As Technology Improves, Owners and Residents
Are Eager to Embrace Automation
Washington, D.C. - In a recent survey conducted
by the National Multi-Housing Council (NMHC),
property owners and managers ranked electronic
RENT COLLECTION SOFTWARE as the no. 1 capability
they want to add in upcoming software upgrades.
And no wonder: E-payment is hugely convenient
for residents, and it can deliver significant
savings to a property manager's bottom line.
But as multifamily firms begin offering
this payment option, many are discovering
that the technology poses some serious challenges.
To name just two: Integrating e-payment
systems with existing PROPERTY MANAGEMENT
can be difficult. And Visa USA Inc. recently
began cracking down on the transaction fees
that some property owners pass on to residents
who use that CREDIT CARD.
E-payment providers, however, are wasting
no time in addressing these and other concerns,
evidenced in part by a recent industry consolidation:
In January, the industry's largest credit-card
processor, RentPayment, acquired ired a
promising newcomer named eRentPayer Inc.
The primary reason for the deal: RentPayment
was eager to co-opt its competitor's advanced,
feature-rich technology.
And all other e-payment providers are moving
quickly to upgrade their features and functionality
because they don't want to risk losing existing
clients?or fail to get their fair share
of the rapidly growing number of new ones.
Dennis Smillie, president of Multifamily
Solutions Inc., believes that within the
next few years, renters will consider e-payment
as essential a utility as cable television.
Property managers that don't offer the service
will be at a serious, if not fatal disadvantage.
"Electronic payment is clearly where
things are going because of the convenience
for consumers," agreed Pat Gregory,
chief information officer of United Dominion
Realty Trust Inc., the nation's eighth-largest
owner and fourth-largest REIT. "Most
people don't even write checks anymore these
days, and we want and need to make RENT
payment as convenient as possible for them."
Digitally Divided
The volume of electronic payment transactions
for all goods and services surpassed that
of paper checking for the first time in 2003,
according to the Federal Reserve. As consumers
put away their checkbooks, they are using
online checking (also known as automated clearinghouse,
or ACH, transactions), debit cards and CREDIT
CARDS to pay for everything from food and
entertainment, to utility bills and mortgages.
Industry observers believe that RENT is next
in the e-payment revolution?and not just because
of consumer demand.
"This is all about moving money and moving
it more efficiently," observed David
Cardwell, NMHC's vice president of capital
markets and technology. "Automated payment
systems are attractive to owners because they
get better control over bad debt, they see
reduced float times and they get automation
of their books."
These are some of benefits that AvalonBay
Communities Inc. has experienced since the
REIT, which owns more than 40,000 units, began
offering e-payment way back in 1995. Most
of AvalonBay's residents who pay electronically
do so with regularly scheduled ACH transactions.
"It allows us to better forecast our
cash flow because we know the money will come
in on a certain day every month," said
Cheryl Barraco, AvalonBay's director of strategic
business services. Even though AvalonBay has
yet to fully automate its e-payment system
and must still manually enter data into its
PROPERTY MANAGEMENT SOFTWARE, "we're
getting electronic payments more efficiently
and predictably than with paper checking."
But many property managers are still waiting
to see a return on their investment. The problem
is twofold.
Smaller e-payment providers often cannot devote
the necessary resources to designing software
that integrates seamlessly with the wide variety
of property management systems in use. Second,
even some large management companies continue
to use older DOS-based systems that are far
less flexible than newer Web-based platforms.
"There's a lot of room for improvement,"
said Bryant Shoemaker, vice president of MARKETING
for YARDI Systems Inc. "Right now, there
are several different systems for doing RENT
payment, and there's not really a standard
way of interfacing."
Poor data INTEGRATION means that although
e-payment providers can authorize CREDIT CARDS
and process payments, property managers must
often still reconcile account ledgers and
manually enter payments into the RENT rolls
within their PROPERTY MANAGEMENT SOFTWARE.
Integration and reporting gaps also can arise
from the way e-payment providers subtract
transaction fees from RENT payments, noted
Glenn Murray.
