In the world of online bill payment, consumers are flocking to billers' Web sites instead of banks'.
But that was not always the case.
Two years ago 58% of the bills paid online were routed through Web sites that consolidate bills. The vast majority of those sites belong to retail banks, which originated this online bill payment model. Today the consolidators' share has dropped to 43%, while the billers' share has grown from 41% to 55%, according to TowerGroup Inc.
And even though banks expect to regain market share, in large part by dropping fees and enhancing their services, observers say billers' popularity with consumers will not die down - at least not by much.
"Over time most consumers will find it easier to view and pay bills with a consolidated model," but that change could be a long time coming, Beth Robertson, a senior analyst at the Needham, Mass., market research firm, said in an interview this month.
According to a report she wrote in June, consolidators' share of the online bill payment market will slip further in the next few years, to 41% in 2006. TowerGroup does project a slight rebound in 2007, to 45%.
Such predictions of a rebound stem from the fact that some bank sites allow consumers to receive most or all of their bills electronically and pay them at one site. For example, Bank of America Corp.'s presentment service currently allows customers to receive and review actual bills from more than 240 different billers.
Most billers, but only a handful of banks, offer presentment, which simplifies the paying process and is considered one of the big draws for online payment sites. Sources say reluctance by banks to offer it is stalling the migration from billers to banks. Last month, Bank One Corp. surprised the technology community by removing the feature from its online banking service (though it simultaneously dropped its $4.95 monthly bill payment fee).
Nonetheless, changes in user behavior may push banks to offer presentment. Cathleen Conforti, the senior vice president for MasterCard International's remote payment and presentment service, which processes both bill payments and e-bills, said consumers may initially pay one or two of their bills at a biller site, often to avoid a late fee.
But once they start to pay four or more bills at a time, they will start to find the consolidator model more convenient, she said. "They are going to start to say, 'Gee, I don't want to go to all these different biller sites and enter all these different passwords.' "
While many consumers today happily pay their bills through a bank site, despite a lack of presentment, the public remains relatively uneducated about the feature, Ms. Robertson said. Consumers who are becoming accustomed to seeing detailed invoices at biller sites are going to expect it from their banks as well.
For banks, presentment "will be essential" in their effort to regain their market share, she said.
However, some billers say that they will be able to retain their online bill payment customers over the long run and that even if the bulk of them change their habits, they may continue to pay a few key bills at the biller sites.
"I always thought that customers would want to go to one place to pay their bills, but we're not seeing that," said Angeline DePauw, a director of finance operations at Verizon Communications Inc. The New York telephone carrier revamped its Internet bill payment service at the start of last year, and its usage has grown steadily ever since.
The number of payments it receives from bank and consolidator sites have dropped 8% in the past 18 months and 14% in the first half of this year, she said. Meanwhile, payments made through its own Web site has grown 250% since the start of last year and 13% in the first half. Recurring debits have also seen significant growth in the past year, accounting for 36% of all electronic payments recieved in the first half of this year.
"We want them to come to our Web site so we can sell them more services," Ms. DePauw said. "We have seen an increase in revenue, which we attribute to increased Internet traffic."
And she expects them to continue paying through the Verizon site. "Once you've set it up, it's pretty easy to use, just two clicks and you're done. I think people will continue to go to individual sites, as long as you make it easy."
Yodlee Inc. recently started offering a service that allows individuals to receive bills from nearly 2,500 different billers at their banking Web sites.
Though no banks are using the service yet, Melanie Flanigan, the Redwood City, Calif., vendor's director of marketing, said the large biller base would allow consumers to receive on average seven to nine of their monthly statements electronically and should accelerate the transition back to consolidator sites. "Presentment is really the missing piece in the industry today."
Avivah Litan, a vice president with the Stamford, Conn., market research firm Gartner Inc., said most consumers will likely adopt the consolidator model, but not for three to four more years, and even after that they will pay some bills through biller sites.
While some statements, such as utility bills or mortgage statements, are fairly straightforward, consumers often want to exercise a certain degree of control over credit card and telecommunication bills, she said. This could mean trying to negotiate a better rate, or evaluating a different service plan, services which a bank cannot offer.
"I really don't think consumers will use their banks to pay their telecom and credit card bills," she said.
Betty Riess, a Bank of America spokeswoman, said the number of people using its bill payment service has more than doubled since June 2002, to 2.5 million. Over the same period the number of monthly bills that B of A has delivered has more than tripled; last month it delivered 1.7 million.
"We feel that as people receive more e-bills, they really like coming to one centralized place to view and pay their monthly bills," she said.
Though Ms. Riess said the increasing number of available bills seems to be attracting more customers, another factor in that growth could be the bank's May 2002 decision to eliminate its bill payment fee. Most banks continue to charge for the service, but B of A's research indicates that its loss of fee revenue has been more than offset by an increase in the number of banking products purchased by each user.
Ron Shevlin, a principal analyst with Forrester Research Inc. in Cambridge, Mass., said adding presentment will be a big step forward for the banks, because it will make their service more comparable to what is available at the billers.
However, he does not agree that it will prompt people to change their paying habits. Paying bills at multiple sites is not onerous enough to drive people to bank sites, he said.
"That argument is a red herring," Mr. Shevlin said. "People are not hunting all over the Web to pay their bills. They get an e-mail from the biller and click on it. They are being chauffeured to the site. It's a pretty easy process."
