utilities, permits, parking and fines. This method often resulted in inefficiencies, a higher administrative burden, and a less user-friendly experience for city residents and businesses. Recognizing the shift towards digital solutions and the growing expectation for convenient and integrated service platforms, the City initiated a review to identify opportunities for improvement. This led to the proposal for a modernized payment system that aligns with current technological capabilities and customer expectations.

Modern Payment Service Overview

The payment service will offer a seamless online experience for users to manage and pay for multiple services through a single interface. This platform will support various payment methods, including credit cards and e-check/ ACH (Automated Clearing House) transfers, among others.

Fee Structure Options

1. City Absorbing Transaction Fees (current model): This model involves the City covering all transaction fees, which encourages residents to use credit cards instead of lesser expensive transactional processes such e-checks/ACH. This approach promotes ease of use and may increase customer satisfaction; however, it also results in the City incurring financial burdens, particularly with credit card transactions that have higher fees. Absorbing credit card fees effectively subsidizes card users at the expense of those who pay with e-checks/ ACH, cash, or other methods.

2. Passing Fees to Customers: Alternatively, the City could pass transaction fees directly to customers. This method is transparent about the actual costs associated with various payment methods but might discourage some residents from utilizing the digital payment service, especially for high-fee payment methods like credit cards.

3. Hybrid Approach: A compromise involves absorbing nominal e-check/ACH transaction fees, given their relatively low cost, and passing credit card transaction fees to customers. This approach balances financial impact with customer convenience and is aligned with practices at the county, state, private sector, and in several other municipalities.

Most modern digital payment platforms offer flexibility in handling transaction fees. It is common for businesses and government entities to employ a hybrid fee structure. According to industry standards, the average cost for processing credit card payments ranges from 2.5% to 3.5% of the transaction amount.

E-check/ACH fees are typically much lower, and as a general guideline, interchange fees for these transactions can range from around 0.05% to 1.5%.

Cost Analysis

Absorption (current) model:

· .4% (negotiated from .5%) per transaction total plus $0.30 (negotiated from $0.50) on point of sale and online transactions.

· IVR phone payments add $0.50 fee per transaction for utility billing and general billing transactions.

· e-Checks carry a $0.95 fee per transaction (negotiated from $1.95).

· Interchange rates are determined by credit card providers.

Pass through model:

· No per transaction fees for the City.

· Customers 3.5% (negotiated from 3.9%) per transaction total with a minimum of $2.50 on any utility billing, general billing, and non-Tyler Technologies applications.

· IVR phone payments add $0.50 fee per transaction for utility billing and general billing services.

· E-Checks carry a $1.50 fee per transaction. (negotiated from $1.95)

· Permitting, Planning, and Code charge a per transaction rate of 3.9% with a $2.50 minimum.

Hybrid Approach (recommended):

· City covered cost:

o No per transaction fee to the City for credit card transactions.

o E-Checks carry a $1.50 fee per transaction. (negotiated from $1.95)

· Customer covered cost:

o Customers 3.5% (negotiated from 3.9%) per transaction total with a minimum of $2.50 on any utility billing, general billing, and non-Tyler Technologies applications.

o IVR phone payments add $0.50 fee per transaction for utility billing and general billing services.

o Permitting, Planning, and Code charge a per transaction rate of 3.9% with a $2.50 minimum.

Update: Post April 19, 2024 FERC Meeting

After discussions at the April 19, 2024 Finance and Economic Resiliency Committee (FERC) meeting regarding allowing UB customers with smaller bills, such as single-family homes, to not have to incur the credit card fee, a path that would limit City’s exposure to the high credit card fees while allowing some account holder to use a credit card with the City absorbing the fee was found. After additional discussions with Tyler, a limit in the amount allowed to be charged on a credit card can be put in place. This would allow UB customers with smaller bills to still use a credit card free of fees while larger accounts would not have access to use the credit cards feature but would use the free to the customer e-check or paper check payment method. The average single family home’s monthly utility bill which includes water, sewer, stormwater, and sanitation is $289.79.

After consideration of the options and analysis of industry standards, the recommendation is to adopt the hybrid fee structure for the City’s new payment service. This hybrid model promotes the adoption of digital payment services by balancing user convenience with financial sustainability. Additionally, it aligns with industry standards and practices, providing a competitive and user-friendly payment solution for city residents and businesses. This model allows for a continued no cost payment processing option via e-check/ACH while passing on expensive credit card fees to those customers that choose that option.

If the Committee is interested in allowing UB customers with smaller bills to not be charged any credit card fees, it is recommended that the Committee return the item to Commission with a favorable recommendation to utilize the hybrid approach for transaction fees for all non-UB transactions as allowable and for the City to absorb all transaction fees for UB with a limit on credit card charges to $500 per transaction.