Electronic Payment Guidelines.doc Version 1.0-1

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1 Dutchess County Government Electronic Payments Guidelines June 2010

2 TABLE OF CONTENTS Page 1. Background 2 2. Program Administration and Responsibilities 3 3. Benefits of Electronic Payments 4 a) Advantages for the Public b) Advantages for the County 4. About the NYS Electronic Payments Laws 5 5. Assessing Possible Use of Electronic Payments 5 a) Cost to Implement b) Benefit Analysis 6. Credit Card Company Rules 8 a) Background Retail versus Government b) Convenience Fees 7. County Standards 9 a) Use of New York State Contracts b) Accepted Credit/Debit Cards c) Who Pays the Credit/Debit Card Fees? Electronic Payment Guidelines.doc Version 1.0-1

3 1. BACKGROUND In the course of day-to-day business, Dutchess County departments collect a variety of fees, taxes, and service charges. Currently these are collected primarily through cash, check or money order. Considering the benefits of electronic payments and the advent of e-government, it s important that we begin to expand payment acceptance to include credit/debit cards and ACH (Automated Clearing House) fund transfers. This is particularly important as we seek to add efficiencies, cost cutting measures and speed revenue collections. Moreover, the public increasingly relies on electronic forms of payment for both faceto-face transactions as well as Internet transactions. The convenience of electronic payments and their near universal acceptance in the private sector has fueled expectations of their use to also pay for government services and fees. To improve county payment processes and service to the public, in 2009 Finance and OCIS embarked on an electronic payments pilot. Based on its success we re looking to formalize and expand this initiative. As part of this new program it s important to consider what types of fees are reasonable to be paid via electronic means and how Dutchess County can best implement these new payment services. The basis for our electronic payments program is the New York EVT (Electronic Value Transfer) legislation that authorizes state and local governments to accept electronic payments for services, fees, fines and other financial obligations. This is described in an upcoming section. This document provides background information and insights for utilizing electronic payments and establishes guidelines for use by Dutchess County departments and agencies. Electronic Payment Guidelines.doc Version 1.0-2

4 2. PROGRAM ADMINISTRATION AND RESPONSIBILITIES Finance and OCIS are responsible for the administration of the County s Electronic Payments program. Any County department/agency considering the acceptance of credit/debit cards or ACH fund transfers must contact Finance/OCIS to discuss the objectives and determine how best to move forward. As a first step, departments should become familiar with this document; paying particular attention to the responsibilities chart below and the section Assessing Possible Use of Electronic Payments. RESPONSIBILITIES Finance OCIS Departments Administers electronic payment contracts with providers (e.g. Global Payments Inc. and American Express). Manages payment of credit/debit card administrative costs and transaction fees to providers along with related chargebacks to departments. Provides guidance, along with OCIS, to departments that are considering electronic payments. Confirms daily deposits from electronic payment service providers. Records revenues info financial system. Assists Finance with the provider contracts. Provides guidance, along with Finance, to departments that are considering electronic payments. Develops software or recommends commercial software as needed. Recommends hardware as appropriate. Coordinates implementation of electronic payments projects. Determine possible uses of electronic payments and provide cost/benefit justification as required. As in the past, gain approval as necessary from the County Executive and/or Legislature for changes to their fee schedules. Budget for credit/debit card administrative and transaction fees as well as any projects (e.g. software and hardware). Reconcile daily electronic payment transactions. Send reports to Finance to record revenues. Electronic Payment Guidelines.doc Version 1.0-3

5 3. BENEFITS OF ELECTRONIC PAYMENTS Use of Electronic Payments is often a win-win situation for the County and the pubic who we serve. a) Advantages for the Public Convenience and Savings the public will not need to carry a checkbook or large amounts of cash to pay the County fees. In the case of e-government transactions, the public does not have to travel to a county office or take time from their work. Payments can be made 24 hours a day, 7 days a week. Proof of payment a credit or bank statement provides additional proof of payment if a receipt is lost. Ability to pay on credit the public often pays for goods and services on credit. Using credit encourages people to pay for transactions that they might otherwise have to delay. b) Advantages for the County Cost and Time Savings With electronic payments there is minimal hands-on interaction by employees, much less than with manual transactions. Payments via the Internet do not need to be counted, moved from point of sale to a secure location, deposited, data entered or to have a receipt prepared. This allows employees to devote their time to more productive tasks. Security Since there is less handling of cash, there is less chance for lost or misappropriated funds. In the case of Internet transactions, there is no employee handling of cash or credit/debit cards. Note: All on-line payment transactions are sent over a secure encrypted internet gateway. Additionally, we do not store credit card information in our databases. These provide safeguards to the public s credit/debit cards and identity. Additional collections Those who do not have the required cash available will be more likely to make payments if they have the option of charging their transaction to a credit card. Reduced check processing costs Accepting electronic payments reduces the number of bad checks and provides near instant availability of funds. Public relations a government that offers convenient methods of payment is viewed by the public as progressive and forward-thinking. Electronic Payment Guidelines.doc Version 1.0-4

