Credit Card Fees

Hi, if your property charges a convenience fee for paying rent with a credit card, what percentage of your residents use that option? And, do they do this on a recurring basis?

Thanks,

Russ B.

Hello Russ,

This is a double edge sword. I am not a fan of charging them a convenience fee. Simply because if it meant getting the rent on time then I say lets do it and do it without throwing something else at the tenant.

Now that being said I kept an eye on those that make a habit of paying with a credit cards all the time because it can be a warning that they are sinking. Now notice I did not say anything about a debit card use.

The other habit I look for were people that always came up and paid with either check or debit card and now they are using credit cards. I pay attention to them as well. Does not mean anything will go wrong, but if it comes a time of being late with rent, then it is not a surprise and I handle according to the situation. Normally there were penalties which made people to not to want to miss their payment due dates because the penalties were so high for failure to pay on time.

Hope this helps!

Something else to consider is the fact that a resident may prefer to use credit cards for many transactions for no other reason than the frequent flyer miles and other perks the credit cards are still offering.

One of my dad's old business partners travels frequently for business, and uses his frequent flyer miles for vacations.

If you have a resident that does this, it is not necessarily an indication of trouble.

Now, if a resident chooses to pay with credit/debit cards as an automatic payment (as opposed to the occasional transaction which may indicate trouble, unless the resident happens to be traveling for whatever reason and is away when rent is due); I would eat the fee myself by telling the company to invoice you for these charges, or by doing a monthly concession to the resident equal to the charges.

You may also want to consider offering the resident the ability to pay via ACH transfer (like many gyms do) instead. The resident never brings a check to you; it is automatically transferred into your account and a transaction report is sent to you for your records.

Thank you, Karma. Very helpful.

Who is Karma?? lol

Hi!

With my prior company, we were the first in the DC area (this is quite a while ago now) to partner with American Express when they ventured into the Multifamily World. You are not allowed to pass the fees along to the resident when you partner directly with AmEx. As we were an early adopter, we received a marketing edge by doing this, and typically saw higher rents and occupancies than our competitors (and when analysis was done, the renters paying on recurring AmEx payments were living in more expensive apartments than their counter-parts and tended to stay a little bit longer). I can't say that this was purely due to allowing recurring AmEx payments, but do believe it played a role (especially because credit cards were not yet widely accepted at this point). We had 30-35% of residents at the communities where this was offered signed up for recurring payments with AmEx (making life easier for the onsite team).

Fast forward to the recession, and our investment partners were no longer willing to eat the fees (which were substantial as most of the communities where this was offered had average rents of over $2000 per month). At this time, said company went to one of the 3rd party industry vendors to allow for online payments. With this set-up, for credit cards, the resident pays the fee. Online payment adoption was high (with ACH being the most used), however, credit card payments dropped to under 10% as residents did not want to pay the associated fees (even if you are getting points/mileage....who wants to pay over $50 more per month (again, remember the rent levels) to get points?).

Allowing credit card payments can be a great amenity, and if you are able to absorb the fees, adoption can be high, and make your life onsite easier.

Regarding the comments about "watching" residents who pay with credit cards, you need to look at your market and demographic. Broad statements can't be made about who pays with credit cards. I work in the DC Market, and our customers like the recurring payment options (credit card or otherwise) because they are busy and it makes their lives easier. I use my credit cards for as much as possible so that I am getting points along the way (and even right out of college, I've never gotten myself into trouble with any kind of credit card debt)and don't have to worry about carrying cash around with me.

I have always turned this into 2 discussions. One is the leasing process and the other is rent collection process. In my years of running properties I have been on both sides, Charging and Not Charging Fees. Either way I never found a big change in the percentages.

I think that consumer is fully aware of merchant fees. Therefore it is logical to pass along the fee to the user. The resident is offered the least expensive option to provide a payment, a check in the night drop. We as industry have moved to scanning checks and other steps of automation all with the intent to drive down our operating costs.

With that said, I think the best place for credit card usage is in the front-end of the leasing process -- App Fees, Deposits, Etc... I don't think or advocate the idea of charging service fees at this point in a relationship. "Thank you for your $50 App Fee, by the way there is a $2.85 service fee..." Doesn't make for a very pleasent closing...

I think my point is that it is our job to keep our costs down as low as we can and pass along the savings to our residents. If a resident chooses to use a credit card, they are in turn chosing a more expensive option.

I do not personally believe in using credit (money I don't actually have) for day to day living needs; so I keep it's use to a minimum. At the same time, I refuse to pay a 'convenience fee' for using a credit/debit card when it can be avoided by paying another way.

If your property is large enough; you can probably afford to pay these fees and not pass them to the resident. Anything over a 2% fee is unreasonable. Most merchants pay less per swipe from what I understand. If you can get a flat fee per transaction instead; I would go with that. Move in funds should only be paid in certified funds; but if you do accept credit/debit card payments, limit it to application fees and rents subsequent to move in and do NOT accept credit card payments if rent is already late, or if the resident has a track record of late payments.

We look at this in terms of committing to a certain level of service. We do accept credit cards, but we do pass through the convenience fee. However, we have already committed support teams to setting up a fully functioning portal to submit service requests and pay rent on-line. Automatic debit is free and that is a convenience tool. You've matched many businesses in on-line commerce just by doing that. If restaurants and merchants passed through the fee, it would be a risky decision because use of credit cards in those arenas is huge...for multifamily, it's not. There are other ways to build a marketing edge. It sort of follows the ancillary revenue discussion - some properties charge an "amenity" fee. We wouldn't do that. Convenience fee on credit card, yes. Fee to use the pool? No. Goes with your service strategy.

It's an interesting discussion, we pick up the ACH / auto debit fees, just not the convenience fees. We just didn't feel that's why people were making their decision to rent at one of our communities.

You can commit to the same level of service without collecting convenience fees.

If you are charged a fee for ACH or AutoDebit, why are you not passing those along like a convenience fee?


If someone is using a credit card as a one time transaction, I can see passing along the convenience fee; but if the resident makes that his preferred form of payment and the transactions occur on time, I see no reason to pass that fee along to the resident.


There are other ways to generate or increase ancillary income than to collect extra fees like this. If I were a resident and wanted to pay this way; I would seriously reconsider my housing options and look for another solution that would allow me pay how I want without incurring additional fees.

If your 10 closest comps all accept credit card payments, and they all pass along the convenience fees; how different would it be if you didn't? How many more leases would you gain or retain as a result? How much would it cost your NOI?

Is anyone using the small scanners with Iphone/Ipad apps to accept credit cards for payments made on site? How is it working out?