Rent collection techniques are typically wrought with all sorts of issues.
ACH payments have a bevy of communication complexities, and paper checks take awhile to process and clear, running the risk of carrying a bad one.
“If the check comes in on Monday, [the landlord] expects to see their money in a few days,” says Bill Wright, owner of Franklin, Ma.-based Re/Max Executive Realty management firm.
And although cash seems to be the simplest of methods, the leasing office is at a greater risk when carrying so much of it on its premises. So, online and alternative payment companies are becoming much more commonplace.
When Jay Bhattacharya and his co-founder started New York City-based Zipmark in 2010, they began with one goal: to eliminate all roadblocks and hurdles from receiving payments.
“We wanted to come up with and present a way for property managers from smallest to largest to be able to accept online checking payment transactions, and not risk the transaction going bad,” he says.
By partnering with banks and data providers, Zipmark can connect bank accounts directly to an individual or entity–in this case, the management company or landlord, which makes up about 50 percent of Zipmark’s clientele.
The team behind Zipmark is making sure the tenant is paying the bill, checking accounts in real-time to guarantee payments. It’s so much of a guarantee that Zipmark will take full responsibility to make sure the landlord is paid, covering expenses even in case the tenant overdrafts.
“Bad payments aren’t the result of intended fraud,” Bhattacharya says. “It’s the result of mismanagement.”
When Cash is King
Despite the leaps and bounds in online payment systems, a large group of tenants still use cash or money orders to make payments, even while managers are shifting away from it.
Sunnyvale, Calif.-based PayNearMe recognized that at least 60 million consumers still pay rent in cash, and developed a real-time, error- and fraud-free system to accept cash as digital payments.
The electronic cash-transaction system entails a barcode issued to the tenant either on their smartphone or on a plain document by the leasing office. The tenant can use that barcode and pay for their rent at stores like 7/11, eliminating the extra steps in getting cash and turning it into money orders, as well as the risks associated.
“It frees the [leasing] staff to focus on operations and focus on leasing,” says Chris Volgenau, PayNearMe’s vice president of business development. “And there’s an ancillary benefit: removing fraud/theft risk, reducing leasing offices as a target.”
On average across the country, about 20 percent of tenants at a property pay rent in cash or money order, but that number is beginning to shrink as more solutions are adopted. Still, there’s no material difference in the type of renter who pays in cash up front, and one who uses an alternative service. At Re/Max, about 25 to 30 percent of tenants across its portfolio pay online, and Wright expects it to be a standardized practice in a few years.
“What we found that those that paid on the first of the month paid that no matter what,” Wright says. “But it definitely doesn’t slow down tenant payments. It can take away excuses like, ‘the check is in the mail.’ It gives us leverage.”
Cost Effective Measures
If the tenant has to absorb the high cost of making an online payment, many aren’t willing to do it. And landlords aren’t more likely to cover the cost, either.
Zipmark touts a low fee, charging 1 percent per transaction (until it reaches a $5 cap). To sweeten the deal, they also offer a free online tenant portal that can be customized by any multifamily user, lowering the technical hurdle.
“Most payment guarantee programs in the past were built around insurance models,” Bhattacharya says.
Like credit cards, for instance. When a tenant makes a payment with a credit card, the funds are still not readily available on the receiving end for at least a day or two. It’s one of the main reasons why managers are still hesitant to accept such payments, even if it’s insured.
“I think a lot of companies in our position decide not to accept credit cards because of the risk of charge backs,” says Chris Toppino, co-founder of New York City-based rent payment platform, RentShare. Those charge-backs include friendly frauds like buyer’s remorse, or a reverse transaction when someone calls their credit card company to eliminate a charge. And then there’s real fraud, where the credit card is stolen and the funds are charged back.
To combat these variables, Zipmark leverages bank data to eliminate the possibility of a returned check before it even hits the bank. When a tenant receives a Zipmark-enabled bill, the team is verifying data and creating a score that estimates whether or not the transaction will clear. They pull data on accounts which include balance trends and credit card approvals as they score transactions.
“If you passed a bad check recently, we’ll catch that, and we’ll stop it before it gets [to the landlord],” Bhattacharya says.