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HomeMy WebLinkAbout03/24/2009 09 Electronic Payment Services Agreement with US Bank and Elavon, Inc. M1 City of Yakima Council Agenda Item # 9 Electronic Payment Services (3- 24 -09) • Agenda Statement • Resolution • Agreements • Treasury Services + Treasury Management Services Agreement + Treasury Management Services — Terms & Conditions • Merchant Services - Terms of Service • Interchange Pricing • Merchant Application • Merchant Operating Guide BUSINESS OF THE CITY COUNCIL • YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 9 For Meeting Of March 24, 2009 ITEM TITLE: A Resolution and Agreements with U.S. Bank and Elavon Inc., a subsidiary of US Bank, to provide electronic payment services to the City of Yakima. SUBMITTED BY: Finance Department (Finance and Utility Services Divisions) CONTACT PERSON /TELEPHONE: Rita DeBord, Finance Director ( #575 -6070 SUMMARY EXPLANATION: Background: In early 2007, the City of Yakima issued a Request for Proposal (RFP) for electronic payment services. The City received five responses, one was deemed "unresponsive "; the others were evaluated by a project team consisting of employees from the purchasing, finance, utility services and information systems divisions. The project team initially accepted the proposal of one vendor, but was unsuccessful in negotiating a contract agreeable to both parties. Subsequently, the project team entered into contract negotiations with U.S. Bank; these negotiations have been successful and the project team is recommending the City enter into an agreement, as defined in the enclosed documents, for • Treasury and Merchant services related to electronic payment services with U.S. Bank. Service Providers: As stated above, we have reached agreement with U.S. Bank to provide electronic payment services to the City. U.S.. Bank provides the Treasury (or money transfer) services related to the electronic payment processes and a company called Elavon, Inc. provides the Merchant (or "transaction ") services. The services provided by these two entities are further defined in the attached agreements. Elavon is a wholly owned subsidiary of U.S. Bank; however, these two entities are separate legal entities, each with its own separate operating practices, management and legal staff and set of legal documents. . Continued on next page... Resolution X Ordinance Other (Specify) Contract X Mail to (name and address): (a) Treasury Agreements: U.S. Bank , Ms. Gail Heinselman, VP U.S. Bank, 428 West Riverside, 12 Floor, Spokane, Wa. 99201 and (b) Merchant Agreements: Ms. Angela O "Steen, Asst. General Counsel, Elavon, Inc., 401 W. Market St., Louisville, Ky 40202 Phone: Funding Source Utility Funds initially; other funds as applicable once services are expanded to other areas of the City. APPROVED FOR SUBMITTAL: Cit Mana•er • ill STAFF RECOMMENDATION: Adopt Resolution BOARD /COMMISSION RECOMMENDATION: Previous Council Policy Issue COUNCIL ACTION: Page 1 of 5 In addition to U.S. Bank and Elavon, Inc., the use of the ACH and credit cards automatically invokes the ACH and the credit card associations' rules and regulations into all agreements as well as many differing banking institutions due to the overarching requirements placed on the • use of their bank cards. The rules, regulations and related requirements of all of these parties are, by necessity, incorporated into the attached electronic payment service agreements between the City of Yakima, U.S. Bank and Elavon, Inc. Electronic Services Provided: The implementation of electronic payment services will provide our citizens, customers and other users of various City services / programs the option to make payments in various electronic formats in the future; including: E -Check / ACH (Automated Clearing House), Debit Card and /or Credit Cards. There are numerous options for accessing the services within the various payment types noted above, including; use of pin -pads, terminals, internet, etc., as well as various credit card companies and various services within each company. Because of the numerous variations available within the basic payment types and the imbedded complexities of many of these options, staff recommends starting modestly • and adding additional options and locations as we go. The initial implementation plan includes: providing electronic payment options from both VISA and MasterCard (MC) credit cards; debit cards and ACH / E- payments to our utility customers only. Once these services are implemented and running smoothly, we would anticipate expanding services to other areas of the City as well as providing additional service options. While we included additional functionality into the service agreements and held many discussions on a wide range of options with the vendors, the primary focus of the enclosed agreements are on the areas noted above. Therefore, when we are ready to expand these services, it is likely that we may need to negotiate further service agreements with the service providers. • The City of Yakima averages approximately 188,000 utility payment transactions per year. The'service providers stated that their experience indicates that approximately 15% of these transactions would be electronic payment transactions the