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Utility Bill Payment Processers

RJM
  |     |   501 posts since 2011

Just now, I prepaid my power bill by paying a $2.25 fee for a $600 payment. And for my sewer & water bill, the fee was $1.95 for $500.

Are these companies losing money on me ?  Because Im getting 2% cashback on my payments.

I earn $22.08 cashback in exchange for a total of $3.95 in payment processer fees.

Granted, Ive prepaid for nearly 6 months and 11 months but still. It pays me more than a savings account and I don't have to worry about paying these 2 bills for awhile.

Are these payment processers just hoping to make it up with all the people who pay much smaller payments and still pay the same fee ?

I believe one of the fees have come down in the last year. I think they used to be $2.45, now its $1.95. I read something online about the board accepting a new processer.

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Answers
Surfer
  |     |   1 posts since 2016
RJM, I know what you are talking about.  I do the same for the same reason.  Your guess as to how they make money is also correct as far as I can see.  It seems many people on this forum are not able to relate to this issue.  If it makes any difference, I have a PhD in Finace with two nobel-prize winning advisors, so you are in good company.
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klink
  |     |   202 posts since 2012
We pay our utilities with the credit card and reap the cash back rewards also. We surely don't pay in advance but pay when it's due timing it to post on our credit card bill a month later. So we get the rewards for paying on time and get the savings for holding our monies a bit longer. The only bill we don't pay with the card (and I wish we could) is the property tax bill which would give us a big cash back. However the fees for card usage are huge ($30.00 to pay with the card) which would be more than the cash reward. It too does not get paid until the last minute to collect on that interest. When we re-financed the mortgage realizing the mtg co. was holding taxes and insurance in escrow and paying when due to the appropriate agencies (1 time a year) I decided that we would hold that money and draw money market interest then pay it ourselves when due. Of course the property ins. gets paid with the credit card on time and again gets held until posted on the credit card statement then paid. More rewards and savings. Did I answer the question? Probably not. I do know the property tax office here makes big bucks from out of town property owners who just pay with the card.
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RJM
  |     |   501 posts since 2011
Not really what I was asking.   Im not understanding how the payment processing firms can make money when I prepay like I did today because the amounts of my transactions dwarf their fees.
I paid a 3rd bill today, a gas bill, and they dont charge extra for a credit card so there is no reason to prepay.  Same with AT&T for Uverse.
As for property tax, either my county doesnt accept cards or their fees are way too high so I pay them with bill pay.
Same way with car tags. Their "convenience fee" is way high so its one of the few times I actually send a check each year.

Another reason to prepay when it makes sense is, credit card rewards are not taxable. Interest income is.
My area government is probably more corrupt than yours. A friend of a political type gets the contracts and then hoses customers for official payments.
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klink
  |     |   202 posts since 2012
You are right in alot of ways. I didn't think about the tax aspect of the process. I'm trying to understand if your pre-payment is on a bill due or are you just putting money in to handle future expenses. If its putting money on account, maybe they are making the interest on your money. I think I have a terminology mis-understanding but will step aside as you seem to have everything handled in a manner that fits your needs. Good luck
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RJM
  |     |   501 posts since 2011
No interest on prepaid bills, the extra cash back is the incentive for prepaying.  That plus not having to pay that bill again for a number of months.
There would be no benefit from not paying extra as the fee would be larger than the reward on an average monthly bill.
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me1004
  |     |   948 posts since 2010
RJM,  a better question might be, "Why do they need  to charge a fee at all?"  They never  used to, it even was illegal, but  a couple-few years ago the Republicans in Congress pushed through a law eliminating the ban on surcharges on credit card transactions. All those businesses were making plenty of money without any fees, or they simply would not have been accepting credit card transactions. And, you did  not see any price cut when these fees were started, and you won't. 

In some states, I know in California, there is a state ban on such fees, yet the  businesses  still choose to accept credit cards because they still make a lot of money off those sales. The untilities and everyone else still take credit cards -- because they make plenty of money anyway. If your utilities were losing money, they would stop taking credit  card payments, really.  

