WHITE PAPER. Implementing an Effective E-Payment Solution: Practical Advice for Property Management Companies

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1 WHITE PAPER Implementing an Effective E-Payment Solution: Practical Advice for Property Management Companies $ $

2 INTRODUCTION Only 23% of household bills are paid with a paper check. Source, 2011 Consumer Trends Survey, Fiserv Inc. It s no secret that online payments are now the preferred method to pay bills. According to Fiserv s 2011 Consumer Trends Study, only 23% of household bills are paid with a paper check, compared to a staggering 61% in The rapid decline of traditional payment methods such as paper checks and cash is driving more and more companies to provide electronic payment options to their consumers. While millions of Americans are only using their checkbook to pay their rent or their HOA dues, that number is gradually decreasing thanks to the availability of online payment solutions that fit the property management industry s specific needs. For property managers and owners, the benefits of automated payments aren t limited to providing a resident convenience. Automating resident payments reduces administrative work for property managers, improves cash flow and provides better visibility into company finances. And while the list of benefits is long, implementing e-payments can be a daunting task. This white paper provides an overview of the critical elements that can determine the success of an e-payments program for property management companies. It is important to consider all of these items during the vendor selection process and during implementation of your e-payments program. PAYMENT TYPES The first step to implementing e-payments should be determining the payment types your firm will accept. There are pros and cons to each payment type, and offering all may not be feasible for your organization. The two most commonly used e-payment types for the collection of rent and HOA dues include: ACH Credit Cards 1

3 ACH Short for Automated Clearing House, an ACH transaction debits funds directly from a resident s bank account. ACH is also commonly referred to as an e-check and is a low-cost and efficient payment option for both residents and management companies. It is common for firms to see utilization rates above 50% when residents are not assessed a convenience fee. Credit Cards Credit cards are the most commonly used method for making payments online, but come with higher processing costs. However, some management companies choose to offset these costs by charging residents a convenience fee. Online payments using credit cards are considered card-not-present transactions, which require processors to operate within a well-defined set of rules as set forth by major credit card companies. An overview of these rules can be found within this document. When determining the best payment mix for your firm, it is essential to consider your residents. What are their demographics? Which payment type seems most closely aligned with their banking behavior? What are they asking for? Most organizations choose to offer all payments types to allow residents to pick the method that is most convenient for them. PAYMENT MODELS If your firm has decided to accept ACH and credit card payments, you will need to determine if you will incur the processing charges or pass them along to residents in the form of a convenience fee. Incurred Models Naturally, if a service is free, residents will be more inclined to use it. It is common for firms to see utilization rates above 50% when residents are not assessed a convenience fee. Management companies that want to see high utilization rates of e-payments should strongly consider incurring the fees. 2

4 Residents often mistake convenience fees for ancillary charges, so it is a good idea to inform community managers why the fees are present so they can relay the information to inquiring residents. Passed Models Passed models allow management companies to make electronic payments available to residents at very little cost. With this approach, residents incur transaction fees in the form of a convenience fee. Passing transaction fees along to your residents will allow you to implement an electronic payments program quickly and with minimal cost, but will result in fewer residents using the service. When convenience fees are present, it is common for residents to mistake them as ancillary charges, instead of pass through fees. It will be important to inform community managers why the fees are present so they can relay the information to inquiring residents. Hybrid Models Property management companies can elect to incur fees on some forms of payment, while applying convenience fees for others. One common example of this scenario is application payments. Management companoes can choose to incur processing fees for applications, and then pass traditional rent or dues payment fees to the resident. Providing online applications at no cost is an effective way to increase prospects and help property managers fill vacancies. This approach is very successful, yet it s important to ask your payment provider whether they provide this functionality in their system. CONVENIENCE FEES Not all management companies are able to absorb the processing costs of credit card payments and opt to charge convenience fees to offset the cost of those transactions. Charging convenience fees is common and entirely legal. However credit card associations, as well as issuers of nonbank cards, enforce a wide range of regulations regarding the fees. 3

5 There are several rules pertaining to convenience fees, but the most important ones to remember are as follows: 1. A convenience fee cannot be assessed in a face-to-face environment. To increase the likelihood that residents will utilize e-payment options, integrate the solution into your management company s website. 2. The business must provide a true convenience in the form of an alternative payment channel outside the customary face-to-face payment channels, and the fee must be disclosed to the cardholder. 3. The convenience fee must be disclosed prior to the completion of the transaction, and the cardholder must be given the option to cancel the transaction if not wanting to pay the fee. 4. The convenience fee must be included in the total amount of the transaction; it cannot be split out from the transaction amount. While it is important to know the rules surrounding convenience fees, payment processing companies continually monitor the ever-changing rules and can provide guidance on imposing fees in a manner that complies with industry regulations. WEBSITE INTEGRATION When working with an electronic payments processor, management companies can decide to direct residents to make a payment on the processor s website or have the application integrated into their own site. In most cases, it is advisable to have e-payments integrated into the management company s website. Not only will it be a smoother user experience for a resident, but they will generally feel more comfortable paying directly from your site versus a company they have no existing relationship with. Directing residents to your own website will also give them easier access to electronic payments, thus increasing the likelihood that they will use the service. 4

