Traditionally, paying bills such as rent required a series of post-dated cheques or setting up a direct deposit connection to your bank account. Paying with a credit card hasn’t always been an option – until now, as third-party payment processors grow in popularity.
One such service, Plastiq, has been touted in Canada for several years as a method for paying income taxes, and has been gaining popularity as a payment alternative for vendors who wouldn’t usually accept credit cards. Users set up an account, add their payees of choice, and the amount they wish to pay. Plastiq then processes the payment and sends it to the payee as either a cheque or electronic money transfer, charging a fee of 2.5 per cent for the service.
A similar service, Rentmoola, focuses on brokering rental and condo fee payments for free via debit, and for a 2.75 per cent fee via credit card.
The Pros and Cons of Using Plastic For Your Bills
Pro – You can ramp up your rewards: Using your credit card to pay in more instances increases your ability to earn more rewards. “There is a strong set of rewards collectors who value maximizing the points they get from their cards and they see Plastiq as a fantastic way to accumulate those incentives that they can use to travel, stay in hotels, and get some cash back,” says Eliot Buchanan, Co-founder and CEO of Plastiq. As well, Rentmoola also features a built-in perks program to provide users with discounts at a number of partner retailers and services.
One note: If using these services is part of your rewards-earning strategy, ensure you’re using a credit card without an earnings cap, and that any third-party transactions you make on the card qualify as eligible purchases for your rewards program.
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Pro – All cards are accepted: Because Plastique and Rentmoola are third-party services, they don’t adhere to the same processing fee structure as retailers, meaning they’ll accept all credit card types – even for retailers and services that don’t. Some retailers refuse credit card payments in order to avoid paying interchange fees to the issuing card lenders. This is bypassed altogether by third-party services, who instead directly charge users a processing fee for the transaction.
Con – The user pays the fees: In a retail setting, processing fees don’t directly affect shoppers; they are paid instead by the merchant to the issuing credit card lender. As mentioned, these third-party processing services charge around 2.50 – 2.75 per cent of the transaction cost, and that comes out of the user’s pocket. While Buchanan states that “Like many services, consumers are willing to pay a reasonable cost for the value they receive in return,” Ellen Roseman of the Toronto Star wrote up an article that highlights hidden fees when paying bills this way. Before using these services to pay, it’s important to find out if the rewards will offset the transaction fees. If you’re looking to save on fees, consider paying by debit instead of credit.
Pro – It’s convenient: “Most users of Plastiq value the convenience of putting all of their bill payments in a single place where they can trust and track their expenses,” says Buchanan. “They value the time saved from having to write a cheque and figure out postage to mail it.”
Con – They require a lot of debt discipline: Credit cards are a valuable financial tool when used in a responsible way – but they’re also the easiest way to rack up debt.
Buchanan emphasizes that his service isn’t right for every type of shopper. “The financial flexibility and increased liquidity that paying bills by card can provide is only beneficial if you are able to pay your statement in full at the end of each month,” he says. However, Plastiq does offers some protections for consumers om that it is a facilitator of debt, and cannot directly issue or extend credit. That keeps users within the spending limits they have established separately with their bank.
Sean Cooper is a Financial Journalist and Personal Finance Expert, living in Toronto, Ontario. He offers Unbiased Fee-Only Financial Advice, specializing in pensions and the decumulation of financial wealth in retirement. Follow him on Twitter @SeanCooperWrite and read his blogs and request his writing services on his personal website: http://www.seancooperwriter.com/