So, your fee still means they make even more money than without any fee at all, or otherwise get  some kind of benefit for accepting credit card payments (such as having less cash in the till to attract  robbers  and to  try to transfer to the bank) -- that's the answer to your question. Their profit  is increased by their volume of sales -- and credit cards bring merchants a HUGE volume of sales they otherwise would not have. Gee, many merchants, and all the department  stores, mark up their prices 100%  over their costs -- so losing  maybe 3% still leaves them a markup of 97% -- on a huge volume of sales! Think of it as the family-size discount at the supermarket.
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RJM
  |     |   501 posts since 2011
The card processors are 3rd parties.  Im guessing they only earn about 1.75%, which means they take a loss when doing large transactions like mine but make it up when people pay a $1.95-2.25 fee for a $42 or $90 bill.
I used to be a car dealer. I didnt accept credit cards for 2 reasons. 1. The fees. and 2. the possibility, however small of chargebacks.
Cash discounts are no longer disallowed but none of the card allow for surcharges.
That doesnt mean you wont find a backwards business or two that doesnt know it. I used to go to a bar that charged a fee for using a card.
I told the bartender I thought they werent supposed to do that but they probably continued unless and until the credit card folks told them to stop.
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me1004
  |     |   948 posts since 2010
RJM, I hate to say it, but you are misinformed. Discounts for cash absolutely are still allowed. And the law has  changed, ALL the cards  must allow merchants to add surcharges, that is now case law, although a state law can add that restriction on merchants within that state.

Any  third party card processors make that percentage on any amount -- the surcharges are being added by the merchants, not the card processors. 
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RJM
  |     |   501 posts since 2011
I believe I am fully informed. I think you are not grasping what I am doing & why.
Feel free to call Alabama Power & BWWB and negotiate a cash discount for me.  I think you might have better luck trying to catch lightening in a bottle.
The reason I prepay these 2 bills in advance is because I am rewarded, beyond the lost interest and the fees, for doing so.
In the past, my best cash back card only paid 1.5% but I recently opened the Fidelity 2% cashback visa. Also the 1.5% card I had changed the rules making it complicated and they didnt pay cashback unless it was a certain amount every month. 
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me1004
  |     |   948 posts since 2010
Of course all merchants don't offer a cash discount -- that is strictly optional. Gee, I just got one yesterday when I went to the gas station -- its not illegal (although, my personal outlook is that it ought to be). 

But I do agree with you in getting the benefit of prepaying that amount in advance, in the face of a single, flat fee for using the card.
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Ally6770
  |     |   2,893 posts since 2010
Pay by credit card. Alabama Power allows credit cards. Make 2% on your credit card (non taxable) or use a debit card that pays 3% cash back. Not sure if that would be taxable or not. I will call and ask if you get a 1099 on that. Or get 3% interest or more for that money in a reward checking account plus 3% for using your debit card.
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Ally6770
  |     |   2,893 posts since 2010
In the state where I live we have both summer and winter property taxes. The winter taxes are larger and if I pay winter taxes in Jan and Dec along with the summer taxes I have enough to deduct on my federal income taxes for that year.
The following year I take the standard deduction. If you live in the city your higher property tax bill is most likely in the summer and it is not possible to do this. 
I, like you, also pay EVERYTHING by credit card except property tax. I rarely have cash except if I have taken back bottles to the store. I write checks when a credit card cannot be used. 
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Lania Glaude
  |     |   1 posts since 2016
What about the interest you forfeit on the early payment?  For instance, you may earn 2 percent on the transaction, but you lose the 1 percent that your money market would have paid on the early payment had it sat in your account until due. You also lose the fee they charge.  The bank, on the other hand, makes the fee plus the interest on your early payment.
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RJM
  |     |   501 posts since 2011
You think I didnt do the math ahead of time ?
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MidAtlantic
  |     |   117 posts since 2012
OK so tell us the maths.  You would get the cashback whether you paid in advance or not plus you would get a small amount of interest by holding the money yourself. Where is the gain?
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RJM
  |     |   501 posts since 2011
I earn $22.08 cashback in exchange for a total of $3.95 in payment processor fees.
Interest income at a 1% savings rate would be less than that. Plus, its taxable.

