The Fee Shift: Navigating Evolving Payment Models in Utilities

Utilities are facing a new kind of pressure, and it's not just about the grid. Rising infrastructure costs, extreme weather, and a growing shift toward digital payments are all converging at once, forcing utility leaders to take a hard look at how payment costs are managed and who absorbs them.

In this episode of Experience Better: The CX Podcast by KUBRA, we're diving into one of the most timely conversations happening across the utility sector right now: evolving payment fee models. We'll walk through what's driving this shift, what options utilities actually have today, how changes to card networks are creating new possibilities, and what it takes to navigate all of this while keeping the customer experience front and center.

Whether you are just starting to ask the right questions or actively evaluating a transition, this episode is designed to help you think through the landscape with clarity and confidence.

Listen to the full podcast episode or read the detailed transcript below.  

Episode Transcript:

The transcript has been edited for clarity and readability while maintaining the original content and intent of the speakers.

Erind Shkurti: 

Okay. Hi again, everyone, and welcome to Experience Better, the CX podcast brought to you by KUBRA. I'm your host, Erind Shkurti. Today we'll be talking about a new kind of pressure that utilities are facing, and it's not just about the grid. You've got extreme weather, you've got rising costs, and you've got a growing shift toward digital payments that are all converging at once. And this is forcing utilities to take a hard look at how payment costs are managed and who absorbs them. In this episode of Experience Better, we will be diving into one of the most timely conversations happening across the utility sector right now, and that is evolving payment fee models. We'll walk through what's driving the shift, what options utilities actually have today, how card network changes are creating new possibilities, and what it takes to navigate all of this while keeping the customer experience front and center. So whether you're just starting to ask the right questions or actively evaluating a transition, this episode is designed to help you think through the landscape with clarity and with confidence. In this episode, I am joined by Ashley Czajkowski. Ashley is our Enterprise Payments Strategy Manager at KUBRA, and she will help break down what's changing, why it matters, and what utility leaders should be thinking about today. So Ashley, welcome to the podcast.

Ashley Czajkowski:

Thanks, Erind. Looking forward to the conversation.

The Financial Pressures Behind Rising Payment Costs

Erind:

Okay, so Ashley, we're going to start with the big picture because I think a lot of people can feel this pressure that we're talking about, but rarely they see all of this laid out in one place at once. So I'm going to ask you to set the stage for us a little bit. So utilities are facing a unique combination of financial pressures from rising infrastructure costs on one side, all the way to increasing expenses with payment acceptance. What's changing and why are payment costs becoming a growing area of focus?

Ashley:

Honestly, it feels like every pressure utilities have been managing separately are now hitting at the same time. So on one side, you've got real physical infrastructure needs. Electricity demand is expected to climb about 25% in 2030, largely because of data centers and AI. And a lot of the grid itself dates back to the 60s and 70s. So nearly 28% of utility spending right now is just going toward replacing aging infrastructure. Then you layer in extreme weather — wildfire mitigation alone added something like $27 billion in California utility rates between 2019 and 2023 — and rising natural gas prices are up about 45% year over year as of last October. So you've already got these massive cost pressures stacking up on the infrastructure and operations side. And now you put that next to the fact that customers are paying with credit cards and digital payment methods more than ever, which utilities have historically just absorbed the cost of. And that's really the piece that's changed the conversation. So it's not just that payment costs are new. It's now they're landing on top of everything else at the same time, which exactly why they have now moved, you know, from this kind of back office line item to a real strategic conversation.

Erind:

Yeah, and there's one thing you mentioned there, Ashley, that I want to pull on, and this is a surge in card and digital payments, and the fact that utilities have quietly been absorbing these costs for years. If we just stay on the customer side for a minute, because the way people actually choose to pay has changed quite a bit, how have customer payment preferences evolved over the last few years, and what impact is the shift toward digital payments and cards having on utility payment economics?

How Customer Payment Preferences Are Shifting 

Ashley:

What we're seeing in our research is a pretty clear preference shift overall. So looking specifically at, you know, customers who pay by card, for example, 55% preferred credit, you know, 54% preferred debits. It's pretty split between the two. More broadly, 70% of customers are using credit for at least some of their bill payments. And you compare that to cash, which only about 13% or so of customers say they now prefer. ACH is also interesting. It's, you know, it's the cheapest option for utilities to process, but we only see about 20% or so of customers utilizing it and actually choosing to use it, you know, consistently. So you've got this gap where, you know, the payment methods customers gravitate toward for convenience are the same ones that cost the most to process. So as that volume keeps growing, that gap becomes a real financial issue, you know, at scale.

