Online Bill Payment Trends: Major Shifts in Resident Payment Behaviors Warrant Conversion to ACH eChecks July 6, 2015
Residents are increasingly paying rent and other monthly charges to Property Managers with electronic forms of payment. One preferred method of electronic payment – online banking bill pay – utilizes the tenants’ banks to process payments to Property Managers. Residents believe they are immediately transferring money directly to their Property Managers, which creates confusion, erroneous late fees, and cash flow problems for both the resident and the Property Manager. Residents are unaware that a paper bank check is created and mailed from Ohio back to Property Managers, sometimes delaying payments seven to ten days after residents originate the payment.
Based on the increased popularity of online banking bill pay, residents and Property Managers would benefit from converting their online banking bill payments to ACH eChecks. eChecks are processed through the national Automated Clearing House (ACH) network, converting paper checks to electronic ACH deposits. With ACH eChecks, residents’ payments are processed faster and more securely, saving them from potential late fees. Property Managers benefit from faster collections and happier tenants.
Monthly payment collection can be the bane of a Property Manager’s job. Numerous payment channels, various accounting systems, and reconciliation with bank postings can make the monthly task of collecting payments a nightmare. Further, as consumers become more comfortable paying bills online, Property Managers are experiencing a seismic shift toward electronic forms of payment, adding more payment channels and nuances to receivables.
According to ClickPay’s CEO, Thomas Kiernan, depending on the characteristics of the property, up to 35% of all residential payments originate from tenants’ bank accounts. While tenants believe they are directly transferring payments, Property Managers are attuned to the exaggerated process whereby banks initiate a paper bank check in Cincinnati only to be mailed back to the Property Manager seven to ten days later. A major disconnect exists as tenants have a false perception of time to debit and are often saddled with unexpected late fees. Equally as frustrating, Property Managers are stuck waiting for the postman with no visibility into the process timing.
To compound the challenge, the share of US households that rent their housing now stands at a 20 year high (Harvard JCHS State of the Nations Housing, 2015). The average Property Manager is likely managing more properties and tenants than ever before while juggling disparate offline and online payment methods.
In 2010, FiServ conducted a study and reported that 40 percent of all households with Internet access, or about 36.4 million people, use some form of online bill payment. The number of households paying bills online continues to increase over time while offline forms of payment are experiencing a decline.
Consumers gain a plethora of benefits from paying bills electronically. Bill payers save stamps and the inconvenience of finding a post box. Consumers can receive reminders when bills are due and schedule bill payments for free. Mobile bill payers grew 69% from 2013 to 2014, with consumers citing convenience, time saved, and ease of payment as the main reasons for adoption (Seventh Annual Billing Household Survey, FiServ 2014).
While consumers are naturally adopting electronic forms of payment, consumers are also pressured to adopt their banks’ online bill payment solution. Bank of America publicized a study demonstrating that online bill payers had higher retention and grew account balances versus similar customers that did not enroll in the bank’s online bill pay (http://thefinancialbrand.com/46672/explaining-the-online-bill-pay-effect/). “Arguably, the best way for a bank or credit union to become the primary financial institution is to turn the customer into a steady bill-pay customer. It’s a service that not only keeps customers coming back online regularly, but it also establishes a web of payments that customers are loathe to re-create at a new financial institution.” (Online Banking and Bill Payment Forecast: Active Users Grow While Bank Bill Pay Overtakes Biller Direct”, Javelin Strategy & Research, Mark Schwanhausser, July 2009.) Understanding that online bill payment creates stickiness, as of January 1, 2015, Citibank’s basic checking account necessitates a direct deposit and a bill pay payment (or maintaining prior month combined average balances) to avoid a monthly service fee. Therefore, bill payments through Citibank will likely jump in 2015.
Paying bills online is beneficial for both banks and consumers, thus likely continuing to increase in adoption over time.
A Top 50 Property Management company in New York received a call from a very unhappy resident. The resident received a late notice and associated late fee from the management company. The resident lambasted the Property Manager for the notice because she had a bank confirmation of online bill payment for the 29th, which was well before the late fee cutoff of the 5th of the month. The Property Manager told the resident that the payment was deposited on the 8th, initiating a late fee notice because the payment was not received by the 5th of the month. Both parties left the conversation confused and upset.
Digging into the details, the tenant initiated her bank’s online bill pay on Friday the 29th. The tenant’s bank outsources its check printing to a third party. The third party is allotted 2 business days to process the request. Taking into account the weekend, the third party did not process the request until Wednesday the 3rd. The check was cut in Akron, Ohio and then sent back to New York via snail mail. Counting another weekend, the Property Manager received the bank check as expected on Monday the 8th. Therefore, the tenant was required to pay a late fee due to no fault of her own. Unfortunately, this situation is all too common and can easily be avoided by converting online banking bill pay clients to ACH eCheck. According to ClickPay’s analysis, an average of 6,000 checks arrive to ClickPay’s lockboxes on the 3rd of the month. If the Property Management companies of those residents enrolled in ClickPay’s solution, those paper checks would have been electronically processed into ACH and in the Property Manager’s operating account by the 5th of the month, which would be considered an on-time payment for even the earliest of payment deadlines. Instead, the paper checks processed through ClickPay’s lockbox on the 3rd of the month will likely incur a late fee, even if the Property Manager denotes the 10th of the month as the late fee cutoff date.
Fortunately, a solution exists in the form of electronic check processing, or eChecks. Echeck processing performs the same function as a traditional paper check — transferring funds from one party to another — but the payment is made electronically through the ACH network instead of through the physical acceptance and routing of a paper check. Electronic checks can therefore be processed much faster and more inexpensively than conventional checks. Security is improved over paper checks, too, because electronic encryption of personal and payment information helps prevent data theft and fraud.
ClickPay’s biller network replaces bank checks with electronic transactions at the biller level, eliminating the need for banks to mail checks. ClickPay’s electronic check processing solution also includes advanced decisioning software and biller network that electronically deciphers and posts payments to the proper accounts. ClickPay allows its clients to eliminate paper and snail mail along with the tough decisioning process that comes along with receiving paper checks without coupons and accurate account numbers.
In comparison to the aforementioned Top 50 Property Management company, another Top 50 Property Management client of ClickPay’s switched to ClickPay’s Online Banking Bill Pay Solution. The Property Management company is extremely pleased with its results. Frustrations around time delays and cash flow have decreased. Residents rarely call complaining about late fees or delayed debits. Overall, all stakeholders are happier and the collection of payments is working like a dream.