So, $22.08-3.95 =18.13. Interest income would be at most $5+2.25= $7.25.
Plus, the interest is taxable, the rewards are not.
If I didnt pay in advance, the fees wouldnt be as much as the cashback. So it wouldnt make financial sense to do that.
Did you even read my post ?
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MidAtlantic
  |     |   117 posts since 2012
But don't you get the cashback whenever you pay?
Yes I read your post and every response to it.
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RJM
  |     |   501 posts since 2011
This post was about payment processors. The merchants do not directly accept credit cards. Thus, no cash back back for payng.
Sure, I could pay a $1.95 fee to pay my $40 water bill every month. For some reason, 6th grade may maybe, that doesnt appeal to me.
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me1004
  |     |   948 posts since 2010
RJM, your arithmetic is right. But you are mistaken about who is adding the fee -- it is the individual merchant who decides whether or not to add the fee. In fact, the federal law providing for surcharges was argued to be needed so merchants could recover the fees they have to pay to the card processor for processing for them. That surcharge goes to the merchant, not to the card processor.
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RJM
  |     |   501 posts since 2011
No merchant is required to accept credit cards. They can choose to let 3rd parties provide that service to their customers for a fee.
Alabama Power does not offer cash discounts. Neither does Birmingham Water works.
The entire point of this thread was to try and understand how the payment providers are willing to lose money on large payments, like mine.
Nobody seems to know. My best guess is they take a loss on the larger payments in exchange for making a profit on all the smaller payments. Like the schmuck who pays a $1.95 fee to pay his $42 sewer & water bill.
Third party providers are NOT a surcharge by the merchant. 
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gbtexas
  |     |   77 posts since 2013
I know plenty of well educated people who are willing to pay the fee simply because of the convenience element.  They also produce significant bucks.  Points are not their main concern.  Time is, and for them paying a relatively small fee is worth it to them.  While they see life in this manner, I'm not one of them.  In one small sense, I view things similarly to you in that I don't like to pay fees or interest.  So I don't.  But, I don't look upon those that do as uneducated or schmucks.
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me1004
  |     |   948 posts since 2010
If you are talking of not paying the merchant directly at all, you go to a third party to pay that third party instead -- maybe through  a link  form the merchant's Website --  and that  third  party passes money to the merchant under an  arrangement with the merchant,  that is different  than the fees added  by a merchant  for use of  a credit card, which many merchants  are doing  now. That payment approach is similar to  using Pay Pal  as the payment processor,  although Pay Pal sets up its  fees  its own way.

You would have  to find  out other fees that third party  processor  collects, very possibly from the merchant too. I do some freelancing and have looked around at  several  third-party payment processors to use for it, even rejected Pay Pal. Some allow  you to have the buyer  pay  all the fees, some require you to pay the fees, and some provide for spitting  the fees.  What you speak of very well is where fees are split, and the merchant very possibly is paying some percentage of the total balance, although well  less than  they would be if they took the card direct.

You did not make that clear in your post.  All credit card payments go  through  a payment processor. In fact,  this is why places like Pay Pal charge 3% rather than  the more typical 1.5% the credit card company applies -- because they have to pay the credit card company the processing fee, and they add on a fee for themselves too, so double.
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tbradnc
  |     |   4 posts since 2016
My electric and gas utility take credit card payments for a $2.95 flat fee.   I pay $1000 at a time on each.    It's a good way to help meet minimum spend to get a credit card signup bonus.    If I'm not doing that then I use my Citi Double Cash card and earn 1.99% cash back.
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RJM
  |     |   501 posts since 2011
My power bill limits it to $600+ the fee and the sewer & water bill limit is $500. So i pay all I am able.
AT&T and my natural gas provider do not charge surcharges thus there is no reason to pay in months in advance.
I havent really done any signup bonuses in recent years. Most recently just got Fidelity 2% card now thats its visa.
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Ally6770
  |     |   2,893 posts since 2010
Would it work out better of using your 2% cash back credit card to pay the bill and pay the bill from a 3% or higher interest checking account?
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RJM
  |     |   501 posts since 2011
The interest checking account does not pay cashback.

You seriously do not know this ?

I didn't answer for a few days because i thought you might be joking or a troll but I see you have 2164 posts.

Do you know how cashback works ? Do you know if I pay a bill out of an interest checking account i get ZERO cashback ? Is zero more than 2% ?

I have a strong feeling my 12 year old niece could grasp it. But, I have not discussed it with her.

My big decision right now is should I pay an extra $600 toward my future power bill because i am at 3% incremental cashback.

600 x.03=18.07. Less the 2.25 fee=15.82
Since I would be paying about a year in advance, I have to consider the 1% I could earn in savings account over the year. That's only about $6. So, $15.82 is more than $6+2.25.

So paying the extra $600 would seem to be a smart move.

Paying from a rewards checking account defeats the entire purpose of paying in advance.
There is no financial benefit.
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Ally6770
  |     |   2,893 posts since 2010
I did not say checking account I said credit card. But Kalsee credit union will pay 3% on your checking account up to $25,000 'OR" 3% on all debit purchases. This cannot be the only credit union that does this?
I pay everything from the credit card, electric, natural gas etc. These merchants will debit my credit card monthly. For the Comcast bill, all insurance and everything else I charge myself to the credit card. I do not really trust the others to charge my card. The credit card
will debit my card each month.
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RJM
  |     |   501 posts since 2011
Your taxable interest is dwarfed by my non-taxable cashback.
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RJM
  |     |   501 posts since 2011
I got a promo last month offering an extra 1% over $300, the amount was variable based on prior spending patterns I believe. Others spending levels were higher and lower.