Erind:

Yeah, so it seems clear that customers are increasingly gravitating toward the more expensive ways to pay, and as we've been saying, the utilities are the ones absorbing that gap at scale, which really does create a balancing act. There's quite a few things to juggle, and the few things that come to mind, Ashley, would be affordability on one side, you'd have customer experience, and then you'd have the long-term sustainability. So if we think of affordability, obviously you want to keep things as affordable as possible. No one really likes to be paying more, especially when it's not necessarily as obvious what you're getting in return. But then you've got customer experience, which really isn't just a nice principle to have. It has real downstream effects. And if you think about that, if utility is thinking of a rate case or a rate change, you can't really do that. You can't go and get approval from the regulators unless your customer satisfaction scores are also really good. And then you've got the last component that really comes to mind here, which is the long-term financial sustainability. Because really, at the end of the day, you can want to keep things affordable and you can want to improve the experience all day long, but at the end of the day, you would have to exist. You have to be a sustainable operating entity. So with all of that tension in the room across those three dimensions, Ashley — the affordability, the customer experience, the long-term sustainability — how are these competing priorities influencing the payment strategy decisions today?

Ashley:

Yeah, this is really the balancing act that utilities are living right now. So you want to keep things, you know, as you said, affordable for customers, but you also can't, as the utility, keep absorbing the processing fees forever, especially as card usage keeps climbing. That math just doesn't work long term. At the same time, customer expectations aren't going to devolve. So people want fast, flexible, digital-first payment experiences, and they want to understand exactly what they're being charged for and why. So the goal here really isn't picking between cost recovery or customer satisfaction. It's figuring out how to do both without treating it as a trade-off.

Erind:

Yeah, I love that framing — which goal is balance. It's not to take one priority over the other. And that's actually where a lot of the conversations are landing right now. And there's one idea in particular, which we want to dive into, Ashley, and this is the payer-funded fee models. Now, for anyone not necessarily steeped in this, a payer-funded model is where part of the fee, or all of it, is passed along to the person making the payment. So the customer covers the cost of the service that they're using plus the cost of the processing fee that comes with the payment. So it's a real shift from how utilities have historically operated. And naturally, two things come to mind on this. What's driving this trend — the wider adoption of the payer-funded fee models, Ashley — and why are more utilities evaluating these approaches?

Ashley:

Yeah, I alluded to a couple minutes ago that processing costs used to be something that utilities could kind of quietly absorb, and that's really not possible anymore. Those costs scale with every single card transaction. So as payment volume grows, so does the expense. And, you know, as we discussed, utilities are under enough pressure right now that they're scrutinizing every cost center, payments included. What's made this moment different is that there's nearly final industry settlements at this point, as well as recent updates from the card brands that have actually opened the door to new compliant way to structure these payer-funded fees. So it's not just that utilities want to shift the cost — it's now that there's a legitimate, well-defined path to do so, and one that customers can accept when it's rolled out thoughtfully.

Erind:

Yeah, thoughtfully, and also it has to be done right. And really, when it comes to the details, they actually do matter, because payer-funded isn't actually a single thing. There are a few different structures under that umbrella, and I've heard, Ashley, in terms of convenience fees or service fees, and I don't think they're necessarily interchangeable. So for a utility weighing its options, what are the key differences between convenience fees, service fees, and potentially other payment models out there?

Convenience Fees vs. Service Fees vs. Surcharges: What's the Difference? 

Ashley:

In terms of the models and what we call them, you're right. Some of the names are definitely used interchangeably, whether in all circumstances they should be or they shouldn't be. Some of the naming conventions are kind of card brand specific. Some of them are just kind of generalized industry terms. But for purposes of this conversation and trying to distinguish one from the other, I'm going to call and describe them specific things. And really, there's a few paths here. Each come with their own benefits and trade-offs. Biller-funded is what, you know, most consumers are historically used to. This is when the utility takes on the cost of the payment transaction, which, you know, is great for the customer. And there's, you know, there's not a fee whenever you're going to make your payment, you know, online or within whatever channel you're choosing. But as I've said, this has become less sustainable, particularly as card volume keeps climbing. Convenience fees is where we have commonly started to see the introduction of these payer-funded fees across payment types. This is when there's a flat fee that's applied evenly across every payment type within a channel. So you're going to see that same, you know, $2, whether you're paying with your bank account versus your debit card versus your credit card, just for example. So it's simple and familiar, you know, customers know what they expect whenever they're entering that payment environment, but it's also a bit rigid. You can't differentiate that fee that is assessed to the payer by card type. And, you know, depending on the card brand, you may not even be able to apply that fee to a recurring payment, for example. Now, service fees is where you have a little bit more flexibility. They can be flat or percentage based. They can vary among debit or credit cards. They can be applied to one-time payments, autopay transactions. So you get a little more transparency and a little more control over how you can assess those fees to your consumers and to your payers in general. And then of course, there is, you know, credit card surcharge, which is when the fee is applied only and is only allowed to be applied to credit cards. And that works within, you know, a few specific use cases for sure. Really though, it's, you know, it's not a one-size-fits-all answer. It's really going to depend on your cost structure, your compliance needs, and the overall experience that you're trying to protect.