first year, and will likely double in the second year and maintain at that level. Costs estimates for these services are very difficult to determine as there are numerous variables, each of which can significantly impact the costs; including: (1) transaction volumes (providers offer lower costs to larger volume businesses); (2) the method of payment (ex.: over the counter Check Card, vs. pin based debit card, vs. point of sale credit card, vs. ACH payment, vs. internet credit card — each have their own specific and different fee structure); and (3) the "brand" and "level" of credit card used (brand = VISA vs. MC; level = each credit card brand has several dozen "levels" of cards - each with a different fee structure). Note: the numerous pricing alternatives for each "brand and level" of credit card is a major factor in the decision to accept only two credit cards at this time, VISA and MasterCard. Refer to Exhibit 1, attached, for a pricing matrix which identifies prices charged under the enclosed agreements for the payment types most common for the anticipated services / uses of the City of Yakima. • Due to the factors noted above, the City has very little ability to control the variables that impact the costs of electronic payments; thus, very little ability to control the overall costs of providing electronic payment services. However, based on industry averages and the most likely "brands" and "levels" of credit card usage anticipated by the service providers, costs for electronic payments of utility bills have been estimated at approximately $50,000 annually plus approximately $6,000 in first year hardware and implementation costs. (Note: the annual costs noted above was based on a 20% usage of electronic payment services; vs. the 15% to 30% anticipated by the service providers.) Paget of A customer of the City may present a card with any one of the several dozen card "levels" for • payment to the City. The City has no way to know which card level is being presented, and is not authorized, under the Card Organization rules, to request or restrict the usage of any card level. Each payment transaction will be assessed a fee based on the fee structure associated with the specific card presented. A complete list of the various card levels and associated pricing, as it exists today, for both VISA and MasterCard is listed in the "Interchange" Section enclosed. Additionally, the Exhibit to the agenda statement includes a pricing matrix which includes the pricing for each of the most common transaction payment methods and card types. This pricing chart is presented for example purposes only and does not contain the complete list of possible card levels or fee structures. As you can see from the Card Associations Interchange levels (listed in the "Interchange" tab) and the sample pricing matrix shown in the attached Exhibit, electronic payment processing gets very complicated, very quickly. Additionally, large portions of the pricing for electronic payment transactions are not negotiable and are subject to change. Credit Card Associations, issuing banks' and the Automated Clearing House (ACH) set there own rules, regulations and fees related to the usage of their Cards /Services; the service providers simply pass through these costs directly to the City. In authorizing the enclosed agreements, Council is also agreeing to abide by the rules, regulations, and fees established by the Card Associations, the Issuing Banks and the ACH. (The enclosed agreements all include, by reference, the rules and regulations of these organizations and, thereby, bind the City to their requirements.) • Fortunately for utilities, both VISA and MasterCard Card Associations offer a special "Utility" rate (which is 0.0 %) for the Interchange "Level" fees, which is associated with many of the cards that are more likely (per the service providers) to be used by the City's utility customers. 0 This will help minimize the costs to the City of providing electronic payment services to our utility customers; however, this is just one of three Interchange fees assessed by the card associations and the issuing banks). Items of Specific Interest: 1. Convenience Fees: Many businesses charge their customers a convenience fee for the option of making payments electronically. However, what would appear on the surface to be a simple matter gets complicated very quickly due to the differing rules of the two major Card Organizations — VISA and MasterCard (MC). Under the Card Association rules for MC, the City would be allowed to charge a convenience fee for the payment of most utility bills (there are a few possible exceptions). VISA does not allow convenience fees on utility bills nor on face to face payment transactions. Administration of these differing rules would be very difficult to carryout properly and even more difficult to clearly communicate to our customers. Were the City to charge a convenience fee, the Card organizations would not offer the lower "utility" discount rate currently afforded to us. The City may not assess a Convenience Fee without the approval of Elavon, doing so is considered a breach of this Agreement. Additionally, Elavon will determine the amount of any convenience fee that is charged; this is to ensure that the fee covers Elavon's costs which would otherwise be paid directly by the City. There are numerous other Card Organization requirements and restrictions on the assessment of a Convenience Fee, the items listed above are only those that may be of greatest interest or concern to the City. • Page 3 of 5 Based on all the issues noted above, staff is recommending that the City not assess a convenience fee on electronic utility bill payments at this time. (Note: The issue of convenience fees will be further researched and evaluated as we expand the use of credit • cards to other areas of the City and staff may present a different recommendation to Council for differing types of payments based on the specific Card Organization rules governing those payments.) 