How local and state government can reduce payment processing costs
In a time of budget uncertainty for local and state governments, one of the most impactful things you can do is reduce the costs of processing payments. The approaches below are a win-win for improving customer experience with technology modernizations and fewer convenience fees, and for reducing operational costs and streamlining revenue management.
Encourage payment by bank account
Processing costs for ACH/eChecks (i.e., payments by bank account) are significantly lower than credit cards. Credit cards, on average, cost about 2% of the transaction total, but eCheck payments cost about $0.20 per transaction — and there’s really no downside. As you start to get into higher dollar amounts, the 2% cost of processing credit cards can get high. Options to pay by bank account provide a lower cost option for you to process, and they can also allow you to provide lower cost or free options for your customers to pay.
Encourage your customers to pay using ACH/eCheck:
- Present the option to pay by bank account in the same place customers can pay by credit card, rather than making it a separate or confusing workflow
- Be transparent about added card processing fees at the time a person makes their selection between card and check; don’t wait until the end of a payment flow to show fees
- Provide a simple and secure option for people to store their bank information, making it easier for them to pay by bank account next time, and even allowing them to schedule automatic future and recurring payments using their preferred payment method
Optimize interchange rates
Work with a vendor who can provide level two and three data when processing transactions is an effective way to lower interchange rates. As you provide more of these data fields, such as transaction date or item description, card brands will move you into more favorable interchange categories. Learn more in this simple guide to government service fee models.
Understand MCCs and transaction fees
Certain Merchant Category Codes (MCC) are eligible for either lower or fixed interchange categories, specifically for utilities and government merchants. Additionally, if you fall under a government MCC, you are allowed to charge service fees for your transactions. Convenience fees can be charged under any MCC for transactions that use a convenient alternative to your primary payment channel.
Reduce your burden for PCI compliance
If you take credit card payments, you are required to be PCI compliant. The Payment Card Industry (PCI) Standards Council is the governing body that outlines the security criteria that organizations must comply with in order to achieve and maintain PCI compliance. The the amount of work for maintaining PCI compliance can be costly and overwhelming. One of the most effective ways to reduce or eliminate an organization’s PCI burden is to partner with a third party merchant service provider whose solution can reduce your PCI compliance overhead. By working with a PCI Level-1 compliant payment platform like CityBase, governments and utilities drastically reduce the costs of maintaining compliance, and their customers benefit from best-in-class security that keeps their information safe.
Work with a PayFac to reduce third-party fees
Reduce costs by reducing third parties. The more vendors that are involved, the more fees that are assessed for transactions. Third parties provide the technology layer that is in between the merchant and acquirer, but there are other roles that can reduce the amount of players. A designated Payment Facilitator (or “PayFac”) like CityBase fulfills the role of technology vendor and legal agent of the acquirer. They can lower processing costs by removing third-party gateways.