6 4. ABOUT THE NYS ELECTRONIC PAYMENTS LAWS In response to the growing demand for greater convenience in conducting business and interacting with government, New York enacted EVT (Electronic Value Transfer) legislation authorizing state agencies to collect fines, fees, rates, charges, taxes, interest, penalties, and other revenues and financial obligations through electronic payments, including card-based (e.g., credit and debit cards) and non-card (e.g., electronic fund transfers) transactions. To provide a statewide approach to implementing electronic value transfer programs, this legislation established the Electronic Value Transfer Administrator (EVTA) which falls under the NYS Department of Taxation and Finance. EVTA is responsible for establishing policies, facilitating and overseeing the New York State s electronic payment initiative, developing and administering an approval process and negotiating contracts with vendors. In addition to State agencies, NYS EVT legislation and use of OGS centralized contracts extend to other entities including counties, cities, towns, villages and public schools 5. ASSESSING POSSIBLE USE OF ELECTRONIC PAYMENTS Dutchess County departments provide various public services that involve the collection of payments and fees. In many cases employing electronic payments will benefit the public and provide cost savings and efficiencies to the County. However, before moving forward with an electronic payments project it s important for departments to do an assessment and cost/benefit analysis. Below are some key factors that should be considered in this assessment and in determining good candidates for electronic payments. a) Cost to Implement The one-time and ongoing costs for an electronic payments deployment will vary greatly depending on the scope of the project, level of automation and the volume and monetary value of the transactions. All associated costs should be considered when doing a cost/benefit analysis. Below are some primary costs to consider. Automation The sophistication of an electronic payments application will be a major factor in determining the implementation cost. For instance, a simple standalone Internet or point-of-sale application will be much less costly than a full-blown system that integrates with office procedures and financials. OCIS will work with departments to determine the best balance of the level of automation versus the cost. Hardware and Software These will vary depending on whether electronic payments will be made through Internet applications, counter point-of-sale (POS) devices or both. These costs may involve one-time and annual maintenance fees for purchased software, PCs, POS machines and printers. Electronic Payment Guidelines.doc Version 1.0-5

7 Transaction Fees Electronic payment providers charge ongoing processing fees for credit/debit card payments. These fees directly relate to transaction volumes and the gross total cost of the transactions. Generally speaking there is a cost per transaction plus a percentage based cost on the gross transaction amounts. Because of this, the ongoing costs will vary greatly based on the type of County service/fee that will be paid via electronic payments. Note that the fee percentages vary between billing periods depending on the transaction volumes and gross transaction amount totals. The examples below are simply to illustrate the impact of high transaction amounts (e.g. $1,000 tax payments) on the credit card fee charges. Examples $56 Credit Card Fees for 100 transactions with an average transaction amount of $15. This assuming: processing fees 3.0% plus $0.11/transaction. $2,206 Credit Card Fees for 100 transactions with an average transaction amount of $1000. This assuming: processing fees 2.2% plus $0.11/transaction As is apparent from the above example, it s critical that departments consider the volume of transactions and transaction amounts in assessing a possible electronic payments project. In instances where electronic payments would provide significant benefits, but provider fees to be paid by the County can t be cost justified, the option does exist to charge a Convenience Fee to the public (customer) who prefers to pay via credit card. The issue of convenience fees is covered in some detail in the sections 6. b) Convenience Fees and 7. c) Who Pays the Credit Card the Fees? b) Benefit Analysis The above section is used to estimate implementation and ongoing costs. The other side of the equation involves departments assessing the benefits to the public and the County. The goal then is to determine whether the benefits and any internal cost savings offset the electronic payment one-time and ongoing costs. Below are some of the issues that should be considered in assessing benefits. Service to the Public The County s mission is to serve the public; so potential benefits to our constituents should be a key factor in the assessment. These factors should include, but not be limited to, the following: Cost and Time Savings To what degree will electronic payments help the public in this regard? For example: eliminate the need to travel to county offices or improve efficiencies at their businesses. Electronic Payment Guidelines.doc Version 1.0-6

8 Time Sensitivity As compared to other payment methods, in many cases electronic payments will speed or improve services to the public. For instance, a Parks Reservation can become final almost immediately if paid electronically through our Web Site, whereas sending a check via mail may delay a reservation by more than a week. What s the impact of time sensitivity on the service or fee? Populations Served What impact will the electronic payments service have on large population groups, those underserved populations, etc? More Able to Pay? Will the ability to use credit cards allow the public to pay for a critical service that they may have to pass on or delay if paying by cash or check? County Savings and Business Processes Improvements Cost and Time savings In most cases, much less employee time will be needed to process payments that the public make via electronic means. For instance, payments via the Internet do not need to be manually counted, deposited, data entered or have a receipt prepared. This allows employees to devote their time to more productive tasks. The greater the number of transactions and complexity of related processes - the greater the potential for cost and time savings. Security Since employees handle less cash there is less chance for lost or misappropriated funds. The greater the number of transactions and payment amounts, the greater the potential improvement in security. Additional collections? Those who do not have the required cash may be more likely to make payments if they can use a credit card. To what degree will this improve revenue/fee collections for a particular service? Public Relations (PR) What s the PR benefit for allowing credit card payments for this service/fee? Electronic Payment Guidelines.doc Version 1.0-7