2. Display of Card Marks: the City must prominently display their most current version of the Card Associations' and EFT (electronic fund transfer) network's names, symbols and /or service marks, as appropriate, at or near the POS (point of sale) Device and on Internet payment screens. Additionally, these marks must be displayed on promotional materials to inform the public that such Credit Cards and Debit Cards will be honored. Such use of these marks must comply with the requirements of each mark's owner. 3. Card Limits /Restrictions: are expressly forbidden by the Card Organizations; therefore the City is not allowed to set minimum or maximum dollar limits on the usage of cards. 4. Administration: initially, there will be a considerable effort required in the finance division to establish proper tracking, reporting and internal controls over all electronic payments, transactions, related fund transfers and utility accounts. The on -going efforts required to maintain this discipline and control are currently unknown; we anticipate that the majority and, hopefully the most time - intensive efforts, can be automated and /or managed so as not to significantly impact the workload of existing staff. Minimizing the impact on existing staff while imposing strong internal controls over these transactions will be a major focus of our efforts during the planning, design and implementation of these services. • • Legal Issues: Council should be aware that while there is a state statute that specifically authorizes counties to accept debit and credit cards, ACH transactions and other types of electronic payments for any payment of any kind (RCW 36.29.190); there is no similar authorization for municipalities. However, numerous other jurisdictions around the state have implemented similar services and the City's legal counsel has researched this issue and found that while there is no specific statute authorizing this activity, there appears to be significant precedence from other jurisdictions such that there appears to be minimal risk to the City for accepting payments through electronic methods. Agreements required to implement the electronic payment services include: (listed in order enclosed) 1. City of Yakima Resolution 2. Treasury Management Services Agreement (TMSA) 3. Treasury Management Services — Terms and Conditions Agreement (T &C) 4. Application (a blank form has been enclosed for reference only; this document will be completed and executed during implementation planning.) 5. Merchant Services — Terms of Services Agreement (TOS) 6. Interchange Fees (for VISA and MC) 7. Merchant Operating Guidelines (MOG) • • Page 4 of 5 • The Treasury Management Services Agreement (TMSA) acts somewhat as an umbrella • document, incorporating into it, by reference, many of the agreements. Specifically tied to the TMSA is the Treasury Management Services — Terms and Conditions Agreement (T &C). A signature on the TMSA authorizes the terms and conditions included in the T &C agreement (thus, the T &C has no signature page of its own). The Treasury Management Services - Terms and Conditions Agreement (T &C) includes all treasury services provided to the City by U.S. Bank — both new and existing services. (The City's payroll account is held with U.S. Bank and we currently utilize many of the bank's treasury services in connection with this account.)' . The Merchant Services — Terms and Services Agreement (TOS) includes two addendums for electronic payment related services. Typically, all services would be included in the body of a contract when it is initiated; however, U.S. Bank has certain services for which it has addendum documents pre - established and preferred to provide for these services as addendums; therefore, you will find two addendums attached the TOS Agreement. Please note: the legal documents included herein specify what services will be provided, at what costs /prices and other high level terms and conditions associated with these services. However, there are a significant number of detailed terms, conditions and implementation decisions which are not included in these legal documents; Council needs to be aware that these details / decisions will need to be addressed by the project team during implementation. Council's direction to proceed with implementation of these services, as authorized by and . provided for in the enclosed agreements, is authorization for and direction to staff to take all el remaining steps necessary to implement these services. Summary: Staff believes that the