Governments are notoriously behind the times when it comes to technology and, for a variety of reasons, electronic payments fall into this category. For the purposes of this article, we’ll define “electronic payment” as anything other than a face-to-face payment transaction between debtor and government.
Although there are numerous payment options, we’ll focus on the following because they are the most common:
The world of Automated Clearing House (ACH) payments is a big, big world comprised of various transactions including debit card transactions, business to business (B2B), direct debit payments and e-commerce payments. It’s complicated and we won’t go into the details here. If you’re really interested in the nitty gritty you can stop by www.nacha.org. We’ll keep it simple and focus our attention on direct debit payments.
You’ve no doubt been exposed to direct debits with your mortgage or car loan but governments are embracing this technology now too. Direct debits are most useful for recurring debts like utilities. They require the participant to give their bank information (the routing and account numbers) as well as their explicit permission for the government to collect a specified amount directly from their bank account. The transaction is initiated by the government on an agreed upon date and the funds are transferred from the customer’s account to the government’s account via an Electronic Funds Transfer (EFT).
The internet is the fastest growing area for submitting payments because it provides tremendous flexibility along with a variety of payment methods.
Government Hosted Website
Many governments are providing their customers with the option of paying for services on a government hosted website. For an internet savvy IT department, this option provides flexibility for the government since it is within their domain to create different payment options.
Vendor Hosted Website
Other governments turn to vendors to host their online payment processing. In almost all cases, this is a no-cost option for the government. Vendors make their money by charging a pre-set “convenience fee”, paid by the debtor at the time of the transaction. The vendor retains the convenience fee and passes 100% of the payment back to the government.
Once the vendor site accepts the payment, the funds are deposited into the government’s specified bank account. You should be aware that not all vendors are able to break payments down and deposit money into various accounts. Be prepared to handle payment distribution and fund accounting as it will likely fall on the government.
The information exchange between the government and the vendor is pretty straightforward. A file of debtor information is sent on a scheduled basis from the department to the vendor. This file contains identifying information for each debtor along with the pertinent debt information. Alternately, once a debtor pays using the site, a file is sent on a scheduled basis from the vendor to the department containing the specific information regarding the payment and where it is to be applied.
At the outset, the vendor may require substantial programming on the government’s part to make the interfaces run seamlessly. Vendor-hosted websites may offer the debtor limited information or flexibility in terms of payment options. Bill presentment on the vendor site is wholly dependent on the information submitted by the government. Therefore, additional programming may be required to adequately display debt information or alter the payment options that are provided.
It’s worth noting that while vendors are in the process of developing a “shopping cart” version of online payments, they haven’t really nailed it yet. There are really two main roadblocks: software and convenience fees.
Software – It is not uncommon for governments, particularly at a local level, to have a variety of home grown or off-the-shelf applications within the same organization. The Parks Department may use one program for handling registrations and payments while the Utility Billing Department uses something entirely different. If the customer wants to pay their water bill and obtain a pool pass, interfacing with all these applications complicates debt information upload and payment distribution on the back end.
Convenience Fees – Convenience fees are how the vendors make their money so they are an essential component to hosted payment sites. We won’t go into the specifics of how these convenience fees are set but suffice it to say that the utility bill and the pool pass might have entirely different convenience fees. Since shopping carts lend themselves to one convenience fee, vendors are having a hard time figuring out how to charge the appropriate convenience fee for each product or service.
Governments which receive a large number of payments via checks in the mail set up a specific post office box for payments. A contract with the lockbox vendor is reached to open the mail, and deposit any payments. An electronic file containing all the payment information is sent from the bank to the department on a regularly scheduled basis.
Many lockbox facilities also offer imaging services. A scanned image of the front and back of each check along with any payment stub or correspondence is provided to the government and can be used to research misapplied or lost payments.
This is common in a centralized collections environment where one department is collecting money for other departments within the government. Under this model, delinquent debts are sent from the originating department to the collections department. If the originating department receives a payment they may transmit the payment information via an electronic file that can be loaded into the collection system.
Kiosk or payment terminals are becoming more and more popular. Payment kiosks can be installed at different locations around the area, like a mall or grocery store and can display prompts in different languages. Users can pay at a location convenient for them as opposed to making a trek to City Hall, for example. In addition, many kiosks accept cash and checks as well as credit or debit cards.
The kiosk accepts, displays, and transmits payment information in the same manner as a hosted website while providing online services to those who do not have computers or credit cards.
Kiosks are becoming popular for more than just delinquent payment collection. Many installations allow the user to pay for licenses, taxes, or other services.
Using a credit card or a checking account, this payment method is tried and true and arguably still the most common way debtors settle their bills.
Credit card payments over the phone are fairly straight forward. A debtor calls up the collecting department and provides the pertinent information. The agent runs the credit card over their credit card processor located in the office and validates the payment. Many banks are now offering web-based processing services that don’t require the agent to leave their workstation.
Checking account payments over the phone are done much the same way as credit cards and can be validated over the phone. Once authorized by the debtor, a check can be created using the information and this check can be cashed at the bank. It is a little different than ACH processing, but some government agencies like it this way.