MasterCard has revised their convenience fee rules (email me for a copy) so that basically, they now say you cannot disadvantage the MasterCard brand.  So, if you are a Tax Collector offering Visa’s Incentive $3.95 convenience fee on tax payments made with a Visa debit card, you must also offer MasterCard at the same price ($3.95 regardless of the transaction amount)… if you want to offer MasterCard debit acceptance, with a convenience fee, alongside Visa debit.

MasterCard has always allowed this (but never required it until now) and, unlike Visa, they never associated a lower interchange (what they and their issuing banks charge you or your vendor) so that money was not lost on these transactions.  For example, under MasterCard’s current interchange rates, a $1,000 tax payment would cost you or your vendor 0.8% ($8) + $0.25, plus communication fees and dues and assessments (roughly a total of $9 for the transaction) but if you or your vendor can only charge a convenience fee of $3.95, that’s a loss of $5 on each transaction and no vendor is going to do that.  Visa reduced their interchange for tax payments with a debit card to a fixed $2.50 when they announced their incentive convenience fee for tax payments with a Visa debit card in October 2008.

MasterCard’s postponement nicely coincides with MasterCards and Visa’s scheduled October/April rules and interchange announcements, suggesting MasterCard will offer a revised interchange to address this in April.  This is no doubt also being fueled by Visa’s step up in enforcement of the $3.95 debit convenience fee requirement, which most vendors still don’t do.

Overall this will be good for you, your constituents and your employees as bot major brand debit cards could be offered at the same low fixed fee rate regardless of the amount of the transaction.

Many Tax collector websites have verbiage like this

In order to comply with terms of the credit card merchant agreement, the Milwaukee County Treasurer’s Office cannot accept credit card charges at the counter. All credit card charges must be processed either online or by calling1-877-542-6074

OR like this

Due to VISA regulations, our office can only accept VISA debit or credit cards for online and over the phone tax payments. We cannot accept VISA cards for any over-the-counter transaction. Click here to view the media release regarding VISA cards.

These statements are not accurate.  In fact in Visa’s latest operating rules dated October 2010 page  554 it states

In the U.S. Region, a Tax Payment Program Transaction may be processed in either a Card-Present Environment or a Card-Absent Environment.

AND

In the U.S. Region, a Tax Payment Program Merchant may charge a Convenience Fee for processing a Tax Payment Transaction

AND

The Convenience Fee for a Visa Debit Card Transaction must be a fixed or flat amount not exceeding US $3.95 per transaction, regardless of the tax payment amount.

AND

In the U.S. Region, a Tax Payment Program Merchant that charges a Convenience Fee must process the Convenience Fee amount as a separate Transaction.

In fact many of the same vendors that have advised their customers they cannot accept Visa over-the-counter do not comply with Visa’s separate convenience fee transaction and $3.95 Visa debit card convenience fee rules for their customers online (Card Absent) payments.

Pretty ironic that these vendors are advising their customers not to accept Visa and even worse any credit cards at all, for their card present (over-the-counter) transactions.

If you want to accept Visa over-the-counter and need more confirmation of these rules contact me at jplunkett@governmentpaymentprocessing.com and I will put you in touch with the Visa Vice President of Government Acceptance.

Jim

When Visa and MasterCard changed their rules in 2008, the immediate impact was that cities and counties, including tax collectors and utility districts, could now accept credit cards in their offices at no cost, when their constituents came in and wanted to pay.  As technology was developed for this, a normal extension of that technology was to develop a simple connection to city and county property tax and utility districts databases so that users could go online and search, view and pay bills online.  Whether the users where city/county employees behind the counter or constituents at home.

At least one company, Government Payment Processing has developed a system that is standardized and allows cities and counties to implement this “Bill Presentment and Payment” technology at no cost with credit, debit and ACH and eCheck transactions also at no cost.  This functionality has always cost cities and counties a substantial annual amount and has been traditionally provided by municipal software companies.

By offering this at no cost, now, any city or county that wants to expand their online payments capabilities with bill search, view and payment can do so.  This represents a radical change and a significant opportunity for most cities and counties which do not have this capability.  If you would like some more information on this please contact me directly.

Jim Plunkett

Washington, DC, June 15, 2010

Digital currency has the potential to dramatically transform government payments in the next five years, saving U.S. taxpayers hundreds of millions of dollars in the process, according to representatives from the government and private sector.

The positive impact of digital currency on all aspects of government payments and purchasing was highlighted at a briefing in Washington, D.C. today  hosted by THE HILL, the widely-read congressional newspaper, and sponsored by Visa. Speakers at the event, including Douglas Michelman, global head of Corporate Relations at Visa Inc., pointed to plans by state, local and federal government agencies to launch or expand electronic payment  programs to improve efficiency, accountability and transparency.

