Originally published in American City Business Journals
By Joe Edgar
Millennials get blamed for a lot. According to some, they’re responsible for the death of brick-and-mortar retail stores, chain restaurants and even breakfast cereal.
While the truth is probably a little more complicated, one tradition this generation has truly kicked to the curb is the checkbook.
Those slips of paper have been a ubiquitous part of life for decades, used to pay for everything from bills to groceries to big-ticket items like cars and refrigerators.
But no more, and the younger generations really are to blame this time. Only 42 percent of millennials and Gen Z use checks, according to a study from market research firm Accel + qualtrics, with the majority preferring to pay monthly bills online.
With one exception: Paying rent.
In a seminal 2016 study, the Boston Federal Reserve found that 80 percent of rent payments were still being made by cash, paper check or money order, with electronic payments accounting for only 8 percent of the market.
But that’s changing, too, as the number of checks paid out each year has fallen by more than 50 percent since 2000, as online and electronic payments tripled over that time period.
As more and more payments go digital, the onus is on landlords to offer prospective tenants the payment options they prefer, whether that’s online, mobile or otherwise.
The good news is the more that rent payments go digital, the better it is going to be for landlords and for tenants. Here are three key ways:
1) Credit reporting
As of 2018, proprietary data show that 77 percent of all renters pay on time with no late fees, according to the National Landlord Association, a consortium of rental software companies comprised of Avail, Rentler, TurboTenant and my company, TenantCloud. The consortium is feeding rent payment information to the three credit reporting bureaus — TransUnion, Experian, and Equifax.
Tenants are able to use Venmo and other apps to pay their rent, but it is not reported to the credit bureaus. But when those rent payments are reported, they become part of a renters’ credit report, which the national credit bureaus have been permitting for only the last few years. This helps tenants who pay on time build their credit to eventually buy a house, take out a car loan or apply for other types of credit.
Including rent payments in credit histories allows folks to get the credit they deserve for being good tenants.
2) Tenant insights
On the flip side, there are 33 percent of tenants who don’t reliably pay their rent on time. It would behoove landlords to know who they are. But, as the payments system is set up now, it can be difficult to identify problem tenants ahead of time.
Background checks are a common part of the tenant application process today, which effectively serve the same function as a financial credit check. But if rent payment histories are not part of that report, the value is not as great as it could be.
Aside from the convenience of collecting rent, reporting the payments to the credit bureaus effectively unlocks that information for other landlords to see. The more landlords who report payment histories, the stronger the data base.
3) Added functionality
The truth is, the methods that landlords are using to collect rent — whether it’s cash, paper check or a direct-deposit service — isn’t the whole problem. But rental software platforms can do so many other things that are impossible with more old-fashioned solutions.
They can provide the tenant with an automatic receipt, which makes it easy for landlords to follow the letter of the law there. They can apply automatic late fees, taking those calculations and follow-ups off the landlord. And they can ensure payments arrive quickly, making the entire process easy for both sides of the transaction.
Today’s online services that facilitate credit bureau reporting will transform good tenant/landlord relationships. If you are a tenant and your landlord doesn’t provide this service, demand it. And if you are a landlord, do it to make life easier for your tenant and yourself.
We’re not far away from a world where rental software isn’t just a luxury, but a requirement to attract younger, more tech-savvy tenants. And if that’s not reason enough to move away from legacy payment systems, I don’t know what is.
Joe Edgar is the founder of TenantCloud, which helps tenants and landlords manage their relationship.