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Ever wondered what would happen if you got rid of convenience fees?

Posted July 1, 2012 by John Schott

How do convenience fees impact customer adoption for online utility payments? Denton Municipal Electric in Texas found out.

For several years, Denton had been charging a $4.95 convenience fee for web and IVR payments. Despite aggressive marketing of their automated payment options, customer adoption had maxed out at about 18% of total payments.

At the same time, the City of Denton had seen tremendous growth (55% population increase since 2000), and was having trouble keeping up with customer service demands at the utility. They were, in fact, at capacity in their utility billing and customer service offices. Given their space constraints, hiring additional staff would be difficult. Instead, they focused on ways to reduce manual billing and payment activities.

A close look at their convenience fee prompted Denton to wonder what impact it was having on customers’ use of their web and IVR utility payments service. If they removed the fee, would customers who had been avoiding the automated services embrace those payment methods once the fee was removed?

Hoping to boost electronic payments adoption rates, Denton decided to drop the convenience fee on June 1, 2011. The results have been dramatic.

Usage has increased in every single month since the fee was dropped. The utility is now receiving more than 15,000 electronic payments each month, which is a 61% increase from 9,300 electronic payments made prior to dropping the fee.

The increase in electronic payments has given relief to overworked staff who can now focus on more time-consuming customer inquiries. Best of all, by not charging the convenience fee, the utility has been able to qualify for the special utility rate offered by the credit card firms, dramatically reducing their processing costs.

So, when it comes to costs, sometimes it pays (literally) to take a counterintuitive approach.

2 Responses to “Ever wondered what would happen if you got rid of convenience fees?”

  1. Donna says:

    For private utility companies, most regulatory authorities allow you to include the fees in your rate increase applications.

    • Julie says:

      Do you know of any utilities that have been able to recover the fees through rate increases? I’m looking for precedents that can be included in a rate case. Thanks!

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