Tag Archives: online payments

Online Payments: A Help During the Crisis

Online payments are convenient, secure and easy. These days, they can also help keep you, your employees and your customers stay healthy and ensure your insurance business stays productive during the coronavirus pandemic.  

Amid the virus health concerns, employees across the country are being encouraged to work from home, while most Americans are being advised to stay inside.

That spells trouble for those consumers who prefer to pay their insurance bills in person or by the mail, many of whom are older. And it presents a tricky situation for insurance agents and companies that have shifted their work remotely for the time being. 

Not only should your clients avoid going out to pay their bills, but, even if they do, your business may not have anyone there to accept payments. 

That could be especially problematic in the insurance industry, where timely payments are paramount to maintaining coverage, something many Americans are undoubtedly nervous about as the virus spreads.

Even paying by mail could be problematic, as it requires having stamps on hand or going to the post office – again, your clients should be focusing on social distancing, not worrying about making a payment in person—and your office may not have anyone there anyway to open the mail.

The Federal Reserve Bank of Boston found in a 2017 study that the average American paid 8.4 bills in person, by mail or by phone, compared with 6.5 bills paid online and 6.4 bills paid through automatic withdrawal. That means a significant amount of people still aren’t paying online — presenting an opportunity for you to increase the number of online payers, a true benefit, especially during the pandemic.

If your insurance agency or company doesn’t accept online payments, it’s not hard to add that capability to your website quickly, with a plug-and-play system. It’s even easier to get your customers set up. Under the current circumstances, they’ll be especially thankful. 

See also: Coronavirus Boosts Cyber Risk  

Online payments also allow your customers to know exactly when the payment is received, while mailed payments depend on the timing of the delivery. Your customers will be able to manage their cash flow better.

As the coronavirus continues to spread, now is a better time than ever to shift your payment processing online. Many more of your customers are open to the change, because they’re trying to avoid personal contact. They’ll thank you for the opportunity.

Answer This Before Taking Online Payment

If your customers go to your website to pay, and you use a third-party vendor to process the payment, whom are they paying: You or the vendor?

The answer to this deceptively simple question can determine whether your business handles online payments smoothly or runs afoul of state laws, landing you in legal hot water.

It turns out that, at least in some states, the answer is far from straightforward. In fact, it may even depend on how you ask the question.

As the head of a company that helps other businesses process online payments easily, I saw this up close in New York state as we navigated the complicated legal guidance on behalf of our partners.

It’s an instructive story for businesses that may be thinking of adding online payment to their websites, because it illustrates the pitfalls you could face if you hire the wrong people.

It all began on June 19, 2007, when I received an advisory opinion that had been published by the New York Insurance Department responding to a question I had asked:

“May an entity that provides a service to insurance companies that permits policyholders to pay their insurance premiums by credit card charge those policyholders an additional fee to cover credit card and other service expenses?”

The answer? No.

The department said that vendors such as my current company, Simply Easier Payments, may not charge policyholders paying insurance premiums with a credit card an additional fee.

The document ends with this statement:

“Because an insurer may not impose a credit card surcharge on a policyholder, anyone acting on an insurer’s behalf, such as the company, is similarly prohibited from imposing a surcharge on the policyholder.”

I then asked a slightly different question and received a very different answer just a few months later.

See if you can spot the difference in the second question:

“May an entity that provides a service to insurance policyholders that enables them to pay their insurance premiums electronically by credit card charge those policyholders a fee to cover credit card and other service expenses”?

The answer? Yes.

In a Feb. 25, 2008, response, the department said that nothing in New York insurance law and regulations bars a vendor that “provides a service to insurance policyholders that enables them to pay their insurance premiums electronically” from charging a fee.

If you find that confusing, you’re not alone. But it turns out there’s a world of difference between the two questions.

See also: 7 Questions on Taking Online Payments  

Who are your customers paying?

The regulators in New York were kind enough to meet with me for a discussion about our business model before they reached the second opinion. They were very clear in our meeting about the difference between the two answers.

In the first question, we were considered to be a legal representative of the insurance company. We were acting on the company’s behalf. As such, we were subject to all the same laws and regulations as the company was.

Imagine you regularly eat at a hot dog stand, and the city has a rule that the stand can’t charge you extra for condiments. The owner can’t just hire a lawyer to stand nearby and demand payment instead; it’s all the same hot dog stand.

But in the second question, we were not representing the insurance company, we were helping the policyholder. That meant we had a separate business relationship.

In this example, you’re not going to a hot dog stand. You’re giving money to a friend who’s going to bring you back a hot dog and maybe run some other errands for you. If he demands an extra dollar for the trouble of getting mustard and relish, there’s nothing stopping him.

Define your pre-existing business relationship.