citizens and customers of the City will benefit from these electronic payment services. If authorized by Council, staff will work with the service providers to begin the planning and implementation processes. The design of the system functionality will include Internet payment options for various types of payments, such as permit fees, bus passes, parks and recreation programs, in addition to the payment of utility bills. This number of payment options and the regulatory requirements to identify and account for various revenues to the appropriate funds, significantly increases the complexity of the project planning and implementation. However, planning the system design is likely the most critical aspect of this project. The planning and implementation is anticipated to take four to five months to complete. The numerous options available for various electronic bill payment services together with the number of parties involved in these processes, have made the development of the various • agreements a very complex and time consuming process. Staff from finance, purchasing, information systems and utility customer services have spent countless hours researching options and negotiating these agreements, and we are very pleased to be able to present this option to City Council for your consideration. el • Page 5 of 5 0 • • Exhibit to Agenda Statement Merchant Services - Sample Pricing Matrix < Card Processing Fees > Funding . < Interchange Fees (1) > Elavon US Bank 'Treasury Interchange "Level" Fees Payment Method - ACH, Debit and Credit Cards * PLUS E - Payment (Only Most Commonly /Likely Used Cards Shown) Assessment Fees (3) (by Process T Net Effective Effective (2) Card Type) Fee (4) Rate Fee (5) Grand Total All Fees (A) PIN Based (Debit cards with PIN Authorization) ?? 0.00% $0.65 / $0.75 0.30% - (B) Over The Counter: VISA / MC VISA / MC VISA / MC VISA MC b. Check Card (Debit cards used like a Cr.Crd.- signature authorization) 0.0925% / 10% / 0.00% $1.50 / $0.65 0.30% - c. Credit Cards: POS terminal - signature authorization - Utility 0.0925% / )0% / 0.00% $1.50 / $0.65 0.30% d. Credit Cards: POS terminal - signature authorization - Non - Utility 0.0925% / 1.43% / $0.05 / $0.10 0.30% - (C) Internet ACH Payments: n/a / n/a n/a n/a n/a n/a ? $0.25 . (D) VISA Internet Purchases: VISA: VISA: VISA: Check Card Purch. (Debit Card used like credit card / Signature) 0.0925% 0.00% $0.75 0.30% 0.3925% + $0.7F n/a Credit Crd - DB /CPS Retail 2 (Develoing Markets Only) 0.0925% 0.80% $0.25 0.30% 1.1925% + $0.2° n/a Credit Crd - • DB /Utility • 0.0925% 0.00% $0.75 0.30% 0.3925% + $0.7E n/a Credit Crd - CC /CPS Retail 2 (Developing Markets Only) • 0.0925% 1.43% $0.05 0.30% 1.8225% + $0.05 n/a Credit Crd - CC / Utility 0.0925% 0.00% $0.75 0.30% .].3925% + $0.75 n/a . Credit Crd - CC / Utility Business 0.0925% 0.00% $1.50 0.30% 0.3925% + $1.5C n/a • (E) Master Card Internet Purchases: MC MC MC . Check Card Purch. (Debit Card used like credit card / Signature) 0.0950% 0.00% $0.45 0.30% 0.3950 + $0.45 n/a DB / Utility 0.0950% 0.00% $0.45 0.30% 0.395% + $0.45 n/a CC / Utility 0.0950% 0.00% $0.65 0.30% 0.395% + $0.65 n/a CC / Public Sector 0.0950% 1.55% $0.10 0.30% 1.945% + $0.10 n/a EMC / Utility 0.0950% 0.00% $0.65 0.30% 0.395% + $0.65 n/a EMC / Public Sector 0.0950% 1.55% $0.10 0.30% 1.945% + $0.10 n/a WMC / Utility 0.0950% 0.00% $0.65 0.30% 0.395% + $0.65 n/a WMC / Public Sector 0.0950% 1.55% $0.10 0.30% 1.945% + $0.10 n/a WE / Utility • 0.0950% 0.00% $0.75 0.30% 0.395% + $0.75 n/a WE / Public Sector 0.0950% 1.55% $0.10 0.30% 1.945% + $0.10 n/a (1) Interchange Fees - Aggregate of the Issuing Bank's assigned Interchange Level fee, plus the Bank Card Assoc. Assessment fee. Fees are Non - negotiable. (2) Assessment Fees - (a) Debit Cards: Assessed by ?? ... ? (b) Credit Cards: Assessed by VISA / Master Card Associations, rate: Visa .000925 / MasterCard .000950. Applied on all VISA and MC transactions; applied as a percentage of the total dollar amount of transaction. Fees Non - negotiable. (3) Interchange Level Fees - (a) Debit Cards: Assessed by Issuing Bank processing networks; there are approx. a dozen such networks, each with different fees. (b) Credit Cards: Assessed by Issuing Banks and applied on both a percentage of total dollar amount of transaction and a flat fee per transaction; fees are based on type of card presented for payment. There are between 100 - 200 different VISA/MC card types. Fees are Non - negotiable. ( "PLUS" Processing Fee - Fee applies to all Bank Card transactions processed via the internet. Fee for service to distribute card transactions between entities via the internet; service provided by Elavon, a Merchant Services processor. Fee is fixed and may change only at contract renewal. (Elavon is a wholly owned subsidiary of US Bank.) (5) US Bank E - pay Fee - Applies to ACH payments only (and only for non -bank collected convenience fees). Fee is assessed on a per transaction basis and may change only at contract renewal. * This Chart Only displays the most commonly used cards and their related fees. Refer to the VISA and Master Card Interchange Level Fees listed in the enclosed Agreements for a list of all current VISA/MC Cards by Categories and Levels, and related fees for each. Prices are subject to change.