Hoping to become more competitive with billers, some banks are moving toward same-day settlement for online bill payments.
Though very few of the payments now settle the day they are initiated, some back-end bill-payment service providers already have wiring in place to support speedier transactions between banks and some billers. Several executives agree that there is strong customer demand for same-day settlement, which may justify a fee for the capability.
"There is definitely a need for this in the industry," said Marianne Doran-Collins, a vice president and the director of online and affinity banking at Sovereign Bancorp Inc. of Philadelphia.
Sovereign already offers same-day processing of payments destined for some billers, Ms. Doran-Collins said. About 10% of its online bill payments now settle within 24 hours, including a small number that settle the day they are initiated.
About 80% of the payments settle within two days, she said - an improvement over the five days Sovereign used to tell customers could elapse before a biller processed a payment.
The faster payments are possible because Sovereign has changed its payment model with its bill-pay service provider, CheckFree Corp.
Todd Lesher, a senior vice president for strategy and business development with CheckFree's e-commerce division, said that in the past banks had to verify that funds were available before the Atlanta vendor would route a payment to a biller. Now the vendor can begin processing the payments immediately, and CheckFree takes on the risk associated with the transaction.
In addition, for a payment to reach the biller on the same day, it must be going to one of the billers with which CheckFree has established a direct payment connection.
The majority of CheckFree's bank customers use the faster payment model, which is known as due-date processing, and CheckFree is encouraging the rest of its customers to make the shift, Mr. Lesher said.
He would not say how many billers have established the direct remittance feeds that would let them settle transactions the day they are initiated. However, he said 75% of the payments routed through CheckFree settle within 24 hours.
"Same-day processing is extremely important to us. When we do studies of customer demands, it is always at the top of the list," he said.
Other banking companies are also working on same-day settlement.
Mark Rogers, a spokesman for Citigroup Inc. of New York, said it is "looking at" some kind of express payment service, which "may be in place by the end of the year."
Most of Citi's payments are routed across MasterCard International's Remote Payment and Presentment Service network, though some use the automated clearing house system. Mr. Rogers said a small number of the ACH payments have same-day settlement.
Cathleen Conforti, a senior vice president with MasterCard RPPS, said it has established connections between banks and billers that would support same-day settlement. RPPS sends payments in four daily cycles. RPPS carries about half of the payments initiated at online bill-pay sites, she said.
MasterCard is talking to six major billers about processing incoming payments faster than the batch systems used by most billers, she said. "Now we are talking to billers about posting the payments as soon as they get them."
Ms. Conforti also said that if enough large billers would agree to settle the transactions faster, she could then ask more banks to remit the funds sooner. Though that would most likely involve updating online bill payment sites, banks might be interested in doing so if they could charge a fee for same-day payments, she said.
Beth Robertson, a senior analyst at MasterCard's TowerGroup research unit in Needham, Mass., said that banks are competing with the billers' Web sites for the payment traffic, and many billers offer immediate credit to customers who initiate payments at their sites.
These transactions do not settle immediately (most take several days to process), but the biller typically will credit a customer's account right away, she said. "Banks must be competitive with the best biller sites if they want to win consumers."
Mike Feehan, a senior vice president for customer contact at First Horizon National Corp. in Memphis, said that if people need to make an immediate payment, they would probably be willing to pay a fee to do so.
If the alternative is a late fee from a biller, a fee for faster payment could be much more appealing, he said. "I think a fee would be fair, especially if there are costs" associated with setting up the systems.
First Horizon, which uses Metavante Corp. to process its bill payments, does not offer any same-day settlement, and Mr. Feehan said there is not much demand for such a service. "Our surveys indicated that customers think it might be nice to have, but it's not really something that is necessary."
However, that could change if other banks begin offering same-day payments. "My customers are not demanding this, but if people realized it was available and everybody else had it," then they might start to expect this from First Horizon as well, he said.
Peter Gordon, a senior vice president and the director of direct banking for Citizens Financial Group Inc., a Providence, R.I., unit of Royal Bank of Scotland Group PLC, said he would also consider imposing a fee for same-day payments, but only for a brief period.
"I think there is a window of time to charge for that service," but once it starts to become more common, customers would start to view same-day payments as a standard feature rather than a premium offering, he said. "As a business owner, I don't think this would be a long-term revenue opportunity. It's more an opportunistic chance for revenue, but would probably become free eventually."
Citizens, which also works with CheckFree, has no plans to switch from batch processing to something faster, Mr. Gordon said. "We have rusty pipes, because we are banks."
However, he also said that he expects same-day settlement to become the norm eventually. "It's something our customers would love, so we would absolutely love to do it. It's realistic that the market is moving in that direction."
Ms. Doran-Collins said that Sovereign does not charge any fee for same-day payments, nor does it make any special attempt to highlight which billers can receive funds that fast.
"One of our goals is to get as many people using online banking and bill pay as possible," she said. "We would much rather have the customers using the site and offer this as a value-add" to attract people.
