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Home My WebLink About5J UB Electronic Statement and Payment O � PKIp ti � V � 4646 Dakota Street SE , Prior Lake, MN 55372 � CITY COUNCIL AGENDA REPORT MEETING DATE: October 28, 2013 AGENDA #: 5J PREPARED BY: CATHY ERICKSON, ACCOUNTING MANAGER PRESENTED BY: JERILYN ERICKSON, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF RESOLUTION AUTHORIZING A CONTRACT FOR ELECTRONIC STATEMENTS AND PAYMENT OPTIONS FOR UTILITY BILLS. DISCUSSION: Introduction The purpose of this agenda item is for the Council to consider whether or not transaction costs incurred for electronic payments of utility bills should be considered a cost of doing business and absorbed by the City or paid by the customer. Hi StOry In an effort to improve customer service, improve the billing process and share usage information, the Finance department has been working to migrate our billing and related functions from paper to electronic media. We have changed our bill so it contains greater utility related information for the customer. Our next step is to offer eCheck and debit/credit card payment options to customers, in addition to the ACH option which has already been well accepted. Current Circumstances The City currently offers an ACH payment option (payments automatically withdrawn from customers' accounts on the due date) and accepts payments through 3�d party providers such as Metavante, Check Free and Online Resources (the customer initiates the payments through their bank). At this time approximately 27% of accounts take advantage of the ACH option and another 22% use 3�d party remittances. We would continue to offer these payment options, but add the ability to pay using an eCheck, debit card or credit card online. We receive daily requests from residents for the ability to pay a utility bill using a debit/credit card online, and to view their bill and water usage online. (We receive similar requests for recreation program payment, permits and licenses, as well.) We have benchmarked various utility billing processes with neighboring and similarly sized cities. Our benchmark survey revealed that many of the cities are just beginning to utilize ePayment services including eChecks and debit/credit cards. Approximately half of the cities absorb the transaction fees while a quarter of the cities charge the customer a flat fee per transaction (ranging from $2.00 to $3.95). A quarter of the cities contacted have not started the online payment process. Based on the survey data we received, it is reasonable to expect a 5% - 15% usage rate for E-statements and a 5% usage rate for paying via online ePayment services in the 1S' year. Over time, this percentage is expected to increase to 15-20% for both E-Statements and E-payments, based on service provider experience and with the assumption that the City absorbs all of the transaction fees. There are three payment options that the City could consider: 1) City pays all transaction fees for eChecks and debit/credit card payments; 2) City pays transaction fees for eChecks; transaction fees for debt and credit card payments are paid directly by the customer; 3) Customer pays transaction fees for eChecks and debit/credit card payments. Each option is portrayed below: � �.�.�, , � � � t � �. r�� 5$�i I ,� �� r,i, � �� i�l�= , �� " � �r; ��n��r�� E�,�� '� <, eChecks City pays ($.50 - City pays ($.50 - Customer pays $1.50 $1.50 $.50 - $1.50 Debit/Credit City pays Customer pays Customer pays Cards for all merchant 2.75% per 2.75% per fees including transaction transaction the discount rate, utility rate program & authorization fee (1.19% - 2.24% Since we currently cover the cost of electronic check processing via a resident's bank bill pay feature, it would be consistent to cover the cost of ePayments made via eCheck; therefore, staff is not recommending Option #3. ISSUES: The fees for ePayments will vary based on customer usage. We have estimated usage via our benchmark survey and service provider usage experience. We already have a core group of residents that pay via ACH or electronically through their bank. We could potentially have over 40% using E-statements but not using the eCheck and debit/credit card payment options. There are several benefits to ePayments. We currently have 15% of residents who are delinquent. Providing an online payment option should reduce our delinquency rate, and the time and costs associated with shutoff door hanger notices. Finally, customer service will be improved as we provide a service residents have requested. Online payments could be extended to other City departments for Building permit fees, license fees, etc. in the future We would need further 2 discussion and cost analysis and council approval if we choose to expand online payments to these other areas. For example, building permit fees can range from $41 for a remodeling fee to $13,000 for new home construction permit fee; therefore, the debiUcredit card merchant fees for this example could range from $.49-$291.20. Multiply the $291.20 x 150 new home permits, and the cost for providing debit/credit card payment options could be approximately $44,000. It will be important that the Council consider the impact of absorbing transaction fees for not only the utility bills but also other customer bills. Payment Service Network (PSN), the service provider that we have selected does not vary their fees based on whether the City does or does not absorb the fees. We have the flexibility to vary, by department, whether the City absorbs all, some or no fees. We can simply add additional fee schedules to the existing agreement. Providing these types of options has become common place for many vendors, including municipalities, as evidenced by our benchmarking. More importantly, many of these services have been requested numerous times by the residents of Prior Lake. eStatement and ePayment options were approved by the Council through Cash Cycle Solutions (CCS) in July of 2012. However, due to system limitations within CCS we have decided to pursue a different vendor who has more experience with online services and whose price point is better for the City. FINANCIAL The following chart shows the estimated fees the City would incur based IMPACT: on the a 5% and 15% usage rate: _: � � s _ , .. �,� �; � ��.