Banking companies are considering the idea of incorporating credit and debit cards into their online bill payment systems, largely in response to consumers who have become accustomed to earning reward points for almost all their financial activities.
At least two vendors that are developing or offering such systems argue that banks could use the software to attract card customers and earn interchange revenue on the transactions. Observers say the business case for interchange is not clear-cut.
"We're hearing our consumers ask a lot about rewards tied to paying bills online," said Shelby Hutcherson, the vice president of Synovus Financial Corp.'s innovative solutions group.
The Columbus, Ga., company is hoping to begin offering customers a system next year that gives customers "the ability to pay any merchant or any payee using your debit or credit card," Ms. Hutcherson said. It is evaluating software being offered now by Yodlee Inc., along with an upgrade scheduled for rollout in December from its current provider, Fiserv Inc.'s CheckFree.
Synovus customers are responding to advertising campaigns for other companies' programs, notably Citigroup Inc.'s Thank You, that offer points for using online bill payment, she said.
Michael Nordbusch, the vice president of retail direct online for National City Corp., wrote in an e-mail that his Cleveland company is considering adding card-based payments to its online bill payment service, because customers want "the opportunity to earn additional points" in its reward program.
The program offers points for things like bill payments and card transactions. The bill payment points are not based on dollar value, but the points for card transactions are.
Most banks offer "pay anyone" services, in which they issue paper checks to billers that cannot accept payments through the automated clearing house network. Mr. Nordbusch said adding cards to the mix could be complicated, because consumers might not understand that some transactions would not be eligible for card payment.
"Today credit cards are not universally accepted at all billers, so its use would be limited to those billers who accept cards," he said. "In addition, today's [biller-direct] solutions require the customer to be enrolled in the biller's payment site" to pay with cards, so the process is not as streamlined as current bank systems.
He would not say which products his company is evaluating.
Bob Homer, Fiserv's vice president of product for electronic banking services for CheckFree, said that most of the technical work for the planned upgrade is done, and that CheckFree is trying make accepting card payments more enticing to billers.
CheckFree is working with one of the major card networks (which he would not identify) to establish an interchange rebate for utilities that accept card payments through its system, he said.
The unit also expects to require consumers to receive electronically the bills they want to pay with cards; eliminating paper bills would lower billers' costs and would partly offset the cost of paying interchange on card transactions, Mr. Homer said.
"There is a value prop on both sides of the equation," he said.
The upgrade will be made available to the 2,200 banks using the CheckFree Web RXP system, though they will have to negotiate their rates with CheckFree before offering card-based payments, Mr. Homer said.
He also said that banks could restrict the cards that could be used to pay bills — allowing consumers to use only cards the bank has issued, for example.
Mr. Nordbusch agreed that offering cards for bill payments could help Nat City cross-sell cards and increase transaction volume for cardholders. Both factors "could drive additional revenue, as well as customer convenience."
However, Ms. Hutcherson said that Synovus is considering card payments because they will offer a feature her customers want, and that she does not expect interchange revenue to offset the additional costs.
"I don't know that it would generate a significant amount of revenue," she said. "It could, but we have to pay for those transactions to be processed using the debit card or credit card as well," and that is more expensive than using the ACH.
There are other ways card payments could increase the top line, she said, such as supporting expedited payment services that could carry a fee.
In addition to the CheckFree software, Synovus is looking at Yodlee's DirectPay, which connects to the Web sites of billers that accept card payments.
Wells Fargo & Co. introduced a service in 2006 that lets consumers charge payments to its cards. The payments are not settled as card payments, and billers do not pay interchange. Also, consumers do not earn reward points for the transactions.
CheckFree offers a comparable service, in which the merchant receives payment by check or as an ACH transaction.
"There is money to be made" by banks that accept cards for online bill payments, said Jennifer Roth, a senior analyst with the global payments practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc.
"The majority of financial institutions issue a debit card associated with a checking account" and can earn interchange revenue that way, Ms. Roth said.
With Yodlee, "it definitely provides consumers with a wider choice of billers," she said. "However, the consumers are subject to whatever fee is associated with those biller-direct sites." CheckFree, by contrast, "is getting the merchants on board," but "their initial rollout will be slightly limited," especially since the interchange rebate it is negotiating would apply only to utilities.
Banks looking to add to their online bill payment offering may find that offering expedited payments is more straightforward and lucrative, Ms. Roth said. "The card-funded transactions have more barriers and challenges to overcome than expedited," payments do.