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HomeMy WebLinkAboutItem 1d - Amendment to Contract for Electronic Web-Payment ServiceAupusc i, IYU3 �- DATE: TO: FROM STAFF REPORT Administrative Services Department March 17, 2015 Honorable Mayor and City Council Hue Quach, Administrative Services Director Shannon Huang, Financial Services Manager /Treasurer SUBJECT: AMENDMENT TO CONTRACT WITH HP ENTERPRISE SERVICES, LLC FOR ELECTRONIC WEB- PAYMENT SERVICE Recommendation: Approve SUMMARY On February 21, 2012, the City Council approved a three -year contract with HP Enterprise Services, LLC to host the City's electronic bill payment services for water utility and parking citation payments, and to collect the convenience fees from the users on per transaction basis. After almost three years of implementation, the participation rate is still low. Staff further evaluated the program and re- negotiated with the vendor. As a result, the vendor offered a favorable proposal to reduce the convenience processing fee if the City opted to absorb the costs rather than charging the fees directly to the customer. Based on the experiences of other municipal agencies, the participation of electronic payments increased once the convenience processing fee was eliminated. With more participation in electronic payment, there is a direct benefit that results in the efficiency of the overall collection process. It is recommended that absorb the fees associated with electronic payment through HP's service, and to extend the contract for three additional years. Changing the current policy to begin absorbing the convenience processing fees requires an additional appropriation of $11,200 from the General Fund; the extra processing cost will be added to the fee structure in the next fiscal year. DISCUSSION The City accepts payments by credit card, check, and cash through mail or at the City Hall Cashier counter. Automatic debit services are also available to our water utility customers by setting up an Automated Clearing House transfer (ACH) from their bank account. In early 2012, web electronic payment was added as an additional payment option; however, it included an added charge of a convenience processing fee. HP Enterprise Services LLC. Contract Renewal March 17, 2015 Page 2 of 5 HP Enterprise Services, LLC was selected through a Request for Proposals process, among vendors who provide a hosted Payment Card Industry Data Security Standard (PCI -DSS) compliant electronic bill payment services. All services, including both hardware and software, were implemented and maintained by the vendor. The web - based electronic bill payment service accepts credit card and e -check through the Internet and payment by phone (IVR) services 24 hours a day and 7 days a week. The users are required to pay a convenience processing fee of $2.95 for credit card transaction and $2.50 for e -check payment for the option of paying water utility charges online, and $2.50 for parking citation payment. The fees are disclosed upfront prior to the authorization of any payments, with the entire amount of the convenience processing fees collected by the vendor and the City receiving payments for the water billing or citation amounts. After negotiation with HP Enterprise on reducing the fees, they have proposed a favorable rate of $0.45 per transaction on the condition that the City pays for the credit card fees through our own merchant vendor. The reduced fee proposed by HP was with the anticipation that the number of electronic payment will increase significantly once it is free to the user, so their overall service fee will not reduce. The increased volume on electronic payments will also improve both efficiencies and accuracy of the collection process within the Financial Services Division. The City supplies water and sewer services to approximately 15,000 households in the City, and issues 7,500 bi- monthly bills each month. The level of participation for water utility payment has been low due to the convenience processing fee charged: we currently receive approximately 130 -150 web - payments a month, which is equal to approximately 2% of the monthly bills. Once the convenience processing fee is eliminated, the City will need to pay approximately $1 of credit card fee on an average water bill of $125 in addition to the $0.45 charged by HP. The total per web payment is estimated to be $1.45 on average versus the current charge of $2.50 per transaction Staff attempted to survey surrounding cities on their current credit card fees but only received responses from the City of Monrovia and Monterey Park. The City of Monrovia has an average credit card fee rate of $0.75 per transaction. However, Monrovia is on a monthly billing cycle as opposed to the bimonthly cycle in Arcadia. As such, when adding the total billed amount of both cities on a similar cycle, both cities have similar credit card fees at the rate of $1.45 - $1.50. The City of Monterey Park has a transaction fee of $2.50. Depending on the level of participation, the aggregate fees for water utility are estimated to be as follows: HP Enterprise Services LLC. Contract Renewal March 17, 2015 Page 3 of 5 TABLE I - Water Utilitv Level of Participation No. of Payments per month Total Annual Cost 20% 1,500 $26,100 30% 2,250 $39,150 40% 31000 $527200 50% +_37750 $657250 Currently, approximately 25% of citations are paid through the online portal. Due to the lower cost of parking citations, the total per transaction costs charged will be higher, at approximately $1.94. The estimated costs in total are as follows based on 10,200 citations collected in a year depending on the level of participation: TABLE II - Parkinq Citations Level of Participation No. of Payments per month Total Annual Cost 30% 255 $5,900 40% 340 $7,900 50% 425 $9,900 Staff conducted a survey with the neighboring agencies and found that the majority of agencies offer free online options for utility payment, but still charge a fee for parking citation web payment. Table III below includes both fee charges and participation rates provide by other water agencies. Participation rates for parking citation were not generally available. The result is significantly different from the last survey conducted before the implementation of electronic payment option. Many agencies have eliminated the convenience processing fee for online water payment transactions over the last three years. HP Enterprise Services LLC. Contract Renewal March 17, 2015 Page 4 of 5 TABLE III — City Survey of Online Usage (Water) Water Utility Citation Agency On -line per transaction fee Particiation % City of Pasadena No fee 30% City of Monrovia No fee 20% City of Monterey Park No fee, effective November 1st N/A City of La Verne No fee N/A City of Glendora No fee 20% City of Glendale No fee N/A City of Alhambra No fee 55% City of Azusa $3.25 up to $500 N/A Cucamonga Valley Water No fee 30% Sunny Slope Water $3.75 N/A California American Water $1.80 N/A Golden State Water N/A N/A San Gabriel County Water N/A N/A On -line per transaction fee 0 $3.50 $3.95 for $100 and under, then 5% $3.00 $3.50 $3.95 $3.00 $3.00 Although the survey showed that the majority of cities still charge a convenience fee for citation web payments, it is recommended that the City eliminate this charge for both water utility and parking citation payments in order to eliminate confusion and the frustration that the public may have as a result of charging a fee for one type of payment versus another. The straightforward access to the web payment option could lead to efficiencies in processing payments and curtail overall costs. As part of the ongoing water rate study, the cost of absorbing credit card charges for online payments will be built into the proposed rate structure. The additional charges for parking citations will also be considered when User Fees are reviewed in the upcoming Fiscal Year. In the meantime, the City will need to absorb the additional costs. The contract with HP Enterprises will expire in April of 2015. It is recommended that the City continue using the services provided by HP Enterprises and extend the contract for three more years. Staff is satisfied with the services provided by HP and has received positive feedback from users. HP Enterprises was first established in 1994 and has provided web payment services to more than 400 clients nationwide including higher education and state and local government. The contract provides the option to terminate the agreement at any time with 60 days written notice. HP Enterprise Services LLC. Contract Renewal March 17, 2015 Page 5 of 5 FISCAL IMPACT The cost of absorbing online fees for water utility and parking citation payments is estimated to be between $32,000 and $75,150 annually, depending on the level of participation. For the remainder of the current fiscal year, the costs are estimated to not exceed $11,200. An additional appropriation is required from the General Fund for this activity and sufficient funds are available. RECOMMENDATION It is recommended that the City Council authorize and direct the City Manager to execute an amendment to the contract with HP Enterprise Services, LLC for electronic web - payment service from a convenience fee method to the City absorbing the costs, and extend the contract for three years. Approved. Dominic Lazzar t City Manager