Managing the rising costs of payment acceptance with service fees

January 19, 2022

How service fees help governments and public universities expand payment options while offsetting costs.

 

Changes in payment preferences have accelerated in the past two years as consumers – especially Millennials and GenZ – pivoted to convenient digital and remote transactions. Government agencies and public universities must be prepared to accept any method of payment presented in person or digitally, while carefully managing acceptance costs and delivering an outstanding customer experience.

Online and other card-not-present acceptance methods typically carry a higher risk of fraud, so the card brands establish higher interchange rates for those transactions. Higher payment acceptance costs can present a challenge for financial controllers at government agencies and public universities on fixed budgets whose goal is to expand card acceptance environments while containing accompanying expenses. One effective way to accomplish this is to implement service fees to help offset the cost of accepting payments.

 

Why service fees work

Government agencies don’t have to search for ways to cut corners or limit services in the face of rising payment acceptance costs. Implementing service fees provides eligible entities with substantial cost savings that can be used to shore up against budget shortfalls. The costs savings can also help fund other services or programs for citizens and students.

A service fee is a flat or percentage-based fee on transactions paid with methods other than cash or check, which can be collected with a payment in both card present and card-not-present environments. Service fees are authorized by the various card brands and have been around for more than 10 years, and consumers have become accustomed to paying service fees for certain services in exchange for the ease – and reward points – of using their preferred payment method. According to our 2021 Government Payments Insight Report, 60% of consumers say they willing to pay a service fee for the ease and benefit of using a credit card, debit card or digital payment method.

 

Implementing a compliant service fee program

Service fees can be time-consuming and confusing to implement. There are specific card brand rules governing the collection of service fees. However, a successful program can be revenue neutral, allowing allocation of funds to important programs and services without levying new taxes or fees.

One place where government agencies under tight budget controls have been able to achieve success by offsetting costs through service fees is the Department of Motor Vehicles (DMV).

 

Case study: How service fees helped a DMV save money and improve the payment experience

One of the most active DMV agencies in the country – employing over 8,000 people and serving millions of residents – received a mandate to start accepting credit cards in all their field offices within a year, without increasing their existing operating budget.

The DMV decided to implement a managed service fee program tailored to their unique needs, requiring the program to seamlessly integrate with the multiple information technology partners that work with the agency.

The service fee program was an immediate and welcome success, modernizing the department and its field offices. The DMV now affordably accepts payments made online or at any facility via credit cards, debit cards and digital wallets. Residents pay when, how and where they want, while enjoying shorter queues, which has led to higher customer satisfaction levels. DMV employees enjoy the operational efficiencies of streamlined processes, less paperwork and simpler reconciliation.

An unexpected benefit was realized when the COVID-19 pandemic resulted in the closure of all offices for three months in 2020. Online, IVR and kiosks replaced in-person payments, allowing customers to continue paying for the services they needed. Once the field offices reopened, customers were able to then pay via safe contactless methods by tapping a card, phone or wearable.

The DMV is happy with their decision to implement a managed service fee program and is operating much more efficiently without breaking their budget.

 

Interested in learning more about how service fees and other solutions can help optimize costs while offering consumers the ability to pay any way they prefer? Here are a few resources to help:

Read our Government Payments Insight Report

Read the PDF of the full DMV case study

Read about the latest payment trends in higher education

 

Related content

Employee benefit plan management: Trustee vs. custodian

Delivering powerful results with SWIFT messaging and services

Integrated receivables management solution supports customer focus at MSC Industrial Supply

Solutions banks can offer during the COVID-19 pandemic

Improve government payments with electronic billing platforms

Emerging A/R solutions use artificial intelligence to target efficiency

Addressing financial uncertainty in international business

ABCs of APIs: Drive treasury efficiency with real-time connectivity

Hospitals face cybersecurity risks in surprising new ways

How jumbo loans can help home buyers and your builder business

Payment industry trends shaping that are the future of POS

Real-time payments: the next major treasury disruptor

Higher education strategies for e-payment migration, fighting fraud

4 ways to make practical use of real-time payments

Benefits of billing foreign customers in their own currency

How real-time inventory visibility can boost retail margins

How emerging banking solutions enable better decisions

Webinar: Key issues impacting relocation in 2021

4 benefits to paying foreign suppliers in their own currency

Crack the SWIFT code for sending international wires

Flexibility remains essential for public sector workforces

Webinar: Cash management strategies for higher education

Escheatment resources: Reporting deadlines for all 50 states

Empowering managers with data automation and integration

Colleges respond to student needs by offering digital payments

Want AP automation to pay both businesses and consumers?