And still other INTEGRATION gaps occur when
payments are returned due to insufficient
funds. Many e-payment providers cannot capture
bad payments and cannot automatically post
them back to the resident's account with late
charges, said Dean Schmidt, senior vice president
of product development for REALPAGE Inc.,
which offers an e-payment module within its
OneSite property management system.
Two-Way Flow
Some e-payment providers will custom design
products to ensure clients have seamless data
INTEGRATION and reporting. But other firms,
such as RentPayment, are choosing to simply
acquire companies that have already developed
more flexible platforms.
"It was a build versus buy type of decision
for us," said Matt Golis, RentPayment's
CEO. "A lot of the features our clients
were asking for were ones that eRentPayer
already offered on a very modern, flexible
Java platform. Doing a deal with them immediately
allowed us to gain access to that technology."
Among eRentPayer's attractive features is
two-way INTEGRATION. Not only does the software
post payments directly into the RENT roll
of a property manager's database, explained
Dan Urbina, an executive vice president of
eRentPayer, but it exports data from the RENT
roll to "pre-populate" forms on
the Internet portal where residents pay rent.
When a resident logs onto a property-specific
Web portal, Urbina explained, he or she is
taken to a page actually located on one of
eRentPayer's servers. During this process,
eRentPayer's software automatically accesses
a tenant's account balance so that when the
renter is ready to pay, all necessary information?name,
APARTMENT number, RENT balance, etc.?is already
entered.
Two-way INTEGRATION is an added convenience
for residents, and it also makes account
reconciliation easier for property managers.
Urbina said that eRentPayer is currently
the only firm to offer two-way INTEGRATION,
but he admitted that it won't have this
edge for long. Observers agreed.
"Whatever you have today, I'll have tomorrow
and vice versa," said Smillie. "If
you've got a bell or a whistle that's unique
and it's got traction, people are going to
replicate it."
In a field where products are continually
improved, Smillie added, property managers
should focus less on current products and
instead research a technology provider's financial
ability to continue developing its system.
They should also research "soft capabilities"
such as product training and customer support.
Flummoxing Fees
Even as e-payment software evolves, unexpected
events can force technology providers and
property managers alike to change their business
practices. Exactly this kind of change is
currently underway following Visa's decision
in November to begin enforcing its rules regarding
the transaction fees that merchants (i.e.
LANDLORDS) can pass through to a resident.
When residents use their CREDIT CARDS at a
swipe machine in a leasing office, Visa and
other card companies don't allow property
managers or their e-payment processors (or
any merchant), to pass through transaction
costs. Merchants must instead pay these costs
themselves. Since most "card present"
multi-family transactions (i.e. ones where
a buyer presents the card in person) are for
low ticket items such as application fees,
property managers are willing to absorb the
cost.
But properties are much less willing to absorb
transaction costs when it comes to RENT payment,
because these transaction fees?generally around
3 percent?can represent serious money and
can significantly eat into profit margins.
For this reason, e-payment providers are
encouraging renters to use CREDIT CARDS
online, which is considered an "alternative
channel" to card-present transactions.
In alternative channels, card rules allow
merchants to pass transaction costs through
to consumers in the form of convenience
fees.
Until recently, e-payment providers were treating
all CREDIT CARDS alike. When it came to online
payments, they were passing through percent-based
convenience fees to renters.
MasterCard and Discover allow this practice;
Visa, as it turns out, does not. In November,
Visa revealed that e-payment providers were
violating its rules, which state that merchants
may only pass along a fixed, flat convenience
fee.
(American Express sets policies directly with
merchants. ACH transactions, meanwhile, are
generally so inexpensive that property companies
can absorb the cost or pass them along with
a nominal convenience fee.)
Most e-payment providers were violating
Visa's rules out of ignorance, Golis said.
Visa communicates only with a merchant's
bank, never directly with a merchant, so
e-payment providers were simply unaware
of its policies.
