Item - 2023.GG1.10

The General Government Committee:  

1. Authorized the Controller to amend the agreement with Moneris such that:

a. the contract maximum only factor in fees specifically retained by Moneris for transaction processing and administration services; and

b. the amended agreement with Moneris reflect a contract maximum of $4.0M over the remaining term of the agreement to January 31, 2027.

2. Authorized the Controller to amend the contract, when required, based on new service offerings needed to maintain card holder security and protect the City against possible card fraud.

3. Authorized relevant City staff to review the feasibility of implementing convenience fees and surcharges available through card brand rules and to report back to Council with possible cost recovery options.

The City of Toronto has engaged the services of Moneris Solutions Inc. (Moneris) for debit and credit card processing activities where payments are made directly to City offices and through the City's online portal.  In November 2016, Council approved a ten year contract with Moneris, which started in February 2017, valued at $29,647,193, broken down into a five-year contract value of $14,825,649 and an additional $14,821,544 maximum over five, one-year terms, at $2.9M maximum per year, exercised at the discretion of the Controller.  The City is currently in year six of the contract term. 

As a merchant, when a debit or credit card is used to pay for a good or service directly to the City, the transaction is processed through Moneris, as required by the card payment infrastructure.  The transaction is settled within a few days, with the City of Toronto receiving payment of the transacted amount, net of processing fees.  Card processing fees withheld from the payment settlement have two components:  card fees that flow back to the card brands, such as VISA and MasterCard, and the financial institutions that issue the cards, such as the Royal Bank or BMO, and transaction processing fees retained by the card processing service provider, in this case Moneris, for transaction processing and administration, which includes the rental of processing equipment and devices.  This arrangement is consistent across public and private sectors participating in the payment card industry. 

Moneris' services differ from those provided by the City's arrangement with PayIt LLC through the MyToronto Pay portal, which offers an alternate method for consumers of City services to make payments.  MyToronto Pay is an online service platform that Toronto residents and businesses currently use to make payments for property taxes, utility billings and parking violations; as part of the transaction costs, the arrangement allows for the transfer of convenience and/or credit card processing fees directly to consumers, based on how the payment is made (debit vs. credit card).  Charging users directly for these payment processing fees has reduced the overall costs the City has borne for online payments, including amounts paid to Moneris.

Card processing fees are dictated by the card industry and set by the card brands and the financial institutions that take on the credit risk.  These fees vary based on a number of factors, such as type of card used, banking institution issuing the card, and transaction value, while Moneris' fees are based on the proposed pricing in their RFP submission.  Payment card rules are imposed on all merchants who accept debit and credit cards and are not protected by the contract with the card processing service provider. Most organizations do not set a contract maximum, or one that includes the card fees dictated by the card industry, while the City's existing contract includes both the card fees and the transaction processing fees in the contract maximum, which was $29.6M based on card payment activity between 2013 and 2015.

Other factors, such as the cost of mandatory new services required to maintain card holder security, the City's modernization efforts, the pandemic and changes to consumer preferences have also resulted in exponential growth to payments using credit cards and as a result, the contract value is almost exhausted, even though only 6 percent of the fees have been directly retained by Moneris for transactions processing.

Once the contract maximum value is reached, Moneris is no longer obligated to provide card processing services at the competitive bid rates specified in the contract.  The City will face card processing service disruptions and lose the preferred pricing being received for transaction processing and administrative services. 

As a valued partner providing quality service to the City's divisions, the Controller recently executed the second contract extension with Moneris.  However, the agreement and contract value must be amended to address the above issues.

As such, the report requests Council to authorize the Controller to correct this situation by amending the agreement with Moneris such that only the maximum value of fees withheld by Moneris for their card processing services is included in the maximum contract value.  Based on activity over the past six years, adjusted for growth over the past two years and into the future, the contract maximum for fees withheld by Moneris is expected to be $4M.  In addition, Council is requested to authorize the Controller to amend the contract, as required, for new services that are either mandatory for cardholder data security, or recommended to mitigate fraud risk and associated penalties and fees.  These changes would allow City divisions to continue to accept this modernized payment tool.  Finally, Council is being requested to direct staff to review the viability of card fee recovery options now available through changes to card brand rules.