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In a relatively short time span, electronic payments have moved from novelty to commonplace. Now that even fast food places accept debit and credit cards, isn’t it time for property management to ride the wave of e-commerce?
The consumer is certainly comfortable with the concept. People who once approached ATMs with suspicion now shop without thought over the Internet. Telephone companies, Internet Service Providers, and cable companies have customers who are used to and comfortable with paying their bills electronically. Many consumers like the advantage of being able to view their billing statements and review past billing history online.
Recently Visa USA reported that the number of properties offering tenants the option of paying their monthly rent with a Visa debit or credit card increased 43 percent to 1,000 properties as of last June. Visa’s presence at apartment properties represents 350,000 rental units nationwide.
In March 2004, the National Automated Clearing House Association (NACHA) released statistics showing that more than 10 billion automated clearing house payments were made in 2003. These ACH payments, valued at $27.4 trillion, represent increased of 12.0 percent and 12.3 percent, respectively over 2002. ACH payments include Direct Deposit of payroll, Social Security benefits and tax refunds, Direct Payment of consumer bills, e-checks, business-to-business payments, and Federal tax payments.
For the first time, the number of debits originated by commercial financial institutions exceeded the number of credits, largely due to the rapid growth of the five consumer ACH debit application (e-checks) implemented since 1998.
Collectively, more than 1.3 billion e-check payments were made, a 154 percent increase over 2002. The five applications include: Internet-initiated ACHA debit; Accounts Receivable Check conversion (ARC); point-of-purchase (POP) check conversion; telephone-initiated ACH debits (TEL); and Re-presented check (RCK).
MOVING ELECTRONIC PAYMENTS TO PROPERTIES
Forward-thinking property management firms AIMCO, Post Properties, Westdale Asset Management, Lincoln Properties and Village Green have embraced electronic payment systems for security deposits and rents with great success. Apartment-hunters and established residents are more and more accustomed to whipping out the card, and welcome – almost expect – the convenience of paying with plastic.
The field of e-commerce is exploding. The proliferation of new payment systems and associated tools is understandably intimidating to property management professionals. Even the vocabulary is foreign: ACH, ARC, payment gateways, POS (point of sale) terminals, and Web portals.
The common denominator in electronic payment systems is flexibility. As property managers, depending on your sense of adventure, you can offer your residents a wealth of options ranging from occasional or regular credit card rent payments, automatic withdrawal, debit card payments, and online or telephone authorization of credit card payments.
Fortunately, e-payment companies dedicated to the property management industry are happy to offer guidance, training and customized systems.
WHO WINS?
It’s truly rare to find a business model that benefits everyone involved, but e-commerce as applied to the property management industry comes pretty close.
Most of us are familiar with the use of debit and credit cards from the vantage point of the consumer rather than the merchant. You swipe your card, a miracle occurs, and you walk away happy. But when a property management company decides to accept electronic payments, it becomes a “merchant” (selling the use of a unit of multifamily housing for a period of time). At this point, depending on the management company’s business philosophy and budget priorities, as well as credit card company guidelines, state and local banking statutes, and residents’ preferences, it’s a matter of choosing from a smorgasbord of electronic transfer services and their associated fees.
For credit cards, the traditional merchant agreement involves a “transaction fee” and a percentage of the transaction total, both of which are subtracted from the amount deposited in the merchant’s account. If a resident charges his $1000 rent, for example, management may pay as much as $25 in processing fees.
Property management may balk at parting with this chunk of revenue. Wouldn’t it be reasonable to impose a service charge on credit card transactions, so that the resident actually pays for this privilege? Credit card companies frown on this practice, but third-party collectors can charge a resident directly for this service. Many property managers see this as an ideal solution to the electronic payment dilemma.
There are disadvantages to this third-party set-up, however. For example, such charges appear on the resident’s statement under an unfamiliar merchant name, which may cause alarm. The management company may not receive payment as quickly as with a more traditional solution. Finally, with a third-party, there is another company involved in handling the management company’s money.
Eventually property management companies will recognize the enormous benefits of having their own merchant accounts.
IT`S AN AMENITY
Credit cards have an appeal all their own, but card issuers dangle incentives that make using them almost irresistible. With “targeted marketing,” these companies hook up would-be travelers with frequent flier miles, outdoor types with L.L. Bean and Eddie Bauer coupons, and the just-plain-thrifty with cash rebates. Thanks to these companies’ aggressive and costly marketing efforts, accepting credit card rent payments becomes an instant amenity, with someone else bringing the party favors.
Credit cards are also a wonderful cash flow management tool for busy residents with complex financial situations. These same individuals enjoy saving time by paying a single bill rather than writing a slew of checks every month. Travelers can pay their rent from remote locations, without having to worry about the check arriving in time to avoid late-payment penalties.
IT’S A MANAGEMENT TOOL
Property managers spend an enormous amount of time collecting rent each month. Checks straggle in. Late fees must be assessed and processed. The cash flow problems of residents translate into cash flow problems for management. The suspense of waiting for checks to clear throws further uncertainty into apartment community finances.
Credit card payment systems offer the undeniable benefit of quick verification and predictable cash flow. Payments are authorized within seconds (direct merchants) or, for ACH (third-party) payments, within 48 hours. The community’s account is credited within days, not weeks.
Steps have been taken by card issuers and electronic payment systems providers to ensure security. At Visa’s request, the American National Standards Institute (ANSI) established a separate Merchant Category Code for tracking transactions at property management companies. The separate code will help card issuers establish authorization limits and set risk parameters in the industry. The separate code will also enable many cardholders to view exactly how much they’ve paid for rent during the year since card issuers can use the code to categorize rent payments on cardholders’ year-end statements.
MAKING IT PAY
Obviously, e-commerce offers impressive benefits for both residents and management. As industry professionals, however, we need to explore and capitalize on the enormous potential of e-commerce as a management tool.
Within every industry there are innovators, and there are those who prefer to follow. At the moment, the majority of the property management industry is contemplating the cost and operational changes that must be made before e-commerce can work for them.
Fortunately for the more conservative management companies, industry leaders continue to explore the e-frontier. These visionaries’ belief and efforts in the name of electronic commerce will inevitably lead to lower overall costs, increased revenue and greatly streamlined collection processes for property management.
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