Banks and other consolidators of electronic bill pay like Yodlee will likely make up more than half of the online bill pay market within three years, says Forrester Research, which also suggest that ability to attract younger consumers will be the next payments battleground for banks.

Forrester says that by 2012, consolidators’ share of the online bill payment market in the U.S. will pass direct billing by merchants for the first time, and by 2014 the overall market will grow to 63 million households from the current level of about 48 million.

That represents an annual compound growth rate of about 5.4 percent, which Forrester says will slow as the overall market matures. The growth is being driven by the convenience of single, centralized locations for online billpay offered by banks and other aggregators, and the fact that the service is for the most part free.  Where there is room for growth is among the youngest segments of the market. “Gen Y” and other young consumers have shown less interest in using aggregators thus far, and that’s where banks will likely compete for increasing business going forward.
Edward Kountz, senior analyst, Forrester, said that to strengthen their position among these customers, banks will need to add more payment options, deploy online and mobile alerts with greater visibility and continue to hammer home the message the online bill payment is free.

Providing online billpay for free is expensive for banks—its cost is expected to reach $1 billion by 2010, according to TowerGroup. But there are benefits: A recent study by Fiserv found that customer who pay bills online are 15 percent more profitable and 76 percent more loyal than customers that don’t pay bills online.

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