Does It Pay to Allow Credit Card Payments for Utility Bills?

Paying bills with a credit card and online has become a reality for consumers for a variety of reasons: from the convenience and ease offered by online payment options, to  the perks offered by credit card companies for using their card. Utilities have historically been slow to offer credit card payment options, for reasons including how to deal with the transactional fees, how to maintain the processes to allow these transactions, and the potential societal question of whether allowing credit card payments for a utility bill is acceptable.  However, while only 41% of utilities reported accepting credit cards in 1999, 81% have accepted credit cards for payment of utility bills by 2006.¹  A recent study reveals that 92% of the major energy providers nationwide offer payments through the major credit cards.²

In 2005, a major marketing campaign by Visa and Mastercard opened the utility industry to accepting credit card payments, by reducing the interchange rates charged for each transaction For typical merchants these rates may be as high as 2% per transaction, but Visa and Mastercard were lowering their rates to 75 cents per transaction for utility companies.³  The question turned at that point, to how to offset the cost in order to reap the benefit of quicker payment.

Utility companies look to a variety of options to offset this cost.  Many utility companies tie the ability to pay by credit card to its website, reducing the company’ staffing  costs at the customer service call center, or walk up window and of physically opening and processing payments. Some of the websites advise the user, that a fee may be associated with use of the on-line payment option. ElectricEnergyonline.com suggests that 50 percent of all calls made to customer care are related to billing and payment.⁴   Other companies have tied the payment function to the customer’s voluntary suppression of paper statements, or at least made the option available at the time of the online credit card payment.  This further reduces the cost of mailing statements.5   Finally, allowing customers the option of automatic payments on their credit card each month reduces the rate of non-payment to the utility provider. 

Beyond the simple cost to implent a program for credit card payment, utility companies have had to determine how to  manage the on-going transactional costs, and whether to pass on  the transactional fees to the utility customers.  The question becomes whether to charge  each customer who utilizes the online credit card payment function the fee, or to pass the cost on to all  customers across the board.⁶   Regulations, from the credit card companies themselves, in addition to those that govern the utility companies in each state,  may dictate how the cost can be passed on to the customer.⁷ 

Utility companies also must keep in mind that while some consumers use their credit card to pay bills to make use of the perks offered to the consumer by their credit card company, others do so because they are unable to pay their monthly bill and must resort to accessing a credit line.  Perhaps these customers are best served by the variety of state and federal programs to prevent shut-offs during the winter.⁸  Allowing basic necessities to be paid by credit may only worsen the customer’s long term financial outlook.⁹

In 2008 Javlin Strategy & Research predicted that 83 million households will be banking online by 2012, with 45 million paying bills through their banks and 56 million viewing and paying bills directly at the creditor’s website.¹⁰  Clearly, the need for online and credit card payment options will continue to increase.  Utility companies should consider how best to provide this option to customers, while keeping the costs and risks at a minimum.