Electronic bill payment will soon be dominated by banks and third-party Web sites, rather than through scheduled direct payments and on-line bill payments through billers' Web sites, according to Financial Insights analyst Aaron McPherson. Indeed, by 2008, consolidator payments will account for 42.7 percent of total electronic bill payments.
That's good news for banks. "Banks that have faithfully maintained their on-line bill payment services in the face of low consumer adoption can look forward to a changed environment in a few years," says McPherson. "However, this means that it will be more important than ever to have a competitive offering, free to the consumer, that can keep customers coming back to the bank's Web site."
Electronic bill payment is becoming mainstream, with 40.3 percent of U.S. households having paid at least one bill electronically in 2001, according to a recent survey. But this second generation of electronic bill payment has also sparked a new wave of consolidator services that allows consumers to pay bills from the same interface. This should prompt banks to more aggressively market their own options.
Those banks that do offer the method are foregoing monthly fees for the service, McPherson says, pointing to Bank of America's leadership in making on-line bill payment a relationship builder that "leads to sales of other products rather than as a profit center in its own right." The bank recently announced that its on-line bill-payment customer base grew to 8.1 million in first-quarter 2004, a 79 percent hike over 2003.
Bill-pay on-line services have evolved into four distinct models: bank-oriented consolidator; scheduled direct-payment; biller-direct; and telephone. The last three are all biller-direct models, which are more popular than the consolidator model, but McPherson expects that to diminish over the next few years. In 2003, he says, 21.8 percent of electronic bill payments were made via a consolidator site, versus 78.2 percent through a biller-direct site.
And that means an optimistic outlook for financial services firms. For banks that weren't discouraged by low traction and rival formats that captured much of the early bill-payment business, McPherson says that faith is about to be rewarded.
