3 reasons governments and educational institutions should implement service fees

Service fees on transactions are a useful tool enabling the public sector to respond to both cost pressures from a churning economy and the ongoing shift to digital payments.

All public sector organizations are feeling the cost ramifications and strain of inflation, higher labor costs and global instability, each in their own way. For instance, in higher education, falling enrollment and rising tuition are driving budgetary shortfalls that negatively impact the ability to hire talent, expand research and teach the workforce of tomorrow.

At the same time, we’re seeing a massive migration to digital payments in both the private and public sector. As more citizens have adapted to using digital options for everyday business transactions, they expect local governments to keep up with available technology.

Service fees are part of that transformation. When added to certain payment acceptance environments, they can help organizations afford technology upgrades that improve overall user experience, as well as support timely payments and budget forecasting. Furthermore, innovation that creates cost efficiencies and boosts revenue collection can build more engaged, resilient public sector entities.

What's a service fee? Essentially, it's a flat or percentage-based fee on transactions that utilize payment acceptance methods other than cash or check. Public sector organizations can add service fees to all non-cash payment methods, including in-person payments. There is enough flexibility in how you can structure your service fee model so that you can tailor your implementation to fulfill your organization’s unique needs.

Here are three reasons to integrate service fees into your payment acceptance methods.

1. Offset costs of accepting payments

Because public sector organizations and higher education institutions operate with budgets funded by taxes, federal dollars, utility charges, grants and endowments, optimizing payment acceptance and processing is critical. For many merchants, credit card fees are one of the biggest business expenses after labor and rent. Controlling payment acceptance costs — and being able to forecast future savings — can help your organization operate efficiently.

Government service fees are revenue-neutral and carry no set cap restrictions, so you can leverage a fee amount or percentage that fits your organization’s cost model. With other fee models, there are more stringent operational restrictions. An example would be the convenience fee model for which you can only apply fees in an alternative channel that provides extra convenience, such as paying online rather than in person or by mail. Our team can help you navigate the nuances between the models so you can implement a program that meets your needs.

2. Affordable way to expand payment acceptance

Besides helping to control costs, service fees help you meet shifting consumer payment preferences. According to our recent report, consumers significantly prefer physical card (68%) and contactless card (62%) payments to cash (48%) or check (21%).

One survey shows that digital payment options are the new norm; 90% of respondents used some form of digital payment in the last year and 73% bought or paid for services through a website or browser, whether on a computer, tablet or phone during that time. But our survey shows that government lags other industries, with only 22% of government leaders saying they employ an advanced payment acceptance strategy, compared to 39% in retail and 28% overall across industries.

And, some constituents still prefer to pay by mail, so finding a payments program that can be accessible to all is critical. According to a Springbrook Software survey, 34% of respondents said they had paid a government bill via postal mail within the previous year.

3. Improve efficiency and customer experience

Citizens and students rely on the vital services that government agencies and higher ed provide. Finding ways to improve payment acceptance and processing can help drive consistent revenue collection and free up staff to devote more time to providing the services at the core of that organization's mission. In today's digital world, time-crunched and tech-savvy people are willing to pay to get things done faster — and understand service fees as a convenience cost that saves them time standing in line or taking time off to go to the DMV or the registrar. According to PYMNTS.com, 79% of consumers say service fees on transactions don't negatively impact their view of the organization, and 85% pay service fees without issue.

Service and convenience fees are valuable tools to help your organization to operate more efficiently and create a better customer experience. By assessing such fees, your organization can invest more time and effort in helping the communities it serves.

If you’re looking for solutions that help you cut costs today while making strategic investments for tomorrow, learn more about how service and convenience fees can help.