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Convenience fees for online billing – to charge or not to charge?

Posted May 30, 2012 by Erik Amelink

As I travel around the country visiting utilities, it is amazing how a utility in Ohio faces the same decisions as one in Seattle. In my next blog entries, I will address some of the dilemmas that every utility encounters.

One of the big decisions facing utilities today is whether or not to impose a convenience fee on the customer when accepting credit card payments.

It might seem easy (and profitable for that matter) to offset processing charges with a credit card payment convenience fee, but there is more to the equation than meets the eye.

First, when you charge any type of convenience fee you lose the utility rate for qualifying credit cards. So your processing fees might go from an average of $1.50 to an average of $4.00. Now, instead of offsetting $1.50, you need to offset $4.00 to accomplish the original goal of covering credit card fees.

Adding a convenience fee also negates the savings a utility can expect by accepting credit cards. Typically, mobile applications, web applications, and IVR applications all depend on the ability to accept credit cards. What’s more, they reduce the labor costs typically associated with manual payments.

That begs the question - what is the intent of adding credit card services? Is it the perception that the utility is providing customers with convenience? Or is it merely a cost saving measure for the utility?

Either answer can be correct. In fact, answering “Yes” to both is probably true for many utilities. However, other issues come into play. Will convenience fees truly improve profitability for the utility in the long run? Do such convenience fees help or hurt customer loyalty (remember what happened to Verizon when they wanted to impose an online payment convenience fee of $2 per transaction)?

What do you think?

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