� ,� ,�� ... �,r� � ��=�� 5% Usa e 15% Usa e eChecks $ 920 $2,750 Debit/Credit $2,100 $6,310 Cards Annual Cost $3,020 $9,060 (IIiIIin��`ifi�'�n� ��fit ��i��Id��h�la�tl�. ' � �gQ �`�(:, � , I ��i,�i�� '�� - n I.1i �'�� ., ,:�� 9�i -.�, �": „ i .i - 5% Usa e 15% Usa e eChecks $ 920 $2,750 Debit/Credit Customer pays Customer pays Cards Annual Cost $ 920 $2,750 The expenditures associated with both options would be funded through the Water Fund and Sewer Fund. A 3-year contract has been drafted pending the Council's decision on the payment of transaction fees. Savings are anticipated in the following areas: • As customers adopt e-statements, printing/postage costs will be reduced. Currently we have 27% of residents on ACH and another 22% that pay electronically through their bank. Approximately 40- 50% of these residents may opt for eStatement receipt of their bill. • Reduction in the number of delinquent accounts leads to less Utility Billing time spent managing those accounts, and reduction in door 3 hangers and disconnect for Public Works which frees up their time for other tasks. • Utility payments processed through electronic means are faster than traditional methods which results in quicker receipt of City revenue. • Online line payment and billing options will satisfy demand from residents for online billing, e-mail notification, and for the ability to pay their utility bill using a debit/credit card online, in person, or via phone. ALTERNATIVES: The alternatives are as follows: 1. Approve a resolution that authorizes the City to absorb transaction costs incurred for electronic utility payments and authorize the Mayor and City Manager to execute a Standard Agreement for the Purchase of Goods and Services for utility electronic statements and payment options.(option 1 above) 2. Approve a resolution that requires utility account holders to pay the transaction costs incurred for electronic payments. With this alternative, the costs for electronic payments over the life of the contract will not exceed the $20,000 threshold that would require Council authorization. (option 2 above) RECOMMENDED MOTION: Alternative #1. 4 O� P ��+P ti � U tr� 4646 Dakota Street SE � Prior Lake, MN 55372 RESOLUTION 13-xxx A RESOLUTION AUTHORIZING A CONTRACT FOR ELECTRONIC STATEMENTS AND PAYMENT OPTIONS FOR UTILITY BILLS (Alternative #1) Motion By: Second By: WHEREAS, The City currently offers an ACH payment option (utility payments automatically withdrawn from customers' accounts on the due date) and accepts payments through 3� party providers such as Metavante, Check Free and Online Resources (the customer initiates the payments through their bank) without any transaction fee charged by the City; and WHEREAS, The City plans to provide adtlitional payment mechanisms for utility customers, specifically, eChecks and debit/credit cards as well as eStatements; and WHEREAS, The City considers any transaction fees incurred for providing these additional payment mechanisms a cost of doing business and will, therefore, incorporate those costs into the utility rates; and WHEREAS, The City has received quotes from multiple vendors for providing electronic statements and payment options for utility bills. The lowest cost vendor was Payment Service Network, Inc. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The Council has authorized the Mayor and City Manager to execute a Standard Agreement for the Purchase of Goods and Services for utility electronic statements and payment options. PASSED AND ADOPTED THIS 28� DAY OF OCTOBER 2013. YES NO Hedber Hedber Keene Keene McGuire McGuire Morton Morton Souku Souku Frank Boyles, City Manager �� PR1�� h� � 4646 Dakota Street SE � '�'�vx�so'��' Prior La1ce, MN 55372 RESOLUTION 13 A RESOLUTION AUTHORIZING AN AMENDMENT TO THE CITY OFFICIAL FEE SCHEDULE (Alternative #2) Motion By: Second By: WHEREAS, The City currently offers an ACH payment option (utility payments automatically withdrawn from customers' accounts on the due date) and accepts payments through 3� party providers such as Metavante, Check Free and Online Resources (the customer initiates the payments through their bank) without any transaction fee charged by the City; and WHEREAS, The City plans to provide additional payment mechanisms for utility customers, specifically, eChecks; and WHEREAS, The City considers the transaction fees incurred for providing the additional payment mechanism of eChecks a cost of doing business and will, therefore, incorporate those costs into the utility rates; and WHEREAS, The City does not wish to absorb the cost for providing the additional payment mechanisms of debit/credit cards and nor pass on these costs to other utility customers in the utility rates. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. Transaction fees incurred for debit and credit card transactions for utility payments will be paid directly by utility account holders. 3. The Council has authorized that the transaction costs incurred for debit/credit card utility payments be added to the City Official Fee Schedule, and that the Fee Schedule should be amended to reflect these fees. PASSED AND ADOPTED THIS 28� DAY OF OCTOBER 2013. YES NO Hedber Hedber Keene Keene McGuire McGuire Morton Morton Souku Souku Frank Boyles, City Manager