Given the choice between a $30 late fee for a monthly bill and a $5 fee to avoid that penalty: which would you choose?
The answer's obvious, enough so that lots of banks will likely adopt expedited electronic payments over the next year or so. Consumers pay a fee that's a fraction of a late penalty in exchange for having a bill removed from his or her checking account balance in real time-proof that a payment was initiated before a penalty would presumably kick in. "We're seeing great opportunity," says Bruce Cundiff, director of payments research for Javelin Strategy & Research in Pleasanton, CA.
Yodlee, Online Resources and Fiserv's CheckFree are all among online bill payment vendors that are developing or offering some form of emergency payments solution. When paying online, consumers can click through to pay specific bills in an expedited manner for a fee.
Analysts also suggest that the real-time appeal of expedited payments can aid in the adoption of mobile financial services, since both expedited payments and mobile banking play off the idea of instant access to financial services-with quick execution at any location or time.
More than 35 percent of consumers already make at least some use of expedited payments, according to Edgar Dunn & Co. While most of the expedited payment volume has been taken up by biller direct sites, about 75 percent of the largest 50 U.S. banks are offering or planning to offer expedited payments, according to Aite Group. And Javelin says fee revenue from expedited payment services should reach $1.7 billion by 2009. "We've found that consumers want to be able to time the control of making payments in whatever style payment they prefer; whether it's writing a check or an electronic payment or some other form. They want to be able to send the bill off without a late fee or penalty," says Mark Moore, director of strategic marketing for Fiserv's Internet Banking and Payments Division in Norcross, GA, which operates the acquired CheckFree electronic payments platform.
Fiserv is developing integrated emergency payments into its existing online payment service, which will be made available to its customer base of 2,200 financial institutions by December by using CheckFree Web RXP, the firm's online bill payment service. These emergency payments differ from "faster" same- or next-day payments that Fiserv and many others offer in that the emergency payments offer real-time confirmation to avoid a late penalty. "There's also a value proposition for banks, which can allow customers to keep balances in their accounts longer," Moore says.
By offering expedited payments, banks can occasionally move beyond the "free" model that's dominated online bill payments for years in exchange for a fee-based strategy.
The fees would typically be set by the bank, and would likely be based on a percentage of that penalty that's being avoided by paying the bill immediately.
"There is a market for expedited payments, depending on the fee. If the fee is reasonable and the customers don't feel like they're being ripped off, it could work," says Adil Moussa, an analyst for Aite Group in Boston. "If I'm late on a payment and will incur a $35 charge, I may swallow $5 for a same day payment."
Allowing for emergency payments would appear to be a strategy designed to meet the needs of consumers strapped for cash in a poor economy. But Joe Polverari, head of strategy and development for Yodlee in Redwood Shores, CA, says his firm's data has shown that expedited payments have appeal to a wide range of demographics. "There's a perception that these payments are being made by people in this manner because they have to, that they're going to have their televisions shut off if they don't," says Polverari. But for some consumers it's a matter of convenience or simply forgetting to pay a smaller bill. "Once some consumers find out they can pay this way, they do it again and again."
Yodlee recently made PayToday, its expedited payments product, available to financial institutions to offer same-day payment to hundreds of billers. Yodlee's normal "turnaround" for payments is a day or so. "The fees for emergency payment won't completely offset the expense for banks to offer free Internet bill pay, but it will put a dent in it," says Polverari.
Other competitors include Online Resource, which recently launched expedited payments through its 500 bank and credit union clients. Online Resource's product works by giving consumers a range of speed choices when paying bills online at a bank Web site.