But the kicker is that Visa's rules go even
further than addressing a flat fee, Golis
continued. Visa requires that the fee must
be the same for all payment methods accepted
through the same alternative channel: Meaning
that when it comes to online transactions,
Visa effectively sets the terms for itself
as well as for MasterCard, Discover and ACH
transactions.
Visa controls a huge portion of the CREDIT
CARD industry?60 percent of the worldwide
market, according to the company's WEBSITE?and
observers have long said that this dominance
allows Visa to throw its weight around in
setting transaction rules.
The problem with Visa's flat-fee rule, multifamily
executives contend, is that whereas percent-based
fees take into consideration the price difference
between a three-bedroom APARTMENT and a one-bedroom
APARTMENT, a flat fee does not. In determining
an appropriate flat fee, therefore, property
managers either risk setting it too low to
cover their highest RENT exposure; or setting
the fee too high to be fair to one-bedroom
renters.
Many property firms are simply dropping Visa
to avoid the flat-fee problem, which means
Visa is missing out on a sizeable revenue
stream from the industry?something it is unlikely
to stomach for very long.
Visa declined to comment for this story. But
according to Golis, who is in contact with
Visa, the card company is evaluating the possibility
of formulating new policies for the multifamily
industry.
In the meantime, e-payment provider Property
Solutions Inc. has developed what it sees
as a solid solution for complying with Visa's
rules: It offers Visa as a payment option
only by telephone.
"That's the obvious solution because
[the telephone] is a specific channel,"
explained Ben Zimmer, president and COO of
Property Solutions. "The Internet is
one channel, the phone is another, and you
can apply different fees for each of them."
Zimmer admits the phone solution is cumbersome,
though, as it incurs added labor. So, like
everyone else in the e-payment industry, he
is hoping that Visa will set new policies.
Checking in the New Century
It's not just that CREDIT CARDS and ACH transactions
are supplanting paper checks. The very nature
of checking itself is changing thanks to the
wide-ranging implications of The Check Clearing
for the 21st Century Act (Check 21), a law
which became effective Oct. 28, 2004.
The new rules put forth by Check 21 mean that
the float time for checks has fallen from
an average of five to seven days, to less
than 24 hours?in line with the availability
of funds authorized by a CREDIT CARD company.
Check 21 rules also allow for on-site check
scanning, eliminating the need to visit a
bank and further compressing processing times.
And technology providers are moving quickly
to make on-site scanning possible. For example,
REALPAGE Inc., a PROPERTY MANAGEMENT SOFTWARE
provider, offers users of its OneSite Payments
module a combination credit-card swipe/ check-scanning
machine that enables residents' paper checks
to be deposited directly into an owner's bank
account. Other e-payment providers are sure
to follow suit.
The E-Payer Profile
About 30 percent of multifamily owners and
managers currently have e-payment capability,
according to a recent National Multi-Housing
Council survey. But determining how many people
actually pay their RENT electronically is
difficult.
The best estimate, according to multifamily
executives and e-payment providers, is that
an average of 5 percent of all tenants pay
RENT electronically in any given month.
Although no one is tracking the demographics
of residents who prefer to pay RENT electronically,
there are some clues about what type of resident
is more likely to do so.
In student housing, e-payment usage can be
as high as 40 percent, said Matt Golis, CEO
of RentPayment. Echo Boomers are already accustomed
to using the Internet for a wide range of
purchases, he explained, and RENT is no different.
(Parents, it should be noted, also seem to
find it easier to pay their children's RENT
electronically.)
Affluent and less affluent renters alike are
paying their RENT electronically, according
to industry observers, but different income
groups have different reasons for doing so.
Some renters use their CREDIT CARDS to earn
incentives such as frequent flier miles. Other
renters, who are traveling or who simply don't
have the cash to pay their RENT on time, use
CREDIT CARDS because the fee to do so, generally
between 2.5 and 2.9 percent, is less than
the fee for late rent, which can be as high
as 10 percent. And still other renters simply
prefer the convenience of regularly scheduled,
inexpensive automated checking. |