Erind:

Okay, so you mentioned there, Ashley — biller-funded, which is the most predominant way that utilities have used over the years. You mentioned convenience fee, you mentioned service fee, you mentioned the surcharge. And it sounds from all of this that the service fees, it appears to be the more flexible one, where it can flex by payment type, it can stretch across different channels, different payment types, whether it's recurring or non-recurring. But I also understand that a lot of that flexibility actually lives or dies by what the card networks will allow, and that has shifted meaningfully in the last little while. So maybe we can walk through that a little bit, Ashley. Recent card network changes have introduced a lot of new opportunities and a lot of new complexities. What should utilities understand as they navigate this evolving landscape?

Ashley:

So I will say that this is for sure one of the more exciting developments that has recently occurred within the payment space specific to utilities. Back in October of 2025, Visa formally expanded its service fee program, which had historically been reserved to government and education sectors only, to include utilities — so specifically MCC 4900. So that is now affording utilities with that same flexibility that these sectors have had for many years. That means utilities, as I was discussing, kind of what's nuanced about service fee, can now apply that flat or percentage base fee to transactions, and they can differentiate them by payment type, and they can even apply fees now to recurring and autopay transactions. Now, again, this update is specific to the Visa card brands. MasterCard's actively evaluating its similar updates within its own rules. I'd say generally, though, these rules are quite nuanced and they're still evolving. So certainly recommend and emphasize that it's really important to work with a partner who is engaging directly with these networks. It's really the only way to make sure you stay compliant as things continue to shift.

Erind:

Yeah, so it appears that the rules are opening up, the compliance path is getting a little clearer, and then, of course, there are partners who can help you stay on the right side of it. And let's just call it — I mean, KUBRA is one of those partners. Let me see if I can perhaps name one elephant in the room here, Ashley: none of that really matters if customers see a fee and then they revolt. I mean, this is easily the number one concern that I hear the moment this topic comes up. So maybe we can take this head on. What have we actually learned about how customers respond when these fee models are implemented thoughtfully and transparently?

How Customers Respond to New Fee Models 

Ashley:

Well, there's usually a moment of adjustment. I think that's normal. I think it's natural to react to any type of change, especially, you know, something like a utility bill where you're going in monthly and you're expecting the same experience. And, you know, maybe it's a little bit different now that you see a fee whenever you're going to make that payment. So depending on the model specifically that the utility selects, you know, you may see a short-term dip in, you know, customer satisfaction.

You might see a temporary pullback in maybe credit card usage, particularly if the fee is maybe higher on credit than some of the other payment modalities.

Yeah, I mean, people are going to kind of reassess how they want to pay and what makes sense to them. Where is that balance between the fee they're paying and maybe the credit card points that they're earning? So that's something, you know, that will take a little bit of time as the kind of changes get rolled out.

But I'd say over time, what we start to see is that, you know, customers will tend to shift to a lower cost option. Again, that's really only applicable if they're going with the service fee model. A convenience fee model — like, you know, the fee is the same, so it doesn't drive the influence to payment type selection the same way that a dynamic structure like service fee would. But, you know, autopay eventually, we expect would, you know, climb back up just as people kind of get comfortable with the new structure, and then they, you know, they may want to have their card be on file, and accept that fee that may come with it.

I think the common thread, though, in every case that's kind of gone well with any of these rollouts is communication. So, you know, this isn't something you can just change and kind of walk away from and just, you know, hope for the best with your consumer base. I'd say that we see that utilities that keep investing in — whether it's ongoing education, and they're offering, like, a clear, accessible, maybe no-fee alternative. So, again, maybe having ACH within your enrolled space be your kind of no-fee option to consumers. That's really one way that we found allows, you know, our utilities to maintain the trust and satisfaction kind of long after that initial adjustment period of rolling out that fee model.

Erind:

Okay, so the through line there is choice and clarity, and that customers come around when they feel informed and in control. So if we can try to make this a bit more concrete and practical, because let's face it, Ashley — be transparent is easy to say, but then a little harder to operationalize. So with that, how can utilities balance cost recovery with customer choice and transparency while still delivering a positive payment experience?

