Digital Rent Payment Pricing Models Explained
Given the choice, how would your residents prefer to pay rent? According to NMHC, 93% of today’s renters want to pay their rent online (via an app, credit card, debit card, etc). That means you have the opportunity to create a digital rent collection strategy that saves your staff time, streamlines your AR, and boosts resident satisfaction. The kicker is that pricing is a big concern for your business, and payment processing fees are the main concern for your residents. So how can you create a payment structure that mutually benefits you, your staff, and your renters?
Step 1. Choose the Right Pricing Model
The pricing model you set up with your provider has a direct effect on digital payment adoption. Leading management companies are finding a pricing model ‘sweet spot’ that incentivizes residents while reducing operating expenses and increasing portfolio value. There are a few alternatives and considerations when it comes to pricing models. The chart below outlines three different types, their benefits, and their average digital payment adoption rates.
In the Standard Passed pricing model, payment processing fees are paid for by the resident. This is an attractive model for management companies that want to provide their residents with digital payment options, but aren’t interested in digitizing their full rent payment receivables process.
Property managers who are interested in providing residents with a free digital payment option will tend to choose the Standard Incurred pricing model. With this model, the property manager pays the processing fees associated with digital payments. The benefit of this plan versus the Standard Passed, is that the quantity of digital payments doubles when residents are presented with a free option.
For management companies that are serious about eliminating paper-based payments, the Digital Unlimited pricing model is the best option. Communities with this model have access to unlimited, “all you can eat” digital payments – providing residents with an easy, cheap, and free payment option. Managers can be more prescriptive in moving all of their residents away from paper-based payments by charging a fee to pay with cash, check, or money order. This allows communities to effortlessly transition to a 100% digital rent collection process.
Pro tip: Companies with subscription-based pricing models (like the Digital Unlimited plan) are trending across industries – think toothbrush heads, TV networks, meal-prep kits, etc. Get ahead of the game within the property management industry by adopting this type of structure now.
Step 2. Don’t pass the buck
Within the Zego database, the percentage of digital payments for an average multifamily client is approximately 30% (including all payment types such as credit card, debit card, ACH, etc). We’re not trying to beat a dead horse here, but the average number of ACH transactions doubles (and in some cases triples) when property management companies incur the processing fee on behalf of their residents. This can be achieved with either the Standard Incurred or Digital Unlimited models.
In a recent G2 Crowd review, a Site Support Specialist said, “being able to get residents to pay digitally while we eat the cost of the ACH fee has been amazing and saved our sites so much time during the beginning of the month.”
The graph below is a month-by-month representation of the average percentage of ACH payments at a single property for two consecutive years after instituting Zego Pay. The light green line represents companies that incur the processing fees on behalf of their residents. The dark green line represents companies that pass the convenience fee to their residents. These stats are big indicators that digital payment adoption soars when the processing fees are incurred.
With goals of achieving high digital payment adoption at their properties, Planned Property Management decided to incur the processing fee for each residents’ first digital payment. After that, the resident would incur a modest convenience fee if they chose to continue to pay digitally.
“I would estimate at least 80% of our tenants have used Zego at least once. It is so much easier than writing a check and adoption has grown considerably within our tenant base.” – Mary Francis, Collections Manager, Planned Property Management
To incur, or not to incur?
We encourage you to do some research on your end. Perform a cost-benefit analysis to find out how much it’s actually costing you to manually process all of your paper payments each month versus how much it would cost to incur. Roy Rainey of Rainey Realty did the math, and decided it was well worth it.
“We decided to incur the costs of eChecks, which is a nominal cost. We probably pay around $300 per month in the eCheck processing fees. But since everyone pays digitally now, we are not paying a bookkeeper to process rent. The tradeoff is worth it, especially because our system is 100% accurate and we can see all of our payments in real-time.”
Step 3. Give ‘em a Little Credit
Best-in-class payment providers will offer Credit Reporting for free, which will help set your community apart from your competitors. Allowing your residents to build their credit with each on-time, digital payment will not only reduce the amount of paper checks you receive, but also decrease late payments. Credit Reporting also attracts reliable renters – filling vacancies with quality residents who care about their finances.
For properties with Zego Pay, our free-to-use Credit Reporting feature shares a resident’s rent-related payments with Experian RentBureau® and TransUnion®, which are used by various types of credit-granting institutions.
The common misconception is that credit reporting is a difficult and time-consuming component to implement. But in reality, it’s a simple process to set-up, turn on, and reap the benefits from.
Need more convincing? Take a look at the numbers from this 2019 TransUnion survey.
By setting up the right pricing model, incurring the processing fees, and providing a free rent reporting tool, you’re incentivizing your residents to switch from paper payments to digital payments. They’ll enjoy the convenience of paying on-the-go, and potentially boosting their credit score, while you’ll enjoy the many benefits of increased digital payment adoption rates. Those benefits include; saving your staff time, better security, improved cash flow, increased portfolio value, and an enhanced resident experience.
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