Payment is the part of parking that no one wants to spend time thinking about-mainly because of its complexity. My day to day focus is non-cash payments across the parking industry. Payments are considered an expense by some, a point of leverage and operational efficiency by others, and an enigma to many. It is likely that Parking Today readers have an opinion about the payments industry.
The biggest trend we are seeing is an increasing complexity in payments administration to reduce customer friction.
Are Non-Cash Payments an Expense or Leverage?
While many operators have gone beyond the ‘cigar box’ model, there are a great number of locations where cigar boxes are still a part of daily operations. This cash-only approach is one of the greatest sources of shrinkage (lost revenue due to dishonesty or error) and can be a seed that grows into mistrust between the building owner and the operator, as well as operator and employee.
This shrink is an expense too often not considered when looking at financial statements, but most certainly exists.
What has gained in popularity recently is a cashless lot set up to reduce or remove other sources of leakage. This shift has resulted in an increased revenue of 20 percent or more in some locations which is a major increase in efficiency, but which, of course, will result in an increase in the number of credit card payment fees.
Shortly after increasing the revenue the building owner sees, a conversation about operational efficiency is typically not far behind. This is naturally when owners and parking management companies become concerned with the costs of credit card payment fees.
Credit card acceptance fees are divided into three main categories, interchange, dues and assessments, and fees.
Interchange fees are fees charged directly by credit card issuing banks. These fees, if not marked up, cannot be changed and are fixed for an industry category and card acceptance type (for example: paying online vs. swiping a card in person).
The next category, one that increases frequently, are dues and assessments which are fees charged by the card networks. Think Visa, Mastercard, Discover and American Express. They come in various forms like a 13 basis point assessment (a basis point is 1 hundredth of a percent meaning 100 basis points = 1 percent) these fees are basically the same as interchange fees in that they cannot be changed and are the same whether you are a Mom and Pop corner parking lot or a Fortune 100 company.
The last and smallest category from a percentage perspective are fees. These are the profits made by the processor. Typical fees include profits for companies like mine and are a very small fraction of total processing fees.
Trends in Payments
In 2020, the biggest trend we are seeing is an increasing complexity in payments administration to reduce customer complexity and friction. This comes at a time when there has never been greater pressure for customer privacy from regulators and pressure to adopt and integrate state of the art technology.
The complexity in administration comes in the form of increased bank compliance from bank underwriters, as well as the FDIC and Federal Reserve, increased interchange (wholesale credit card) fees from card brands like Visa which offset rewards cards, increased fraud and fraud screening concerns, PCI (payment card industry) and data compliance and increased concerns regarding integration costs from legacy PARCS providers which have never been higher.
Consumers, myself included, have become accustomed to using contactless payment providers like Apple and Android Pay, as well as cash apps like Venmo (owned by PayPal) and Zelle (owned by eight of the U.S.’s largest banks). Similarly, when parking a car in a garage, customers expect the same advanced retail experience. The reality, however, is that many systems operating in garages today are decades old and were set up long before any of this technology was developed and put in place.
This is the main reason why the EMV (secure chip card reader) transition is not yet completed for some systems years after the deadline to convert has passed. I can recall calling to ask PARCS providers week after week if their semi-integrated solution was working. Semi-integrated solutions mean that the system is not compliant and to manage the compliance, a terminal is attached to the side of a point of sale creating a separation between card data and payment information. The purpose of an EMV is to create card data and payment information separation electronically.
Surcharging & Cash Discounting
Over the past years, you may have seen fees for payment processing being passed on to the consumer. While this has been taking place at gas stations for many years, and has become increasingly common in restaurants and other industries, it has been a very slow roll out in the parking industry.
The parking industry lags behind primarily due to the technical PARCS integration challenges combined with the legal landscape. The one consistent message we are hearing from parking managers is that asset owners are noticing this and are actively looking for options to pass payment fees to the end customer and remove it from the parking garages’ profit and loss statement.
The two models available are cash discounting and surcharging. Cash discounting is when a customer receives a discount for paying with cash. This discount is not applied when using any non-cash payment, credit and debit cards being the most popular. Surcharging, on the other hand, is when a fee is added if a customer pays with a credit card. A surcharge is not allowed to be added to a debit card payment which means that in a surcharging model, there are costs to accepting debit cards.
As I try to read the tea leaves, surcharging is the model I believe will end up being most compliant with card brands and state laws, despite not being legal in all states as of early 2020.
GAM Payments has built Simple Charge© on its Samurai gateway to handle traditional payments, as well as passing fees to the end customer using cash discounting or surcharging in a compliant manner.
Legal Landscape
There are three overlapping entities that have jurisdiction over payments: they are state law, federal law and card brand rules.
As you may have experienced, non-compliant programs are causing merchants to receive warning letters or be shut down and put on a credit card black list called the MATCH list.
Court cases have been decided that clearly outline what is permissible, but that does not stop merchants and some well-meaning, but misinformed credit card sales reps from creating programs that are risky.
In order for programs to be compliant, there are steps that can be taken. Think different signage, card brand registration and notices, and other more technical considerations when managing the batch (daily group of all transactions processed by a merchant).
Each batch sent daily by the merchant to the processor must be handled differently than has been the standard for decades, depending on the laws of your state and model used. There are significant costs to making sure batches are handled correctly.
Payment Industry Landscape
With the large number of acquisitions in the payments space in the past years, including First Data being purchased by FiServ, Vantiv being purchased by World Pay and TSYS being acquired by Global Payments, there is a lot of decision making and digestion happening in the executive offices of many companies working on how to combine and manage the new super-sized processors.
What that means for 2020 and likely beyond, is that larger payment companies are not focused on smaller industries, especially those with complex integrations. Parking operators need someone to understand the increased complexity with payments in order to deliver the seamless customer experiences that asset owners demand.
Matt Mandell is the Principal at Gampayments. He can be reached at matt@gampayments.com
