Enticed by convenience and rewards programs, a growing number of people are paying recurring bills with their debit cards.
Though the option has been available for some time, use has surged recently, partly because of incentive programs offered by the credit card companies, which are eager to win more of the bill-payment market.
“People are getting more and more comfortable using their debit cards to pay their bills,” said Adrienne Chambers, the vice president for program development at MasterCard International, in Purchase, N.Y. “People are using their debit card more often and paying more bills” with them.
Thirty-one percent of consumers pay at least one of their recurring monthly bills with their debit cards, up from 20% in 2000 and 26% in 2003, according to a study MasterCard released last week. The new numbers are based on May and June interviews with 762 people in 25 key U.S. markets.
Paying regular bills by debit card provides several advantages. In addition to the possibility of complete automation, there are rewards points, which are not provided by giving the biller access to a deposit account.
People can also link their bills to their credit cards, but Ms. Chambers said many hesitate to use credit for such purposes. Debit cards provide the same convenience and also help consumers “keep control” over their bills, she said.
Stacey Pinkerd, the senior vice president of consumer debit products for Visa U.S.A. of San Francisco, said the debit card “is a logical transition from checks,” which are still the most common way to pay recurring bills.
According to Visa research, convenience is still the top reason that people pay such bills with debit cards, but earning rewards points is among the top 5, said Randa Ghnaim, a spokeswoman.
In the first half, Mr. Pinkerd said, the dollar volume of bill payments made with Visa debit cards was more than 30% higher than a year earlier. Overall payment volume on Visa-branded debit cards was up 18%.
Mr. Pinkerd said that about half of the bill payments people make using Visa cards are with credit cards and half with debit, but that the latter is growing faster.
Tony Hayes, a vice president with Dove Consulting of Boston, a Hitachi Consulting Corp. division, said rewards programs are an effective way to promote debit cards for paying bills. Nine percent of people with debit cards use them for that purpose, he said, but 15% of those who are also enrolled in rewards programs do so.
“Rewards programs are working,” Mr. Hayes said.
Jane Yao, the managing director of benchmarking and survey research with the American Bankers Association in Washington, said debit-card bill payment has lagged because consumers have worried about the direct connection to their bank balances.
They were reluctant to provide their debit card numbers, she said, but “are becoming more comfortable” with doing so because of better security and zero-liability assurances from banks.
“In the past, debit did not play a big role in the bill-pay arena, but that is changing now,” Ms. Yao said. Debit card use has rocketed in just about every payment segment and “has expanded into new areas such as bill-pay,” she said.
The ABA released its own study last week. Though it focused on the use of debit cards at the point of sale, Ms. Yao said it also documented strong growth in their use to pay bills.
One big reason that more people are using them that way is simply that more billers are accepting them. Mr. Pinkerd said Visa has made a concerted effort to increase billers’ acceptance of its credit and debit cards.
Ms. Ghnaim said Visa introduced a program last November to encourage utility companies to accept cards. A key element was reducing interchange fees by 44%, she said. More than 1,000 utility companies now accepts Visa.
It is easy to see why the card companies are vying for recurring bill payments. Consumers’ utility payments represent a “$177 billion opportunity,” Ms. Ghnaim said, and “bill-pay has been a key issue for Visa for several years.”
MasterCard also has incentive programs to attract billers. One is its Service Industries Incentive Program, established in 1998 to woo utility companies, insurance companies, cable providers, and telecommunications carriers.
Participants receive “an attractive incentive interchange rate,” MasterCard said in an e-mail. A spokeswoman refused to say what they pay for processing fees.
The program also includes tips on creating consumer education campaigns and other marketing information.
Mr. Hayes said that debit-card use for bills “is definitely taking off right now in a very big way.”
In the past two years the card companies have made billers a key target market, he said. “Bill pay is the new frontier.”
One way they have wooed billers is touting debit-card payment as a retention tool, Mr. Hayes said.
When people get monthly bills by mail and pay them by check, “every month they have to make a conscious decision about whether they want to maintain the relationship,” he said.
In contrast, paying a bill automatically linked to a debit card “becomes a passive act,” he said. “The inertia is in the billers’ favor.”