The department used three criteria for determining if an existing business relationship existed between us as a vendor and the insurance carrier or agency.

  1. Is there a written contract between us and the merchant receiving the payment?
  2. Does the merchant receiving the payment pay us any amount for any service?
  3. Do we pay the merchant any other amount?

If the answer to any of these was yes, then the department would consider us to be the representative of the carrier or agency and therefore subject to all the same laws and regulations.

In addition, one other criterion was noted in the permission granted on Feb. 25, 2008:

“The payment system does not at any time hold the premium payment on behalf of the customer or any insurance company.”

The conclusion reads:

“Thus, an insurer (or anyone acting on the insurer’s behalf) may not impose a credit card surcharge on a policyholder. Your client, by contrast, is not selling insurance and is not acting on any insurer’s behalf. Rather, it is providing (and charging for) a distinct service, i.e. the making of secure payment via electronic means.”

What does this mean for your business?

The moral of the story is not what you should do if you’re running an insurance agency – or even a hot dog stand – in New York. It’s that you need to be aware of the complexity of these laws before you hire any company to help process payments for your business. The wrong decision could prove costly.

The laws on credit card surcharges vary from state to state, and not all of them are as tricky as the scenario we ran into in New York.

But in general, states now agree on those criteria for establishing a separate business relationship.

See also: 3 Reasons to Use Online Marketplaces  

As a result of that back-and-forth in New York, we at Simply Easier Payments stripped our business model down as much as possible to avoid any legal complications.

We do not have a contract with merchants. We do not charge merchants for any service, e.g. no monthly fees, no charge-back fees, no integration fees, etc. We do not pay merchants. And we never hold the premium payment in any way.

This helps us avoid any situation in which we might be considered a legal representative of the businesses we work with. The goal, as our name says, is to make things easier.

7 Questions on Taking Online Payments

When American consumers go to pay their bills, they prefer going online to mailing a check because going online is simple. But for the businesses, it’s not quite as easy. Here’s some advice.

One reason online payments are so complicated is that eight players are involved. There’s the cardholder, the credit card company, the merchant, its bank, the payment gateway, yet another bank, the credit card network and, finally, the Federal Reserve.

When you sit down with a payment provider, here are seven big questions you should ask:

What are some reasons to accept payments online? 

You never want to turn down a customer payment. Customers like to pay online, using either a credit card or a checking account number, because it’s quicker than hunting around for the checkbook and a stamp, and they can be certain when the payment has arrived, avoiding late fees or cancellations. In fact, the timing issue was the main reason people have been willing to pay fees for online payments. But business owners like them, too. They speed up your payables, allowing you to be more productive and avoid any difficult situations where a customer is having trouble paying promptly.

What are some drawbacks to accepting online payments? 

It’s tricky. Many vendors add processing fees, set-up fees, chargeback fees and other hidden fees that can eat directly into your already tight profit margins. Integrating payment into your website can also be costly, especially if you need custom coding. There are also security concerns that require an understanding of proper handling of customer data and banking information. And, in the insurance industry, there are additional state regulations to meet.

See also: Important Perspective for Insurance Agents  

Why is compliance important? 

Running your operations with disregard for, or ignorance of, the law is never a good business model. Card rules violations may lead to card companies taking away your ability to accept payments or in some cases levying fines of up to $25,000 per violation.

What can I do to ensure my payment system is secure? 

Look for PCI Level I validation, the highest level of security, from any vendors you choose. Ask how long they have been in business. Read the contract to find out who is responsible for a breach: you or the vendor.

Does every state have the same payment processing regulations? 

States have varying regulations with payment processing that prohibit the agent from charging additional fees. For the insurance industry, states also have rules on how the premium fund must be handled, while credit card companies also have specific regulations. With multiple layers involved in being compliant, it is important that you choose a payment provider that ensures you are operating within the rules, at all times.

Does my state allow people in the insurance business, such as agents, to charge additional fees? 

While other businesses have the ability absorb processing costs as a standard part of their pricing models, typically this is not the case in the insurance industry, but it varies from state to state.

Does my state have a “convenience fee” law?

A convenience fee is an additional charge to your consumer on top of the payment due. It is referred to as a “convenience” fee because your business has provided the consumer with another avenue to make a payment outside of standard ways of paying. The rules on convenience fees are state laws, not guidelines, and violating these could come with significant consequences. To make things more complicated, the status of convenience fee laws may have current legal action pending in your state. Make sure your payment provider satisfies the requirements of these laws.

See also: Find Your Voice as an Insurance Agent  

By understanding the laws and regulations for your state, you can confidently run your agency knowing what you can and cannot do when it comes to payment processing. Not all payment processors are created equal, and a poor decision could cost your business in custom development work, unnecessary features, hidden fees and insecure data, and even land you in big legal trouble.