Plastiq, Tio: Pros, cons of charging your bills through an online service


Services such as Plastiq and Tio let you charge many bills you’d otherwise have to pay straight from your bank account. But their fees range between 1.9 and 2.5 percent of each transaction.

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Imagine paying your car loan with a credit card. And your mortgage or even the kid’s college tuition. Further, if the card gives you rewards or cash back each time you use it, now you’re talking serious points, right?

Those musings are no longer hypothetical. Thanks to payment services such as Plastiq and Tio, among others, you can use your credit cards to pay many bills that once could only be paid straight from your bank account.

If you want to rack up rewards points, find yourself short of cash in an emergency or even just want to keep your checking account details safe from hackers – these may be attractive services for you.

The catch? The cost, which is roughly between 1.9 and 2.5 percent of each transaction

If you’re intrigued by these online payment services and are considering using one, here’s everything you need to know, including the good and the bad.

Online payment services at a glance

  • Bills you can pay: Varies by service, but through at least one of them you can pay mortgages, rent, auto loans, utilities, HOAs, contractor bills, taxes (federal, state and local), and education expenses (tuition, housing, meals), among others.
  • Fees they charge: Varies by service and type of bill paid, but but they range between 1.9 and 2.5 percent of each transaction.
  • Cards they accept: Plastiq, Tio and Official Payments all accept Visa, MasterCard, Discover and American Express, but AmEx can only be used to pay utilities on Tio, while mortgage payments can’t be made through Plastiq using Visa.

How do they work?
It varies by the service.

  • Plastiq charges your credit card, then cuts the merchant a check or bank transfers it the payment, depending upon its relationship with that biller.
  • Tio – which was acquired by PayPal in July 2017 – contracts with billers, so users can only pay the merchants and/or institutions on its list.
  • In addition, there are a number of services, such as Official Payments, which contract with the IRS, utilities, state and local governments and educational institutions to allow users to pay with credit cards. Such services are generally listed and clickable on those agencies’ and institutions’ websites.

What do they cost? Again, it varies by service and by type of card.

  • Plastiq charges a flat fee of 2.5 percent for each credit card transaction, though it occasionally runs promotions for lower rates.
  • Tio says its rates vary by transaction, but expect to find fees similar to Plastiq’s.
  • The IRS will cut you a slightly better deal through Official Payments. Americans can pay their federal taxes by credit card for an additional service fee of as little as 1.87 percent. Just to put that into numbers: a tax bill of $7,000 would incur a $130 service fee.

Debit cards are generally cheaper to use. Plastiq charges a 1 percent fee for debit card transactions. Again, using the IRS as an example, federal taxes can be paid by debit card for a flat fee of less than $4.

Which cards do they take? It also varies by service.

  • Tio accepts Visa, Mastercard and Discover for all payments, and American Express for utility bills only.
  • Plastiq takes the same four cards for most transactions, but Visa recently announced it would no longer process mortgage payments through Plastiq.
  • Both services accept debit cards.
  • Tio will also process payments through your PayPal account.
  • Plastiq accepts AmEx, Visa and Mastercard gift cards.

Why use these services? Not to save money – at least, not directly. Dan Miller, author of the blog “Points with a Crew,” said these services might be useful to someone trying to meet a so-called “minimum spend” on a new credit card. That’s when a credit card offers a slew of bonus points, anywhere from 10,000 to 100,000, for a new cardholder who spends a set amount of money usually in the first three months of card ownership.

The services could also be helpful when a bill comes due before the money’s there to pay it. “It’s a way of stalling the ultimate payment,” said Allan Bachman, education manager for the Association of Certified Fraud Examiners in Austin, Texas. “If I’m paying a third party with a credit card, and that party is cutting the biller a check, I’m buying myself some time to make that payment.”

If you’re someone who’s worried about security, and want to keep your debit and bank account information safe from hackers, these services could also help with that, Bachman said. “This will work for those people who are suspicious their information might be compromised,” Bachman said. However, he added, “there’s exposure every time you pull out a check or a credit card.” In the end, it’s which payment method makes you feel less vulnerable.

On its website, Plastiq also points out that consumers who pay bills with a credit card through its service can take advantage of other card benefits, such as purchase protection and easier budget tracking.

“If I’m paying a third party with a credit card, and that party is cutting the biller a check, I’m buying myself some time to make that payment.”

Is it worth it if I just want to rack up points quickly?
You decide. Points are generally worth 1 to 2 cents each, depending on the deal given by an individual card. If you’re paying 2.5 cents per point, as you would if you use Plastiq, “it’s going to be tricky to get enough value to use that on an ongoing basis,” Miller said.

Miller himself used Plastiq for a few months to pay his mortgage, utility, property tax and other bills he usually pays by check – but he had a point-churning deal, that has since expired, with a Citibank credit card.

The card he used, an AT&T Access More Mastercard, gave him 3x points on any online purchase, which included Plastiq. He figured the points bonus offset the service’s service fee and the card’s $95 annual fee.

In one blog post, he laid out this scenario: He used Plastiq and his Access More card to pay a $700 mortgage bill on a rental property. The Plastiq fee was $14 – 2 percent of the transaction. This netted him 2,142 points (714 x 3). His CitiPrestige card allowed him to use those points on American Airlines for a cost of 1.6 cents per point. Thus, his $14 fee got him $34 worth of travel.

Then, in June, he got an email from Citi, telling him that starting July 22, 2017, he would only be able to get 1x points for online purchases on rental and real estate payments. By his calculations, at that exchange rate, the Plastiq fee became too high to make the transaction worth it. He planned to return to paying those bills through his bank.

Are these services safe?
“That’s a great question,” said Matt Archer, senior sales director at comScore Inc., a Reston, Virginia-based company that measures consumers across platforms. In a world where hackers regularly break into major corporate and government systems, Archer questions the wisdom of entrusting account numbers and credit card information to a startup.

Both Plastiq and Tio, though, tout their safety bona fides, saying their precautions exceed the standards set by the credit card industry. “Plastiq institutes industry-leading security, regulatory, and banking practices that adhere to the standards set by international regulatory bodies, American and Canadian governments,” spokeswoman Rebecca Sekar wrote in an email.

Points blogger Miller reported no issues while using Plastiq. His bills were paid on time and his financial information appeared to stay secure.

“Pay close attention to the fees you’re being charged, and weigh those carefully against free options.”

 Is this a popular way to pay bills these days?
It remains a niche category. Even though Americans pay more than half their bills online, according to a January 2017 study by the research and advisory firm Aite Group, of all bills paid online, only 0.5 percent of them were paid through a third-party website (which includes these credit card payment services, as well as services like Mint, which pay bills by linking to the consumer’s bank account). This number has declined from a high of 2 percent in Aite’s 2013 study.

That said, Plastiq says it is growing. The company won’t release numbers, but points to the $11 million in funding it raised in June 2016. Tio says it serves 16 million customer bill pay accounts (but, it notes, customers can have multiple bill pay accounts each).

Any last words of wisdom, before I forge ahead with one of these services?
There’s probably no harm in experimenting, said Laura Adams, a personal finance expert and host of the Money Girl podcast. Just be careful not to fire off too many bills through a service like Plastiq or Tio without budgeting for the extra fees.

“Use [these services] cautiously and pay close attention to the fees you’re being charged,” she said, “and weigh those carefully against free options.”

See related:Pros, cons of paying rent with your credit cards, Moving? Use a credit card to rack up major points, rewards

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