9 6. CREDIT CARD COMPANY RULES a) Background Retail versus Government In a retail environment, a transaction fee is charged to merchants whenever a customer makes a purchase using a credit card. Merchants are prohibited by the credit card companies from passing this transaction fee to customers who use a credit card, so merchants typically incorporate this fee in the price of their goods or services. In contrast, in most governments, fees are set by ordinance or statute and 100% of the fee must be collected by the government, which leaves little room to budget for the transaction fee. In addition, government taxes are involuntary payments, that is, the citizen does not have the choice of whether or not to make the payment. State and local governments, wrestling with how to budget the transaction costs for credit cards, began passing along the transaction fee to card holders. Visa and MasterCard became aware that this had become widespread practice, and in 1993 began enforcing their rules which prohibit passing along transaction fees to cardholders. Over the next decade, under pressure from state and local government associations, credit card companies softened their rules to some extent, but still made it difficult for governments to transact business with the public via credit card. Moving forward to 2007, some major credit card companies, including American Express, Discover and MasterCard changed their rules to allow government and educational entities to pass along transaction fees to customers that pay via credit card. Most significantly they allow this for all types of transactions including face-toface and Internet. However, to date, VISA will not allow this practice for face-to-face transactions; except for tax payments. b) Convenience Fees Convenience Fees may be used by governments to pass along transaction costs to customers who use credit/debit cards. This chargeback is at the discretion of the government entity. Cardholders must be notified of the convenience fee at the time of payment and given the opportunity to opt out of the payment. Below are the convenience fee rules for different credit card companies. Convenience Fee Rules Credit Card Company Type of Transaction Type of Payment American Express All Types Tax and non-tax payments Discover All Types Tax and non-tax payments MasterCard All Types Tax and non-tax payments VISA Internet Face-to-Face Tax and non-tax payments Tax payments Only Electronic Payment Guidelines.doc Version 1.0-8

10 a) Accepted Credit/Debit Cards 7. COUNTY STANDARDS The County will accept the following credit/debit cards. This is subject to change depending on revisions to credit card company rules, NYS contracts, and the needs of individual electronic payments projects. American Express Discover MasterCard VISA * * - Due to the current VISA rules regarding convenience fees VISA will not be used for face-to-face transactions if it s decided to charge a convenience fee to customers for a specific County service/fee. b) Who Pays the Credit/Debit Card Fees? As explained on page 6, credit/debit card transaction fees can be substantial. The amount depends on the quantity and gross total cost of the transactions. The question is Who Pays the Fees? Does the County pay the cost or do we pass these on to the customer through a convenience fee? The cost/benefit analysis for each electronic payments project will determine how best to handle this. Refer to section 5. Assessing Possible Use of Electronic Payments. c) Use of New York State Contracts The County has standardized on utilizing the New York State EVT (Electronic Value Transfer) and contracts that the state has negotiated with vendors for the processing of financial transactions. The actual application for collecting fees (e.g. C.S. Exams Fees) will be developed by OCIS or purchased. Our fee collection programs will do an electronic hand shake with the NYS contract providers who in turn interface with the credit card companies. The Office of General Services (OGS), in conjunction with the EVTA, has developed statewide contracts to provide state agencies, counties and municipalities with the financial processing services necessary to implement electronic value transfer programs. These contracts support the acceptance of the four major nationally branded credit cards (Visa, MasterCard, American Express and Discover) as well as debit cards and other electronic funds transfer transactions. The Office of General Services has three approved contracts: Global Payments Direct, Inc. for processing of Visa and MasterCard cards; American Express; and Discover Financial Services, Inc. Electronic Payment Guidelines.doc Version 1.0-9

11 The County is using the NYS contracts for the following reasons: The state contracts provide lower transaction/processing rates than the County could get by bidding on its own. To avoid reinventing the wheel. The State has done a lot of work in its EVT initiative, including its bid development and interaction with the credit card processors to facilitate this process for localities. We should utilize this expertise and low transaction costs The State contract vendors will provide for a seamless interface with our systems (e.g. Civil Service Exams). This means that we can write our Web Site applications to directly interface with the financial transaction vendors. By doing this residents will not have to go through separate processes to use their credit cards. Electronic Payment Guidelines.doc Version