Item 109/2025
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 3/25/2025
Subject: Approval of implementation of merchant fee payment by customers for electronic payment transactions. (Action Item)
OBJECTIVE
For the City Council to approve the option provided by Point and Pay LLC to charge customers the fees charged by credit and debit companies for electronic payments.
BACKGROUND
On March 11, 2025, the City Council approved a contract with Point and Pay LLC for merchant services. The City's estimated annual cost for these services is $450,000, based on transaction types and volume. Th e City Council has directed staff to explore cost recovery options to reduce the financial burden on the general taxpayers for the convenience provided to credit card users.
DISCUSSION
Staff worked with Point and Pay LLC and identified two options for re covering merchant service fees:
Option 1: Fee Study and Convenience Fee Implementation
Conduct a fee study to establish a convenience fee for credit and debit card transactions.
The City pays merchant fees to Point and Pay but recovers the cost by charging customers a convenience fee as cost recovery.
Option 2: Direct Convenience Fee Charge to Customers
The convenience fee is charged directly by Point and Pay to customers using credit or debit cards.
Item 109/2025
Customers pay the fee directly to Point and Pay, eliminating the City's involvement in fee collection.
Under Option 1, based on projected transaction volumes, the City’s estimated annual cost is $450,000.
Under Option 2, Point and Pay will directly charge customers using debit or credit cards. The negotiated fee structure is as follows (illustrated with a $100.00 transaction):
Point and Pay charges a fee for electronic check transactions. It is recommended that the City absorb this electronic check fee, offering customers a free online payment option to enhance convenience and improve the overall customer experience. Based on historical transaction data, with approximately 100,000 electronic check payments annually, the City's estimated annual cost would be $20,000.
Currently, debit and credit card transactions are limited to $5,000.00 to minimize City costs.
If the City implements the cost recovery option, this transaction limit would be removed, further enhancing customer convenience and efficiency.
Staff also surveyed neighboring cities to assess whether they pass on a convenience fee to customers. The results are as follows:
FINANCIAL IMPACT
The annual merchant service fee is estimated at $450,000, based on the City’s current volume of debit and credit card payments. This significant cost re duces funding available for other programs that benefit the general population. While providing payment convenience remains a top priority, placing the financial burden on general taxpayers is not the desired outcome.
Payment Type Rate Amount
Master/Visa/Discover Cards 2.20%, min. $2.00 2.20$
America Express Card 2.20%, min. $2.00 2.20
Digital Wallet (Apple Pay/Google Pay) 2.20%, min. $2.00 2.20 Electronic Checks/ACH $0.20 0.20
Fountain Valley $1.25 for all online payment
Newport Beach 2.85% for card payment, no fee on E-Check Santa Ana None
Anaheim None, limit card transaction to $5,000
Irvine $2.50 for card payment
Fullerton None, looking to implement soon
Westminster None, looking to implement soon
Huntington Beach 3% for all card payment
Buena Park 3-4% on Building/Planning related transaction through 3rd party Orange None, looking to implement soon
Stanton 2.6% for card payment
Item 109/2025
Therefore, it is highly desirable to pursue cost recovery from customers who directly benefit from the convenience of using debit or credit cards, as is the practice in many neighboring cities.
Both options presented would achieve the cost recovery goal, with Option 2 being more favorable due to its greater transparency and efficiency. If the City adopts Option 2 and absorbs the cost of electronic check processing, the estimated annual expense would be $20,000.
RECOMMENDATION
It is recommended that the City Council:
Approve Option 2, the direct convenience fee charge to customers, with the fee for electronic checks covered by the City.