“We all know that governments at every level are struggling with their budgets in these tough economic times, and achieving savings, improved accountability and transparency are even more urgent,” said Michelman. “Switching from inefficient paper processes to digital currency can have a sizable long-term impact in terms of real dollars and cents.”  

Among the expected future savings cited at the event: 

• The U.S. Department of Treasury announced this week plans to switch to electronic payments, eliminating about 136 million paper checks, saving almost $50 million in postage costs and saving U.S. taxpayers about $300 million over the first five years and more beyond. 
• The U.S. Social Security Administration and U.S. Department of Veterans Affairs recently announced the completion of the switch to digital currency for benefits payments. The U.S. Treasury reported that while it costs about a dollar to print and mail a check, each digital currency payment cost the government 10 cents.

“It is encouraging that government agencies of all sizes are embracing digital currency as a way to deliver immediate and lasting benefits to U.S. taxpayers,” continued Michelman. “The benefits of electronic payments don’t just hit the bottom line: cardholders, particularly the financially underserved, benefit from lower check cashing fees and an empowering financial tool that can be used at millions of merchant locations and ATMs.”

• Currently, 39 U.S. states deliver benefits on Visa prepaid cards to recipients of 71 programs for child support, unemployment insurance and Temporary Assistance for Needy Families (TANF) disbursements. Some states have realized savings that have reduced the cost of distributing benefits dramatically.  Nebraska, for example, used to pay 59 cents to print and mail each check, but pays only about a penny to reload a prepaid card.  
• In addition, the U.S. General Services Administration’s SmartPay program provides purchase, travel, fleet and integrated payment card programs to more than 350 federal agencies and departments, saving these agencies $1.7 billion - up to $70 per purchase, according to the GAO.

Other speakers at the event included  Senator Mark Warner (D-VA), who was the keynote speaker, and  Glen B. Gainer III, West Virginia State Auditor.  Both men addressed the power of technology–including digital currency–to improve government efficiency, accountability and transparency. 

The government savings derived from shifting from paper to electronic payments echo the findings of a recent study authored by Moody’s Economy.com Chief Economist Mark Zandi. It concluded that the migration from paper to electronic payments - specifically debit and credit card usage - contributed $1.1 trillion to the global economy from 2003 through 2008. That represents on average a 0.5 percent increase in global GDP.

“Cards grease the economic engine, making transactions run more smoothly and creating efficiencies in commerce,” according to the report. “The results demonstrate that the migration from paper to electronic payments is a positive phenomenon, and the study supports the adoption of policies that encourage and accelerate this shift.”

When Visa launched their Tax Payment Program in November 2008, part of the new rules require payment processors and third party payment service providers to mandatorilyoffer an “incentive” $3.95 (or less) convenience fee on tax payments made with Visa debit cards, regardless of the size of the transaction.  If you or your vendor are assessing a “convenience fee” on tax payments made with credit or debit cards this is required both for online and over the counter (OTC) payments made in your offices.

We have setup dozens of cities and counties for tax payments with convenience fees, that just completed their annual tax collection period.  Visa debit cards exceeded all other forms of payment ranging from 50-70% of all transactions.

Clearly paying a $500 tax bill with a debit card at $3.95 vs. with a credit card for $12.50 or more (2.5%) is an important factor for your constituents that are choosing to use their cards for tax payments. 

You should consider not only the compliance issues but the trends in card usage by your customers if you or your vendor presently does not offer a Visa debit card solution for $3.95 or less.

Here we go…Massachusetts State Department Revenue data shows 158 communities posted tax collection rates of 97 percent or worse - with some Berkshire towns collecting as little as 70 to 72 percent of their tax levy. Statewide, the fiscal 2008 local collection rate was within DOR goals: 1.9 percent of the $10.9 billion real estate and property tax levy went uncollected.

Officials said the bad economy is making tax collection more difficult. Local aid was slashed by $724 million last year and could be cut again by about $200 million in next year’s state budget.

“Increasing the rate of collections will just help on the margins,” said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. “Even if they change their collection rate, it does not change the fundamental reality that they rely so heavily on local aid.”

The city reporting the lowest collection rate was Springfield at 95 percent, DOR figures show.

Because of new credit card company (Visa, MasterCard & AMEX) rules, Massachusetts municipalities can accept credit card, debit card, echeck and other types of payment (e.g. BillMeLater) for tax payments in their offices (IN-PERSON) and in their offices (OVER THE PHONE & IN THE MAIL) and have the fee assessed back to the citizen that chooses to use their card or other method of payment.

This means these municipalities can accept these forms of payment at no charge to them. This could substantially increase the collection rate for all MA municipalities.

This is also happening in:

New Jersey

San Diego

Clark County/Las Vegas

Kansas

Jim

I figured I would let most of you get through your 09 tax collection season and 2010 budgets before I started posting again.  Coincidently, I was faced with the challenge of my life,  staying with and caring for my Mom who was diagnosed with pancreatic cancer just before the holidays (we will probably loose her  this month).

