Approve Removal of City Transaction Fee For On-Line Credit Card Payments

Purpose:  To remove the $2.00 per transaction fee for on-line credit card payments.

Background:  
 On March 27, 2012, per the Finance Committees direction, the City Council passed a $2.00 transaction fee for on-line credit card payments.  It was with the intention that this fee would help to offset the credit card processing fee of approximately 3.20% for on-line payments. 
 
A majority of the credit card payments are attributed to utility bill payments.  The city put the availability of payment via credit card in place in the hopes that delinquent utility accounts would decrease in scope.  With the addition of the transaction fee, staff is finding the opposite to be true.  Over 60% of the accounts billed are still charged the minimum of $20.50 per quarter for storm water, priority street lighting and recycling.  With the additional $2.00 transaction fee, residents are not readily willing to pay an additional 10% to pay via credit card, thus this can lead to the additional possibility of delinquent accounts.  The city is finding that the current delinquency rate on utility bills has not decreased since the transaction fee has been implemented - Estimated delinquency of $418,000 (30+ days delinquent).  Staff will be sending out delinquent utility billing notices on September 2, 2014, and they are foreseeing that the removal of the additional fee could aid in the further collection of delinquent accounts.
 
With the implementation of the transaction fee, the city has collected a total of $2,508 over the period of June 2013 through May 2014 (summary attached) in relation to approximately $597,000 worth of sales.  This reduced the City's net expense for the processing of the credit cards from $19,161 to $16,653. 
 
For the minimal amount saved, and the amount of utility billing delinquencies not being reduced, staff feels that there is no savings in having the per transaction fee for on-line payments, and, in fact, removing the fee may result in increased revenue collection.  The city surveyed other cities that accepted credit cards for payment, and the majority of them do not charge a per transaction fee.  Those responding said that it was a cost of doing business for their respective city.  Per Ramsey's strategic plan, the transaction fee goes against the initiative of Smart, Citizen-Focused Government, as it could place a hindrance on some for making payment.

 

Option #1:  Remove the $2.00 per transaction fee for on-line credit card purchases to improve utility bill collections and reduce delinquencies.

Option #2:  Retain the $2.00 per transaction fee that was implemented in March 2012.

Option #3:  Amend the per transaction fee to amount as directed by City Council.

Staff recommends Option #1 - removing the per transaction fee on on-line credit card payments via the city webstore.  The city should assume all credit card fees as part of the cost of doing business for the city and a convenience offered to the residents/businesses.

Motion to recommend staff remove the $2.00 per transaction fee on-line credit card payments via the city webstore.