Zelle® for business makes faster payments to realtors at Sunriver Resort

Can faster payments mean better payments?

Automate accounts payable to optimize revenue and payments

Artificial intelligence in finance: Defining the terms

Adjust collections to limit impact of USPS delivery changes

Post-pandemic fraud prevention lessons for local governments

How electronic billing platforms improve government payments

Key considerations for online ordering systems

Rethinking common time management tips

Using merchant technology manage limited staffing

Business credit card 101

How Everyday Funding can improve cash flow

Do I need a credit card for my small business?

How to apply for a business credit card

How a small business is moving forward during COVID-19

5 tips to help you land a small business loan

How to accept credit cards online

Drivers for changing accounts receivable in 2021

Digitizing receivables to transform B2B rent payments

Ease your transition to remote banking

4 ways Request for Payments (RfP) changes consumer bill pay

Time is money: Intelligent Payment Routing saves businesses both

Increase working capital with Commercial Card Optimization

How AR technology is helping advance payment processing at Avera Health

3 timeless tips to reduce corporate payments fraud

Digital trends poised to reshape hotel payments

ePOS cash register training tips and tricks

Three healthcare payment trends that will continue to matter in 2022

The surprising truth about corporate cards

Managing the rising costs of payment acceptance with service fees

Digital banking for business: How connectivity improves customer experience

Safeguarding the payment experience through contactless

3 ways to adapt to the new payments landscape

How AI in treasury management is transforming finance

Automate escheatment for accounts payable to save time and money

The benefits of payment digitization: Pushing for simplicity

Cashless business pros and cons: Should you make the switch?

Understanding and preparing for the new payment experience

White Castle optimizes payment transactions

Collect utility and telecom bill payments faster

3 reasons governments and educational institutions should implement service fees

Rent payments: What’s changing for commercial real estate

Sophisticated investors reduce costs with block trading

Protecting cash balances with sweep vehicles

Understanding the role of authorized participants in exchange-traded funds

Tech lifecycle refresh: A tale of two philosophies

OCIO: An expanding trend in the investment industry

What corporate treasurers need to know about Virtual Account Management

Treasury management innovations earn Model Bank awards

At your service: Outsourcing loan agency work

Webinar: Reviving mobility, what to expect

Tailor Ridge eBill case study

Webinar: Navigating today’s work-from-anywhere world

Webinar: DEI tips for transforming your mobility program

ABCs of ARP: Answers to American Rescue Plan questions for counties

Overcoming the 3 key challenges of a lump sum relocation program

5 Ways to protect your government agency from payment fraud

Government agency credit card programs and PCI compliance

Buried treasure: Maximizing analytics for treasury management

3 benefits of integrated payments in healthcare

How RIAs can embrace technology to enhance personal touch

Banking connectivity: Helping businesses deliver the easier, faster, more secure customer experience of the future

Unexpected cost savings may be hiding in your payment strategy

Webinar: AP automation for commercial real estate

Webinar: CSM corporation re-thinks AP

Webinar: A closer look at U.S. Bank AP Optimizer

Top tips for card payments optimization

The future of financial leadership: More strategy, fewer spreadsheets

Tech tools to keep your restaurant operations running smoothly

A simple guide to set up your online ordering restaurant

COVID-19 safety recommendations: Are you ready to reopen?

Principles to pursue in revitalizing Accounts Payable

How to improve digital payments security for your health system

Higher education and the cashless society: Latest trends

Government billing survey: The digital transformation of the payment experience

Enhancing liquidity management: 4 benefits of visibility

Top 3 ways digital payments can transform the patient experience

How to accept credit card payments without transaction fees

Webinar: Fraud prevention and mitigation for government agencies

CFO report: Driving growth via new business models and technology

CFO insights: Leading the recovery for sustainable growth

The client-focused mindset: Adapting to differing personality types

CFO survey: A shifting focus on ESG in business

Innovative payroll solutions may help attract hourly workers

Digital receivables to meet changing demand

Save time with mobile apps for business finances

Automated escheatment – learn how to prevent and resolve unclaimed property

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Webinar: Recording of the Central Securities Depository Regulation and Pivot

Webinar: CRE technology trends

Webinar: AP automation—solve payment challenges with an invoice-to-pay solution

Webinar: Robotic process automation

Webinar: Economic, political and policy insights

Webinar: CRE treasury leader roundtable

Authenticating cardholder data reduce eCommerce fraud

Webinar: Building digital bridges for treasury optimization

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.