One of the most interesting developments in the last quarter of 2009 was the emergence of ONLINE debit payments for Property taxes with a Visa branded debit card, where the payment is processed NOT over the Visa network but over the Interbank Network associated with the card (NYCE, Star, Pulse etc.)

Many cities and counties have accepted “PIN Debit” in their offices because the transaction fees are substantially lower than those assessed by Visa and MasterCard.  These fees are assessed by the Interbank Network associated with the card and required a PIN to be entered at the point of sale other the transaction is processed over Visa/Mastercard’s networks.

Now an online “PIN-less” debit is being offered by many of the Interbank networks that connect ATM machines and point of sale electronic funds tranfer at retail locations and member banks.  Previously a pin was needed to process over these networks, otherwise the transaction would be processed either as a Visa or MasterCard transaction when the card was swiped.  While more costly than the ACH, PIN-debit transactions usually cost merchants considerably less to accept than credit card or signature-based debit card transactions.

Many Third Parties are now offering “Online PIN-less Debit” for tax and other payments.  Meaning that if you have a Visa branded debit card and you use these third parties, your transaction will be processed over the Interbank Network associated with the card instead of Visa’s network.  This also means the third party that is collecting your fees pays a much smaller transaction.

It also means that Visa does not get this transaction revenue.  Presently this appears to be a violation of Visa’s Tax Payment Program Rules.  However, I have yet to get an opinion from Visa on this.

If in fact your Third Party is offering this and assessing the fee back to your citizen, you should be aware that the third parties transaction fees have decreased substantially and this should be passed along to the public.

I would appreciate comments….which I will respond to, while we wait to see see how this issue plays out with Visa.

Jim

We have seen, albeit occasionally, RFP’s for credit card processing that require the vendor to be responsible for chargebacks.  Unless you are accepting payments to guarantee a return court appearance, this is an unnecessary requirement for most government entities as chargebacks on government payments are almost non existent.

A chargeback occurs when a cardholder disputes the credit charges appearing on their monthly or online statement. The top four reasons for chargebacks are stolen cards (24.7%), counterfeit cards (23.1%), MOTO fraud (mail order/telephone order), Internet fraud (20.8%) and lost cards (14.9%). Skimming (theft of credit card numbers during a legitimate transaction) and identity theft account for most counterfeit cards, so the major reasons for all chargebacks are fraud.

Other reasons include customer dissatisfaction with the product or service and transaction errors.

In governments, the chance that someone will use a stolen card to pay their property taxes or re-register their vehicle is slim to non, yet the impact of “chargeback” protection is substantial on governments and their citizens.  While most credit card processing vendors charge “convenience fees” in the 2.5 - 3% range, those that offer “chargeback protection” have convenience fees in the range of 3.5 - 6% - or as much as $30,000 on every million dollars of transactions.

Most vendors would gladly implement 4 or 5% convenience fees to cover the risk of fraudulent transactions in governments.  I know we would, but we don’t recommend it to our clients.

1) Can I accept Visa?

2) I am accepting Tax Payments.  Do you submit and process the convenience fee as separate transaction from our tax payment with two receipts (online and in-office) and two signature lines for face to face transactions as required by Visa? Also do you automatically identify a Visa consumer debit card when it is swiped in my office or keyed in by a citizen online and assess a fee not to exceed $3.95 as required by Visa? (See Section 5.2.E.2.d page 280 & 5.2.E.2.c page 279)

3) Can I void transactions immediately in my office without having to contact you? You will absolutely want to be able to do this

4) Are my funds directly deposited to my account without being handled by you?

5) Is all of my equipment, setup and support provided at no cost?

The single biggest mistake you can make in preparing a new RFP is to combine your other banking services with your merchant services.  This used to be the standard way of doing things as most banks offer credit card processing along with all their other depository services.  However, now, a year after MasterCard, American Express and Visa have changed their rules for in-office, card present transactions, very few banks have responded to offer compliant solutions for cities and counties that want to implement a “convenience fee program.

So first and foremost separate your merchant services (credit card processing) RFP from your other banking services RFP.  Also be aware of new Visa rules that REQUIRE 1) that you have a separate merchant account, 2) the convenience fee be processed as a separate transaction from the fees you are collecting and 3) that Visa debit card transactions have an “incentive” convenience fee of $3.95 or less.  Finally make sure your that your service provider 1) demonstrates they are a Level 1 PCI - DSS compliant service provider 2) confirms that they have registered you with MasterCards Convenience Fee Program and Visas Tax Payment Program and 3) assists you in completing a Self Assessment Questionnaire for each physical location.

Any cties or counties intending to prepare an RFP and that have questions or need examples should feel free to contact me directly: