Unpacking VISA’s Government and Higher Education Program
By Mukesh Patel
City and county governments have discovered the power of automation to streamline constituent interactions and reduce staff time. Developing online services, however, also means addressing new questions. A major consideration is the payment processing solution that will complete transactions securely. And, governments must ensure that their payment solutions comply with the credit card industry’s standards.
Until recently, one rule was unclear: whether agencies could charge end-user service fees to constituents who wanted to pay for government services by VISA credit cards. Because of the uncertainty around this question, and because few agencies were in a position to absorb VISA’s fees, many governments simply declined to accept VISA credit cards.
Toward the end of 2012, VISA changed its rules to allow governments and higher education institutions to add a service fee to the cost of the transaction. Through VISA’s Government and Higher Education Program (GHEP), agencies now can assess service fees for online and offline VISA transactions.
Because VISA has more than 50 percent of the credit card industry’s global market share, not accepting the card was a hardship both for governments and their constituents, and it may seem instinctual for agencies to rush to sign up for the GHEP program.
However, while the change potentially is good news for city and county governments, it does come with some strings attached. Local leaders should consider all aspects of the program before making the decision to sign up.
The program’s main advantage is that it allows agencies to charge a fee to recover the cost of delivering eGovernment services and accepting electronic payments online. The fee can be a fixed amount or a percentage of the purchase price and can be applied to online and offline transactions.
Though some city and county laws might allow the service fee to be rolled into existing statutory fees, VISA’s rules require that it be listed as a line item on the customer’s credit card bill, separate from the cost of the service itself. For example, a constituent purchasing a dog license would see two listings on his or her credit card statement – one for the license and one for the service fee.
On the positive side, this requirement ensures transparency that builds agency credibility. Constituents know exactly how much they’re paying to do business with the government online. On the other hand, it creates technical challenges, because local governments may have to adjust their ecommerce systems to list two distinct-but-connected orders.
The service fee also is treated as a separate transaction through its own merchant account, resulting in higher total transaction costs. Using the example above, the agency will pay the usual interchange charge on the dog license purchase, as well as on the service fee. So, before enrolling in the program, governments need to conduct due diligence to analyze the impact of the service fee transaction and make sure their pricing models support it.
Certain types of government entities, including utilities and health exchanges, cannot participate in GHEP, and agencies cannot enroll themselves. A merchant service provider (such as the bank processing your electronic payments) or a third-party provider must register on the government’s behalf. A third-party provider also can be helpful by serving as a single point of contact to manage GHEP-related technical needs, ensure the agency is compliant with credit card industry regulations and coordinate splitting of fees between the agency and the card provider.
Governments have access to two other programs that allow them to charge fees, as well:
- Surcharge rules, which only allow agencies to recover credit card merchant fee costs and require a number of disclaimers posted online and offline. This program is only applicable to credit cards and does not allow surcharges on debit cards.
- A convenience fee program, which allows governments to add a fixed fee to the listed price of an item sold online.
GHEP is the most flexible of the three available programs. It’s worth investigating and considering the benefits and challenges – perhaps with the help of a third-party provider – of joining the GHEP program.
As President of NIC Services, LLC, a wholly-owned subsidiary of NIC Inc., Mukesh Patel is responsible for NIC’s payment processing and financial management platforms. He speaks on payment processing best practices and trends in eGovernment services.