Ashley:

Yeah, I think there's a few key components. The first one I was starting to get at, which is considering keeping that, like, lower or no cost option available. Typically that would be something like ACH, so that customers — consumers — genuinely have a way to control how they pay and whether or not they're willing to pay a fee to make that payment. I'd say the second thing is ensuring that that fee that is assessed reflects the actual processing costs. It's not something that's, you know, arbitrary or punitive, or just doesn't feel in line with how the payment is being made. And then the third, it goes back again to communication — ensuring that it's done clearly and proactively, before the fee is actually implemented, during the transition, and, you know, onwards afterward, not reactively after it's put into place. And I'd say just overall being thoughtful about how you structure fees across channels, rather than just defaulting to kind of like a single one-size-fits-all approach. And again, the service fee model is really where you can differentiate by payment type in a way that actually feels fair. So at the end of the day, transparency and choice aren't just really nice-to-haves in terms of good customer experience. They're really what's going to keep that trust intact while costs are rising everywhere else.

Erind:

So if someone is listening to this podcast, Ashley, and is thinking, okay, well, that all sounds right, but where do I even start? What advice would you give to our utility leaders who are just beginning to evaluate their payment strategy and fee model options today?

Ashley:

I would say start with the basics in your analysis. So really understand your current payment mix — like, what's costing you today, in terms of the payments that you're seeing, and kind of what that breakdown is. You know, kind of how do your customers behave? What are their preferred payment types?

And then from there, it would be, you know, looking at which of those fee models that we discussed — you know, setting aside biller absorbed — but whether it be convenience fee or service fee or surcharge, that really aligns best with your strategic goals, your compliance requirements, and kind of model out that customer impact before you make any actual changes to that experience. I'd say the biggest piece of advice, though, is more around timing. And with that, I specifically mean not waiting until the cost pressure at your organization becomes urgent.

But starting the assessment now, you know, kind of while you have room to, whether it's align stakeholders and just start to plan, like, properly, and with, you know, kind of a longer runway of time.

And then whatever model you do end up landing on, again, back to communication — so pairing it with, like, a clear communication plan for your consumers, for your customers — not just consumers, for your customers — you know, making sure you're partnered with a vendor that's actively engaged with the card networks, really knows their stuff in terms of compliance, and can help you, you know, execute it not just, you know, functionally, but ensuring that you're doing so in a way that, again, keeps you compliant with the different brands.

Erind:

Yeah, that's a key word — long-term. And really, that's the perfect place to point the conversation before we wrap, Ashley. So everything we've covered up until this point, it's things are already in motion. So you've got customer behavior, the network rules, and what people expect from the payment experience itself. If we just put our forecasting hat on for a minute, for the longer term — what payment and customer experience trends do we expect will have the greatest impact on utilities over the next three to five years, Ashley?

The Future of Payment Experience in Utilities 

Ashley:

Yeah, seamlessness is just going to be the baseline. Customers are going to have less and less patience for friction anywhere within the payment process. I would say digital adoption, you know, we know it's going to keep climbing. In our most recent research, we saw 60% of utility customers saying that they pay primarily through their utility website while logged in to their actual enrolled account, and I expect that number will likely keep growing. Cash and check will continue kind of fading away, and credit card usage, like I said, we know that that's going to keep rising, likely kind of alongside it. Overall, customers — especially in such a highly kind of customized world, you know, even outside of, you know, bill payment — just everywhere we kind of interact, whether it's payments or general experiences, are going to continue to expect choice as a given, not as a bonus. So that one-size-fits-all mentality is going to start to feel outdated very quickly. And transparency, in general, is going to shift from being kind of a nice-to-have differentiator to just a baseline expectation. So my take is that the utilities who come out ahead are those who start treating the payment experience as a real strategic priority now, and not something as they're going to revisit only when it becomes an undeniable problem.

Erind:

And that's a perfect place and strong place to land, Ashley. And really, that's the key line that you just stated there: payment experience as a strategic priority, not just an operational one. Well, take that with you, everybody. Okay, well, Ashley, this has been an incredibly insightful conversation — from the financial pressures that utilities are facing, to the digital shift, the new compliance pathways, the power of choice, and maintaining trust through communication and transparency — you've really helped break down the complexities of the evolving payment landscape, and I hope the utilities and our listeners have gotten a clear roadmap for how to balance cost recovery with customer experience. Ashley, thank you so much for joining us today and for sharing your expertise.

Ashley:

Thanks, Erind. Thanks everyone for listening.

Erind:

Okay, and to our listeners, thank you for tuning in to this episode of Experience Better, the podcast brought to you by KUBRA. We hope you're walking away with a clearer understanding of how to navigate these changes in your own organization. We look forward to having you with us on our next conversations on improving the utility customer experience. Until next time, everybody, thank you very much.