The growing popularity of online bill payment services presents a revenue opportunity for banks, according to Gwenn Bezard, research director of Boston-based Aite Group. While most banks offer basic online bill pay to customers free of charge, some banks will begin to charge for new expedited payment options, including credit card and debit card payments, Bezard predicts. "These will be the biggest changes in online bill payment in the next 12 months," he says, adding that only the largest banks are likely to offer the feature while others wait to see how well the strategy works.
Expedited bill payments allow customers to pay bills on the same day rather than "in five business days," as is typical with many online bank bill payment offerings. According to Bezard, offering card payment options will enable banks to give customers more flexibility, which is important in building customer loyalty.
Expedited payments already are available on the sites of certain card issuers, which let customers make same-day or next-day payments of the issuer's bills for a fee of $10 to $15 to avoid late payments and interest charges. By instituting similar capabilities on their own sites, banks would be able to charge similar fees, Bezard explains, noting that banks, however, likely would charge no more than $10 for expedited payments. After all, "The banks don't want to be perceived as loan sharks," he states.
But banks that choose to charge for the service would be going against the tide. When Bank of America ($1.3 trillion in assets) dropped its fee for bill payments in 2002, other banks were forced to follow suit in order to maintain market share. Earlier this year, the Charlotte, N.C.-based bank began offering next-day payments at no cost as well.
Bank of America has continued to grow its bill payment business. As of the last report issued in September, of Bank of America's 20.8 million active Web banking customers (defined as those performing one online transaction in the past three months), 10.8 million now use bill pay. Those figures are up from 14.3 million active online customers and 7 million bill pay users a year earlier. Further, according to the bank, the average number of bills paid per month using its online bill pay service grew from 34.2 million in 2005 to 39.1 million in 2006.
"Once people try it, they're hooked," says Sanjay Gupta, Bank of America's SVP of e-commerce. Another significant increase, Gupta says, is in the number of electronic bills that customers receive, which has grown from 5.8 million in 2005 to 7.1 million in 2006. Though he declines to disclose if Bank of America has any plans to add card payment options to its bill payment site, Gupta says Bezard's prediction "is a fair characterization of where the industry is likely to go."
To differentiate their offerings and grow their online bill payment businesses, banks will need to offer more and more functionality, such as card payments, says Stephanie O'Connor, senior analyst for Corporate Insight (New York). While two-thirds of banks, including Bank of America, use CheckFree (Atlanta) for bill payment processing, according to O'Connor, they differ in the functionality that they offer customers. This also is true for financial institutions that use providers other than CheckFree, she adds.
For example, some banks offer more-robust functionality for recurring payments, O'Connor notes. "There's a huge discrepancy in the presentation of the bill payment service," she says. *