How an Alabama firm made millions off Philly homeowners paying water bills online

Philadelphia Water’s $4 “convenience fee” is among the highest in the nation.

Philadelphia Municipal Services Building

Philadelphia Municipal Services Building

Screenshot Google
maxmarin-square

Updated 9:23 a.m.

For most Philadelphians, time is valuable and $3.95 is not a throwaway sum.

That’s the cost of the “convenience fee” the city charges to pay your residential water bill online with a debit or credit card. The fee is one of the highest of its kind among major utility companies nationwide — it’s a whopping 40 percent higher than the national average of $2.87, according to market research company J.D. Power.

Despite that, about one in 10 Philly homeowners pay up for the “convenience.” Water bill payments brought in $1,946,742 in fees during fiscal year 2018, according to the city’s Department of Revenue. (That amount includes commercial property owners, for whom the fee is sevenfold.)

If you’re thinking these funds might go toward better schools or roads, think again. Municipal government doesn’t see a cent. The fee revenue instead goes directly to the e-service agency the city has worked with since the mid-2000s, Official Payments Corporation.

Recently, Philadelphia Water negotiated a new contract with a different vendor that includes a lower convenience fee of $2.95. The new plan is set to go into effect at some point next year.

So what took so long?

Extending a lucrative contract

Official Payments Corporation is an Alabama-based company whose clients include the IRS and local municipalities across the nation. Its contract with the city is a bit unusual: In lieu of receiving a fixed amount for services, the city allows Official Payments to collect all of its compensation from processing fees.

It’s unclear how many times Official Payments’ fee schedule has increased since the city began its contract in the mid-2000s. But the convenience fee has sat at a neat $3.95 since at least 2010, far above the industry standard.

“The industry is competitive and it’s definitely something that is negotiable,” said Andrew Heath, senior director of utility practices at J.D. Power. “If you look at other cities, there’s range of different fees.”

The Water Department itself has no say in billing issues — that’s the job of the Water Revenue Bureau within the Department of Revenue. Even looking locally, it’d be hard for the bureau to plead ignorance: PECO’s debit and credit fee is $2.25 per transaction. Philadelphia Gas Works? $2.95.

Yet in 2014, the city put out a proposal request for a new e-payment provider, and decided on Official Payments again.

Rebecca Lopez Kriss, director of taxpayer and water customer outreach at the Department of Revenue, said the city did negotiate a free echeck option with Official Payments in 2016. That method has become more popular — about 7 percent of water customers use it now. But Official Payments wanted a concession to cover those losses, and so the city raised the convenience fee on commercial property from $15 to $25 per transaction.

Official Payments, which was acquired by ACI Worldwide in 2013, did not return requests for comment.

The e-payment giant sees the largest chunk of its Philly revenue from water bill processing fees, but also handles the credit and debit processing for municipal taxes. (For credit and debit payments on tax bills, Official Payments takes 2.5 percent of the total bill, rather than a flat fee.) All told, its collections have nearly doubled in the last two years — from $1,996,065 in fiscal year 2016 to $3,586,907 in fiscal year 2018.

That leap may have grabbed the city’s attention. Lopez Kriss told Billy Penn that the city negotiated a new contract with e-payment provider Kubra, as well as an amended contract with Official Payments.

With Kubra, which will handle the water transactions, the credit and debit fee will go down to a flat fee of $2.95 for residential property owners. There will be lower convenience fees for tax and commercial water bills, and the echeck option will remain free.

Abolish fees? Not anytime soon

There are other, free electronic options to pay your water bill. Zero-cost automatic withdrawal is available for those whose bank accounts can handle a $66 debit without notice, which is the average monthly water bill for a residential home in Philly. That amount of money represents a real challenge for low-income Philadelphians.

“I think it’s accepted that a lot of low-income-people take care of bills in different way,” said Rob Ballenger, a staff attorney at Community Legal Services who focuses on utility access. “But for most of my clients it’s not a matter how to pay the bill, it’s a matter of the bill itself.”

With hundreds of millions of dollars in delinquency spanning over a decade, making payment easier and user-friendly is the constant goal for the Water Revenue Bureau. Lopez Kriss stressed that revenue staffers frequently remind customers about free payment options. To date, about 8 percent of water bills are still paid in person at one of three revenue collections officers citywide, including the Municipal Services Building.

But for now, the debit-credit fee is going to remain, even as other utility companies try to move away from it to make customers happier.

In general, when customers are charged a service fee, they report lower levels of satisfaction with their utility provider, J.D. Power found. Gas and electric companies have begun doing away with the fee entirely. That hasn’t happened yet in the water utility world, but it’s starting: Memphis’ water supplier has completely done away with the convenience charge, the first of the 17 largest U.S. metro markets.

It might be feasible for the Revenue Department to offset the cost with other savings — say, from stopping old-fashioned paper bills. Water is only major utility in Philadelphia that doesn’t offer a paperless billing option.

“Most utilities are focusing on going paperless,” Heath said. “Some utilities have gotten the point where you have to request a paper bill, as is the case with cell phone companies.”

Sending out bills isn’t cheap, either. The Water Revenue Bureau spends $4.3 million each year on stamps and mailing supplies alone.

A spokesperson for Mayor Kenney confirmed the agency plans to roll out a paperless billing plan in spring 2019. By that time, you can expect to save a buck on the convenience fee, too. Don’t spend it all in one place.