E-COMMERCE REPORT, NYTIMES
Pay Bills With a Click? More Americans Are Doing It and Banks Are
By BOB TEDESCHI
Published: May 29, 2006
FROM the annals of Online Economics 101 comes this shocker: free is
good, especially when it comes to paying bills.
Big billers like Verizon Wireless and ConEd learned this bit of wisdom
years ago, when they offered customers the ability to pay bills free
online. But most banks have come to the same realization only in the
last 18 months.
The result has been a boom in the number of bills viewed and paid
online. According to a recent poll by Harris Interactive, a research
firm, the gap between the number of bills paid by check and the
number paid online has closed significantly in the past year. More
than 37 percent of bills are paid by check; 35 percent are paid online.
The remaining 28 percent are paid with cash, debit cards or other
Given that trend, Web payments could surpass checks over the next
year. (Last year, 46 percent of bills were paid by check, and 25
Banks are hoping to accelerate the move by marketing online services
far more aggressively. Television campaigns, radio spots and, of
course, online advertisements from the Bank of America and Wells
Fargo, among others, now promote the benefits of such services,
where in years past banks advertised other features like online
statements and account balances.
The caveat with these numbers is that the Harris poll was
commissioned by CheckFree, which helps banks and billers build
online bill presentment and payment services. But analysts said the
data mirrored other research showing the growing popularity of the
"The days when people see the U.S. mail as a safe and rational place
to do our bills are numbered," said James Van Dyke, president of
Javelin Strategy and Research, a consultancy based in Pleasanton,
According to Javelin, roughly half of all households with Internet
access have paid bills at a biller's Web site; about 40 percent have
paid bills through a bank or credit union site in the previous month.
Analysts say consumers still greatly prefer to pay bills at the Web sites
of their financial institutions, not just because customers trust banks
and credit unions with their finances, but also because these Web
sites can display and process multiple bills at once.
Banks generally agreed with that logic in the past, but they were not
willing to pay the fees charged by CheckFree, Metavante and other
technology companies who processed electronic payments and bills
on their behalf, and their customers were not willing to cough up $6 a
month to subsidize the effort, either. A consortium of banks including
Wells Fargo and Wachovia tried building their own technology
several years ago. In 2002 Metavante bought the company, called
Spectrum, that the consortium created.
Since then, technology vendors have cut fees by 20 percent to 30
percent and banks have recognized the considerable leverage of
online bill payment services, thereby making them more willing to
absorb those fees.
Customers who pay bills online "have increased loyalty to the banks,"
according to Greg Cardinali, Wachovia's vice president of product
management for online services. Mr. Cardinali would not say how
much more money these customers keep with Wachovia, but said,
"we have a deeper share of their wallet."
According to Catherine Graeber, an analyst with Forrester Research,
a technology consultancy, a bank's online bill payers are substantially
more likely than their check-writing counterparts to rely on the bank
for credit cards and other financial services, and they also call the
bank less frequently, so they are less costly to serve. "Online bill pay
does have a halo effect," Ms. Graeber said.
Banks still have some obstacles to overcome, though, before that halo
illuminates the full breadth of their customer base. Forty-one percent
of United States households with Internet access now pay their bills
online — up from 31 percent in 2004, when most banks still charged
for the services. Ms. Graeber predicted that it would take four more
years to top the 50 percent mark.
Why would the rate of growth slow down? Ms. Graeber said part of
the problem was that online bill payment was tied to online tenure:
the more online experience someone has, the more willing they are to
consider the service. As a result, many Internet users who have had
access for only a few years may not be ready to move into more
sophisticated Internet transactions like bill payment for some time.
In the meantime, the technology has steadily improved, making it
simpler to understand and use. Bank of America, which was the first
to offer a free service, in 2002, and which claims to have the most
online bill payers of any bank, with 7.7 million, has tweaked its
system regularly in recent years.
According to Sanjay Gupta, Bank of America's e-commerce executive,
users now typically enter nothing more than the company name and
account number to sent payments, whereas in years past they were
required to enter the company's full address, among other things.
Earlier this year, Bank of America also changed its system so the
customer's money remains in his account until the biller has
deposited the payment. In years past, the customers' checking
account was immediately debited.
Other banks are also developing systems where customers can pay
bills at the last minute and have the biller paid instantly. Online
Resources, an online bill payment and presentment company serving
mostly local and regional banks like New York Community Bank and
Ohio Savings Bank, will probably offer such a feature to its clients
early next year, according to Matthew P. Lawlor, the chief executive.
Indeed, just as the banks have profited from the growth in online bill
payment, so too have the vendors that serve them. Online Resources,
which acquired the online payments company Princeton eCom for
$180 million earlier this month, posted revenue of more than $60
million last year, up from $42 million in 2004. CheckFree,
meanwhile, posted $758 million in sales in fiscal 2005, an increase of
25 percent over fiscal 2004.
Matthew Lewis, CheckFree's executive vice president, said the
company had created new sources of revenue over the past year,
crunching data for banks and helping them identify potentially
fraudulent transactions. But he said CheckFree's core mission
remained focused on consumers.
"Mainstream America is increasingly finding ways the Web can really
improve their lives," Mr. Lewis said. "We want to make this more part
of the way Americans live their lives."