Since it was time to pay my power bill anyway, this time it will be 3% on the amount over $300. This makes it even more beneficial.

But, Im not inclined to overpay my sewer & water bill anymore because their stupid statements cannot seem to figure out how to post a credit balance. Calling & asking them to fix it is like speaking English to someone versed only in Ebonics. A waste of time.

My fee for the $600 payment remains at $2.25 with the power company. So its an even better deal with the extra 1%. Assuming 1/2 of that was incremental, it puts my average at 2.5% so i get $15 cashback for paying $2.25. a gain of $12.75.




As a valued Fidelity® Rewards Visa Signature® Cardmember, you're eligible to earn up to an additonal 2,000 bonus points!¹ It's simple. Once you spend a minimum of $300 from March 1 through April 30, 2017, net purchases over $300 will earn up to an additional 2,000 bonus points (1 bonus point per dollar spent),¹ redeemable for cash back (up to $20) into an eligible Fidelity account!² Be sure to enroll in the offer by March 31.
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Ricochet
  |     |   527 posts since 2010
RJM... in your 2nd post about advance pay limit.

My utility company restricts maximum payment too. I found that I was able to wait a day and submit another $xxx.xx and pay for a whole year.
If there's no limit to monthly or quarterly payments on the card.
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RJM
  |     |   501 posts since 2011
Yes, I am aware that that is possible but I have not done it for more than $600 at a time.
It probably makes sense, particularly with the 3% that I am currently on.

But, Im single and at 54, could croak of a heart attack at any time. That's in the back of my mind and one of the reasons I haven't doubled up. But, chances are I will not die anytime soon so this is probably an ideal time to do it with the extra 1%. I compute a 2.6366% return on the extra $600 payment, that beats a short term CD by far. 18.07-2.25=15.82=2.6366%.
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Ally6770
  |     |   2,893 posts since 2010
I am in my 70's and do not pay ahead. Do you think that your trustee of your will can get a refund without a lot of paperwork and going through probate or opening an account that only can be done by a trustee? Most will make checks out to the "estate of". Then a special account has to be opened by the trustee of your will. I have the utilities charge my card each month early but the car, house insurance and Comcast bill and groceries I will charge myself and the house and car insurance will be refunded at death to my charge account and any credit will be paid to my checking account which has beneficiaries. Comcast requires the cable box to be returned with a copy of the death certificate before it will credit the card for days unused. Why not look into a 3% cash back debit card or does your utility companies only take check? There might be a credit union that you qualify to join
that pays 3% for using a debit card.
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RJM
  |     |   501 posts since 2011
I'm not going to spend the rest of my life worrying about my trustee getting prepaid cash out from a utility company after I die. I'm going to assume I continue to live right here and pay my own bills every month. At 2%, I might not pay an extra $600 but at 3% (the limited time extra 1% deal I am on, it probably makes sense to do it and I probably will after the 3rd when my new cycle starts.
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Ally6770
  |     |   2,893 posts since 2010
Think it would be easier to get a checking account that pays you 3% each time you used your debit card and they also have a checking account that pays you 3% up to $25,000 with no other requirements except to look at your account one time a month online, get electronic statements, and do 12 debits on that account. No automatic debit or credit required on on the accounts. So earn 3% on the account you use most of the time for small debits and for large payments switch money to the account that you get 3% on all debit card transactions.
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RJM
  |     |   501 posts since 2011
I went ahead and paid another $600 to my power company while the limited time 3% is in effect.
As of right now, I have prepaid $1043 which, based on my avg bill for the last year will cover me for 11.25 months.

I already have a 3% checking maxed out. Paying this with that account will not generate the 3% in rewards that I currently get.

My only risk here is I die before 11.25 months in which case it wont really be my concern anymore. (single)

I'm unaware of any debit cards that pay 3% or 5-10% for that matter or I would have them and use them.
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Ally6770
  |     |   2,893 posts since 2010
Northpointe bank has a 5% checking account up to 10,000 with debits and Kalsee credit union pays 3% on each debit transaction also. Not sure of the memberships though. They are located in Michigan
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