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Credit-Card Firms Look to Get Foot in the Door
By RAY A. SMITH
Staff Reporter of THE WALL STREET JOURNAL
May 11, 2005
It is hard to think of an amenity that has vexed landlords and managers
more than credit cards.
Credit-card companies have long pushed to get landlords to accept their
cards for rent, and recently they have made it easier for owners and managers
to accept cards. Consumer advocates, worried that tenants will dig themselves
deeply into debt, have fought against the practice.
Tenants, meanwhile, appear to be ignoring the battle and for the most
part are still paying their rent by check. The residents who do charge
their rent generally do so once in a while, often during the December
holidays when they are tight on cash.
"What we are finding with credit cards more residents are using that for
one-time, rather than monthly occurrence, like the security deposit or
the application, we're not seeing them use their card every month for
rent," says Lyn Lansdale, vice president of strategic business services
at AvalonBay Communities Inc., an Alexandria, Va., apartment real-estate
investment trust that now accepts MasterCard and Discover throughout its
portfolio of 148 properties.
Some landlords say it is worth it even at that low usage rate because
accepting cards gives their properties a competitive advantage over those
that don't accept cards. They also believe automatic rent payments with
credit cards are more efficient, saving them in costs and manpower and
time spent on processing checks.
Ms. Lansdale of AvalonBay said the company isn't disappointed in the low
card usage rate. "We didn't really have a specific goal for how many would
use credit cards to pay rent," she says. "Whether it was 3% or 40%, we
wanted to make it convenient for them. We wanted to offer another option
for them."
But a recent survey of renters conducted by ApartmentGuide.com, a nationwide
apartment finder and locator, ranked acceptance of credit-card payments
for rent last on its list of most important amenities, behind reputation
of the complex, laundry facilities, proximity to work, cable or satellite
TV, variety of floor plans, high-speed Internet, allowance of pets, professional
landscaping and swimming pool.
The most obvious enticement to use a card -- rewards points or frequent-flier
miles -- is generally only a factor for high-end renters, not the vast
majority of tenants who do not participate in these programs.
To reward low- and middle-income tenants, Visa and payment processor PropertyBridge
last month launched "Payment Perks," a program that allows residents who
sign up to have rent paid on their credit cards to participate in free-rent
drawings or get store coupons and gift certificates and merchandise rebates.
One reason for the low usage rate is that tenants are often charged a
fee to use their cards. Like merchants such as retailers, apartment landlords
and managers often have to pay a transaction fee, usually around 2% to
3% of each transaction. That can add up for an owner or manager with a
big portfolio if a lot of renters are using the cards. Some owners choose
to pass the cost on to the renter.
Tenants at AvalonBay, for example, pay the transaction fee if they use
their credit card. Other landlords have also dealt with the cost issue
by working with processors that charge the tenant a fee rather than the
landlord -- even though they run the risk of alienating renters.
In an effort to entice more renters to use their cards, RentPayment, a
processing firm that works with apartment owners and managers to enable
acceptance of credit cards, announced this month that it was reducing
the fees it charges residents who choose to have rental payments automatically
deducted from their credit cards, to a flat $12.95 per transaction instead
of 2.95% of the amount of the rent paid.
"On the properties where the owners pick up the fee, or where it's buried
in the rent, you will find a lot more residents using their card, it's
then treated as an amenity," says Leigh Curry, president of Curry Conduit
Services Inc., a Yardley, Pa., marketing and consulting firm for the apartment
industry. "The problem is most of the owners don't want to pick up the
cost."
Mr. Curry says that owners that have implemented credit-card acceptance
haven't found a lot of penetration when they charge a fee. "When you get
into situations where it's very high-end, or a student housing situation,
and the owner picks it up, then it works," he says. "If the owner is going
to absorb the cost, he will get a bigger penetration."
Some see the fees as the cost of competition. "There is an expense," says
James Cunningham, executive vice president of Columbus, Ohio-based Casto
Communities Management Inc., which accepts credit cards throughout its
6,600-unit portfolio in Alabama, Florida, Illinois, Indiana, Ohio and
Pennsylvania. "That [2%] discount rate does cost us money. We would lose
2% if everyone used [their credit card]. But the overall value ... it's
an intangible. You have to think did the value of the card program add
to the decision to rent with us?"
With usage still relatively low overall, the credit-card companies and
third-party processors are working on ways to make the systems that enable
credit-card payments do more than just process the payments.
Discover plans to test an apartment-industry specific money-management
system that allows renters as well as landlords and property managers
to keep better track of rent-related expenses. Though the company says
any card can be used in the program, clearly the use of Discover cards
would be more than welcome. The company is planning an all-out launch
in the fall.
PropertyBridge and Visa recently announced a collaborative effort that
promises landlords and apartment managers integrated data reporting and
reduced overall account administration. |
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| Property
Managers |
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Close More Leases |
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Eliminate Transaction Costs |
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Offer the Lowest Renter
Convenience Fee |
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| Renters |
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Pay Rent Via Phone, Fax
and Internet |
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Put Move-In Expenses on
Credit Card |
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| Benefits |
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Increase Manager Efficiency |
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Improve Renter Retention |
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