November 09, 2004

Examinations of online banking conducted by Watchfire GómezPro and by the largest banks tie much of the profit contribution of online banking to the minority of online bankers that use bill payment. All banks offer online bill pay, and Wachovia's recent decision to join Bank of America, Citibank and others in making bill pay free suggest that banks have gotten the message about the intrinsic value of getting customers to use online bill pay. But even of the banks that offer it for free, the proportion of online bankers using bill pay diverges widely, so all banks aren't benefiting equally from bill pay. That's because when it comes to adoption, there's a big difference between offering a service for free and making it a service people will use. In this article, we examine product improvements banks can make to turn their bill pay service, free or otherwise, into a customer habit.

To guide our discussion, let's consider data from the Watchfire GómezPro Q2 2004 Internet Banker Scorecard regarding banks' efforts to strengthen online banking bill pay. Some design touches have become quite common, such as a form for multiple bill paymants across accounts, with over 90 percnet of Scorecard Banks adopting these practices.

The Scorecard indicates that several more sophisticated bill pay practices are on a subtle upward swing as well. This brief identifies industry examples and points to best practices of how Scorecard banks are going the extra mile to raise the bar on bill pay features and functionality.

Last payment date and amount information

The number of Scorecard firms presenting last payment date and amount information within the bill pay sequence now rests at 37 percent, compared to 32 percent on the Q4 2003 Internet Banker Scorecard. Showing the customer the date and amount of the last payment to a given merchant as the customer is paying that merchant helps avoid errors and the need to toggle between pages.

Payment by due date

In the context of launching a new, richer online banking platform, Washington Mutual introduced the ability for customers to schedule payments based on due dates rather than send dates. Other Scorecard banks enabling customers to initiate payments by due date include Bank One, Citizens Bank, First Internet Bank of Indiana, Hibernia, PNC, SouthTrust, SunTrust, and U.S. Bank.

The convenience of this feature rests in obviating the need for online bankers to calculate the requisite number of business days each time they schedule a payment. The exercise can become particularly cumbersome if a bank differentiates between electronic and paper settlement of payments and a customer uses a multiple bill pay form to settle several bills simultaneously; they are thereby forced to consider the attendant differences in processing timeframes for each payment.

Washington Mutual, notably, not only enables customers to initiate payments based on due dates as opposed to send dates, but actually allows customers to choose between the two options.

Disclosure of paper vs. electronic settlement of payments

Approximately 43 percent of Scorecard banks disclose the method by which bill payments are settled when a customer initiates a payment. Bank One and E*Trade Bank are among the firms that newly adopted this practice as of the Q2 2004 review.

As electronic and paper check payments generally present different processing times -- with electronic payments settling more quickly than paper checks -- revealing settlement methods for each payee clearly facilitates customers in scheduling payments.

Occasionally, as is the case with National City, banks merely present a list of payees who accept electronic payments. A more effective practice would be to integrate this information for each payee directly on the bill payment screen when customers go to make payments.

As well, disclosing the method of settlement goes hand-in-hand with banks' efforts to promote faster processing timeframes. Approximately half of all Scorecard banks require a five-day processing window for bill payments; Bank One joins a small group of other banks -- Bank of America and Citibank -- that differentiate between payment types and promote the industry-leading, two-business-day processing time frame for bill pay.

Specify process date

A related consideration for banks is to clearly specify the date on which a bill payment processes at the bank. Bank One, for example, conveys information regarding the date on which funds are withdrawn from a customer's account for a particular payment ("Send On" column in bill pay form) when initiating payments.

For the most part, Scorecard banks maintain a blanket scheduling requirement of at least five business days in advance for bill pay, regardless of how payments resolve (electronic transfer vs. paper check). And of those banks that also subscribe to the "Send Date" as well as the "Due Date" model, many do not distinguish between the two methods of settlement in terms of when they withdraw funds from customers' accounts (most process all payments on the date customers indicate). However, some do; at American Express, for example, paper check payments are taken out five days in advance, while electronically settled payments are issued from the bank the day before the due date; however, this isn't messaged to the customer clearly online and the bank requires a five-day advance notice for all payments.

Disclosing process dates, or the date on which funds are actually withdrawn from the available balance, can better help customers gauge the timing effect of bill pay on account balances online and mitigate the potential for overdraft.

Let's wrap up our survey of the development of bill pay by considering how banks stand behind the product. More and more banks are furnishing explicit bill pay guarantees online, with 83 percent of Scorecard banks promoting them on the Q2 2004 Scorecard as opposed to 72 percent on the Q4 2003 edition. The guarantee is useful in allaying customer concerns over late or mis-directed payments, and may even be effective in helping to convert online bankers into active bill payers. In fact, Watchfire GómezPro research indicates that in general, prospective online bankers underestimate the reliability of bill pay, and consequently have an overly negative impression of the service's accountability; furnishing guarantees may help counteract that perception and drive adoption.

An important consideration regarding guarantees for banks as they continue to ramp up their bill pay offerings is to extend the guarantee to cover the faster processing times for electronic payments. For instance, National City is a bank that explicitly differentiates between electronic and paper check settlement methods, and messages that most transactions to payees accepting electronic payments occur within one to two business days. Nonetheless, the bank still requires customers to allow five business days for all payments to reach payees, regardless of how they settle. Indeed, the National City Payment Guarantee only remains valid as long as the date on which the payment processes is at least five business days before the due date. Policies such as this could leave customers confused and disenchanted should something go wrong with a payment scheduled under electronic settlement parameters, and they expect bill payment guarantees to be honored. To mitigate the potential for this kind of occurrence, it is crucial for banks moving toward faster processing times frames to support them with online guarantees as well.

Alice Wang is a Research Analyst with Watchfire GómezPro in Waltham, MA. She can be reached at awang@watchfire.com.

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