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How do Service Fees Impact Online Payment Adoption?

By Anita Peterson

Convenience and service fees are typically unavoidable when it comes to digital payments. These fees are consistent across the electronic billing presentment and payment (EBPP) space, as providers must meet the standards that credit card companies have established over the last decade. 

But why are these fees necessary? Do organizations really need to charge a fee for convenience? 

For InvoiceCloud, we charge service fees for a few reasons: 

  • One is to cover the cost we’re charged by credit card networks 
  • The second is that the revenue we make from a portion of each convenience fee goes towards employing our staff (like the hardworking IC engineering and implementation teams we’ve talked about in the past) and improving our product to make billing and collections consistently painless for you and your customers. 

However, these fees aren’t randomly assigned or necessarily hurtful to online payment adoption. Let’s dive into how InvoiceCloud determines its convenience fee structures and how some billers have thrived by leveraging fees to their advantage. 

How does InvoiceCloud assess fee structures for billers? 

This can be complicated, but InvoiceCloud uses industry standards as its measuring stick and offers two types of convenience fee models: either the biller or the customer can pay the cost of the fee. When the service fee is being passed on to the payer, it can be charged as a flat fee or a percentage-based fee. 

Percentage-based rates 

Percentage-based convenience fees follow credit card network rules, which has an industry standard of 2.95%. Depending on the volume of bills you have, this may decrease to 2.4% as high billing volumes often balance out to a slightly lower percentage. 

Local government billers typically prefer a percentage-based fee since taxes can have a huge variance from person to person — for example, some taxpayers may pay $800 in property taxes while others pay $10,000, so it can be difficult to choose a fair flat fee. 

Fixed rates  

A fixed or flat rate is a calculated fee amount to cover costs and make revenue. When trying to determine a fixed rate, the type of card you use matters. For example, if a bill payer is using a corporate credit card with perks – the more rewards the customer gets, the more expensive it can be for InvoiceCloud to process the payment, so the rate will be higher. 

When it comes to fixed rates for utilities, building permits, and more, the model is dependent on your average bill amount and the number of monthly invoices. This structure simply isn't sustainable for all types of bills or all types of payment methods. For example, VISA credit cards were once not an acceptable payment method for property taxes, as VISA only accommodated flat or fixed rate fees. Nowadays, percentage fees are the favored structure for property tax payments because, as stated above, tax payments can wildly vary in size from person to person, opening VISA up as a viable payment option.

Additionally, for consistency purposes, InvoiceCloud allows billers to receive the same type of fee structure across payments. For example, if a customer is paying a percentage on tax payments, InvoiceCloud allows that customer to also pay a percentage-based fee for their utilities, as well. 

Trusting InvoiceCloud with your fees 

At InvoiceCloud, we follow the models that the credit card industry has set, but we try to get creative. We’ve been known to make special changes to fee structures based on the volume of monthly bills and biller negotiation, so the structure can range from biller to biller. But note, InvoiceCloud only allows billers to pass convenience fees onto their payers for government bills (i.e. taxes), so taxes won’t be raised as a result of your organization offering customers the option to pay by credit card. 

It’s certainly a complicated subject, and with ever-changing rules and with new types of fees that are constantly popping up, it can be overwhelming to keep track. At InvoiceCloud, we want to make things as simple as possible for the biller, so we’re always keeping up with the latest standards. As the billing experts, we’re committed to keeping our clients protected by allowing them to offload their compliance liability and rest easy, knowing InvoiceCloud is charging fair and compliant fees. 

Arlington, TX Water Utilities saves $900k/year with InvoiceCloud service fees

Because InvoiceCloud works to establish a fee structure that is unique to your organization, our convenience fee model has seen tremendous success. This success can be seen in our work with Arlington Water Utilities of Arlington, TX. This large, southwestern utility has seen amazing adoption results from instituting a convenience fee, leading to the organization saving tremendous revenue that it was able to pour back into its community. 

With InvoiceCloud’s convenience fee model, Arlington Water saved up to $900,000 in annual operational costs, all while offering a superior digital payment experience that reduced call volumes and saved staff countless hours of daily, manual work. 

"We feared a major reduction in digital payments due to implementing a convenience fee,” said Matt Peters of the City of Arlington’s Water Utilities Department. “We were pleased to see, despite adding the fee, with the InvoiceCloud platform, we reached our previous adoption levels in less than three months and continue to see growth in adoption well above previous levels.” 

The City of Arlington has also been able to reduce water rates and enable city funds to be allocated elsewhere. “The avoided costs Arlington has seen each year since implementing InvoiceCloud translates into significant benefits for our city, whether that is helping keep water rates some of the lowest in North Texas or providing extra funds to replace critical infrastructures like aging water and sewer mains,” says Craig M. Cummings, director of Arlington Water Utilities. 

Why are billers absorbing fees? 

Absorbing fees is one small way many billing organizations have responded to the growing customer demand for frictionless online payment experiences and absorbing fees can significantly increase online payment adoption for your organization. 

Fee absorption happens when a billing organization covers the fee that customers might typically have to pay to make online payments. Absorbing an online fee isn’t the same as waiving that fee — in this case, the billers pay the processing fee on behalf of their customers. Naturally, this has become an increasingly popular trend among billing organizations worldwide, especially during the COVID-19 pandemic. 

According to an InvoiceCloud research report, the State of Online Payments13% of payers prefer not to make payments online simply to avoid the service fees. By eliminating these service fees and letting your customers know your organization will absorb them, your organization may see an increase in online payments. For InvoiceCloud clients who tried out fee absorption in 2020, 17% of them decided to continue absorbing fees indefinitely, partly because of the time saved from the spike in adoption. 

Increased adoption for online payments means significantly less time will be spent by your staff on manual processes like answering calls, mailing paper bills, and processing paper checks. This not only conserves organizational funds associated with these processes but also allows your staff to focus on higher priority projects. 

Plus, for organizations who choose to absorb service fees, InvoiceCloud will absorb some of the cost and work with billers to help make digital payments accessible and affordable for your customers. 

Responding to customer complaints about service fees: secrets from our Customer Success experts 

Inevitably, our customer success team does receive complaints about paying a service fee, and they completely understand the frustration. Our team does its best to remind customers that these fees aren’t unique to InvoiceCloud. In fact, most online payment experiences, especially when it comes to online billing payments, require them. Also, even if there is no service fee tacked onto certain payments, that money will inevitably come out of billers’ pockets one way or another — for example, lack of convenience fees may make it easier to get people to pay online, but there may be a hike in taxes in response. 

For most customers, the small fee is worth the convenience of being able to pay a bill quickly and efficiently online. In fact, 41% of online bill payers say they choose to pay their bills online simply because of the convenience! 

Want to learn more about InvoiceCloud’s uniquely designed digital payments platform? Schedule a no-obligation, 30-minute call with one of our product experts today. 

Tags: adoption, client stories, customer experience, user experience, customer frustration, online payments

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