6 While it may sound complicated to integrate a payment engine into your website, the application can simply be inserted and framed into the website. This is an uncomplicated process that does not require additional technical resources on the management company s end. ACCOUNTING SOFTWARE INTEGRATION Integrating your e-payment solution into your accounting software can dramatically improve productivity, but be sure to see a demo of how the integration works. Perhaps the biggest advantage associated with collecting resident payments electronically is the reduced manual data entry and increased productivity resulting from payment data integrating with accounting software. Most payment processing companies are able to transmit resident e-payment data into the management company s accounting software. This eliminates manual data entry for property managers and allows financial data to be seen in real-time. However, just because a payments processor claims to integrate with a particular software, does not guarantee a seamless integration. Ask to see a demo of the e-payment solution integrating into the software you use. It is also a good idea to ask the payments processor for references from clients who use the same accounting software. SECURITY & COMPLIANCE The protection of payment related data is critical for property management companies. Electronic payment solutions that do not adhere to compliance rules put your business and residents at risk. Abiding by ever-changing compliance rules can be burdensome and leads many management companies to choose payment processors versus maintaining an in-house solution. Management companies should make sure that their chosen provider abides by the following regulations: 5

7 SSAE 16 recently replaced SAS 70 as the audit standard for payment processors, so make sure your provider abides by the new regulations. Payment Card Industry Data Security Standard (PCI DSS) The PCI DSS regulates the security and business processes of service providers that store, process or transmits consumer credit card data. This includes thorough audits of data centers and data processing procedures. PCI Standards requires that credit card information is not stored by employing tokenizing methods for data processing, and that all applicable banking regulations are followed. SSAE 16 SSAE 16 is an internationally recognized third party assurance audit designed for service organizations. It stands for Statement on Standards for Attestation Engagements (SSAE ) No. 16, and is regulated by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). A SSAE 16 audit confirms business maintain a secure, stable and compliant infrastructure that satisfies requirements of the Sarbanes-Oxley Act. As of June 15, 2011 the SSAE 16 audit officially replaced SAS 70 as the audit standard for payment processors. SSL Encryption Secure Sockets Layer (SSL) is a piece of software that encrypts all information moving in and out of the certificate holder s website. It prevents third parties from retrieving secure information. IMPLEMENTATION & BEYOND While all the factors involved getting e-payments can be time consuming, it is critical to have a strategy in place for deployment. A poor implementation can hinder a successful migration to electronic payments. You should have a plan in place for training staff and marketing e-payments to residents. 6

8 Training and Support Ideally, community managers should recommend and reinforce to residents that electronic payments are the preferred way to make a payment, but will be hesitant to do so if they are not comfortable using it themselves. Plan a training session for all staff members who will be using the e-payment system at least two weeks in advance. Additionally, copies of your provider s user guide should also be made available to your staff prior to deploying the system. is the most effective way of informing residents about e-payments. This should be the primary way of communicating the service. Beyond initial training, property management companies often need additional support resources to handle day-to-day needs, such as adding properties to your portfolio or changing a bank account. It is advisable to choose a provider who not only offers call center support for residents and community managers, but who also provides an account management team to handle these more complex matters. Resident Marketing Residents will not use e-payments if they do not know they are available. Payment providers know the importance of resident utilization and can provide you with content and materials to help promote the service. The most effective way to inform residents about their new payment options is through . If your management company has addresses for residents, it is highly recommended that you make this the primary way of communicating the service. Historically, s sent to residents from their management company regarding their payment have a high open rate so it is an excellent way of informing your tenant base. Including a pay now link within the gives them instant access to make a payment. If is not an option for your firm, other materials that are effective for property management companies are flyers, door hangers, and insert slips, which can be provided to you by your payments provider. Companies offering 7

9 residents the option to set up recurring payments should also make sure they receive an automatic payment form from their provider. Automatic payment forms can be distributed to your current residents and ideally, included in any paperwork given to new residents. This will get new residents set up on a recurring payment schedule from the beginning, or at least make them aware that they have the option to pay electronically. Include automatic payment forms in new resident paperwork to set them up on a recurring payment schedule from the beginning of their residency. CONCLUSION There are several components involved in making e-payments beneficial and convenient for management companies and their residents. If having a high e-payment utilization rate is a top priority for your organization, you should strongly consider incurring the processing fees and devise a comprehensive communication plan for residents and property managers. Fortunately, property management companies do not have to navigate the e-payment maze on their own. By working with a vendor whose expertise lies in both payment processing and the property management industry, firms can easily implement an e-payment solution that meets their needs and boosts its bottom line. 8

10 ABOUT PAYLEASE PayLease, LLC, is a leading electronic payments provider for the property management industry, specifically targeting the multifamily, single family, HOA and commercial markets. PayLease provides property managers the ability to accept and manage rent payments and HOA payments through a secure online interface. With PayLease, residents are able to pay their property manager using an E-check or with a credit card. Since its inception in 2003, PayLease has grown to serve thousands of property management companies nationwide and is among the fastest growing technology companies in the United States. For more information, please visit Scranton Rd., Suite 450 San Diego, CA P (866) F (866) E sales@paylease.com paylease.com