Today, most utilities accepting credit and debit card payment for utility bills charge the customer a convenience fee. The challenge with this approach is that customers are not satisfied with having to pay the fee. And utility customers are not hesitant to share their frustration with this process. This customer comment from the 2016 J.D. Power Electric Utility Residential Customer Satisfaction Study sums up customer sentiment: “Allow to pay via their website using a credit card. Just about every other business in the free world does.”
This article is focused on the business case for fee-free credit and debit cards. The business case by utilities is grounded in meeting customer expectations, the advancement of cash processing options, and offering a regulated approach that works for all parties.
Meeting Customer Expectations
Customer’s expectations regarding payment options are changing and there is a lot of information available on this. For example, the study by the University of Michigan tracking consumer sentiment asked consumers, “When given a choice, what payment form do you prefer?” Of those responding, 40 percent selected credit and another 35 percent selected debit. Only 11 percent chose cash.
J.D. Power customer satisfaction research also notes increasing consumer demand for credit and debit card payment options. The 2017 national study noted that automated deducted credit card payments yield the highest customer satisfaction in the billing and payment experience. Utilities also have a wealth of data from internal customer research, surveys or complaint data. In regards to vulnerable customers, utilities cite data about federal agencies and other organizations that serve vulnerable constituencies with debit cards.
Social Security customers can now choose to receive their benefits via debit cards. Indeed, the Social Security Administration touts the consumer benefits of the Direct Express debit card in that it ensures monthly benefits will be available on time, every time. Similarly, other federal agencies are distributing funds via debit card, such as the Veterans Administration. There is a wealth of data available on this trend via government websites.
Advancement of Cash Processing Options
Apple Pay, PayPal and Google Wallet are all part of the growing line of mobile wallet solutions. These options are hugely popular with millennials and their popularity is increasing in other consumer segments. Apple Pay alone reported a growth of 1 million users per week.PayPal already has over 200 million account holders.
Consumers are moving to mobile wallet solutions because of convenience and trust in secure transactions. Convenience is a major driver. By using a mobile wallet solution, consumers can streamline transactions via multiple channels from mobile device to in-person. Important also is that by using an intermediary that consumers trust, such as PayPal, consumers can ensure that their financial data is secure with a qualified provider, versus providing their financial data directly to merchants.
For utilities to recommend and regulators to approve fee-free credit and debit card payments, a framework that allows the transaction fee to be placed into the cost of service is needed. The challenge here is there are no historical costs to use as a basis. And the customer adoption ramp up is expected to be steep. This places uncertainty into what exactly should be placed into cost of service.
The concept of an annually reconciling fund to accommodate over and under collections has been the approach by some utilities to address this uncertainty. The basis for the size of the reconciling fund can be informed through a robust request for proposal process (RFP). This approach can be a bridge until the time of the next rate case, in which the costs can be placed into the cost of service.
Utilities that had provided in-person payments via physical business offices may want to include the argument that including the credit and debit card transaction fees into the cost of service is analogous to utilities offering walk-in business offices. The costs of operating a physical business office is relatively substantial and these offices served a small, but meaningful segment of customers.
Utilities with a focus on serving their customers with valued solutions are pursuing the business case for fee-free card acceptance. A business case grounded in the voice of the customer, augmented with data on payment trends, and a workable regulatory solution is in the best position to be fairly reviewed and accessed by regulators.
About the author: Penni McLean-Conner is chief customer officer at Eversource Energy, the largest energy delivery company in New England. She serves on several boards, including the American Council for an Energy Efficient Economy.