Same-day electronic bill payments are giving banks something that has been absent from their online bill-pay businesses for years: revenue.
Vendors have long discussed expedited payments, but only a few have rolled out services, and a handful of banks is now offering them to customers. Executives say that people are willing to pay for rapid payment if it will help them avoid a larger late fee. However, some market watchers warn that, if same-day payment became widely available, competition could force banks to waive their fees.
Kent Scharinghausen, the senior vice president of treasury management at American Chartered Bank, said that expedited payments are the only way to reap revenue from bill payment. "You can't charge for [standard] bill payment," he said. "The market dictates that you can't."
The Schaumburg, Ill., banking company began offering an expedited payment service through its bill-pay provider, Metavante Corp., in July. "There's only one other bank in our market that offers it right now," JPMorgan Chase & Co., he said. "We wanted to have a competitive product."
He said he has wanted to offer expedited payments for a year; Metavante, a technology unit being spun off this quarter by Marshall & Ilsley Corp. of Milwaukee, introduced the service in the second quarter. "If we were to go another six months and it wasn't available" from Metavante, "we probably would have considered switching" bill-pay providers, he said.
Usage has been low. Customers used the service only 14 times in July and 28 in August.
Mr. Scharinghausen said American Chartered's service is superior to JPMorgan Chase's because "we're actually able to make same-day payments in some situations."
JPMorgan Chase has offered an expedited payment service since January 2005, but spokesman Tom Kelly said it uses an overnight courier service to deliver paper checks to billers. "To the customer it feels electronic because they go to Chase.com to do it," he said, but "the guts of it is paper." He would not supply usage data.
Dave Fortney, Metavante's chief technology officer, said his company must also use couriers when billers are unable to accept same-day payments electronically. The percentage of companies that can is "in the teens," he said, but he expects the share to rise in the next few months. "Billers are, in general, very eager to work with us."
About 10 financial companies are using the Milwaukee bank technology company's expedited service. Mr. Fortney said the amount they charge varies, depending on how the payments are sent; electronic transactions typically cost $4 to $5; but courier payments cost $15 to $20.
Initial use has been small but promising, he said, and increasing the number of billers that can accept the speedy payments electronically would attract more bank users.
Most of the current bank users have offered the service only to their current online bill-pay customers, Mr. Fortney said. "The first step is to put it out there and let the product speak for itself."
Online Resources Corp. started an expedited payment service in April 2006, though David Munger, the product managing director in the company's banking payment services unit, said the first financial user did not go live until last April. There are now five customers, which charge $9.95 per transaction, he said. The service will "grow in importance over the next 12 months," he predicted.
It is still too early to predict how many people will use the service, but Mr. Munger said he expects "that demand will be very high."
"Consumers will pay convenience fees to pay their bills" if they are certain that doing so will let them avoid a much larger late fee from the biller, he said.
Online Resources delivers same-day payments to more than 200 billers, and he said this total should double within six months.
Derek Martin, a senior vice president at BOK Financial Corp. of Tulsa, Okla., said that his $19.3 billion-asset banking company passed on expedited payments when it extended its contract with Online Resources in August.
The company's mortgage unit offers expedited payments by phone, but BOK doesn't have the credit card or indirect lending portfolios where the feature would be useful, Mr. Martin said. "Is it worth the capital to install this, test it, and support it? It's going to fall down the list for a bank like us."
CheckFree Corp., the top bill pay provider, does not offer an expedited payment service, though Bob Homer, the vice president of product management in its electronic banking services division, said the Atlanta vendor is working on a way to make online bill payments that are charged to payment cards. This would shorten the time needed to complete payments.
"Card-based payments also provide somewhat of an emergency payment capability because they are immediate," Mr. Homer said.
CheckFree said it expects this service to go live next quarter.
Fiserv Corp. is in the process of buying CheckFree and has also said it is developing an expedited service; Mr. Homer said he will not discuss how the two companies might combine their efforts until after the acquisition closes.
Yodlee Inc. in Redwood City, Calif., added expedited payments to its bill payment service through a deal with Western Union Co. of Englewood, Colo., that was announced Tuesday. "It's just in place now, and we are in the process of deploying it," said Joseph Polverari, Yodlee's senior vice president of strategy and development.
Edward Woods, a senior analyst at the Boston market research firm Celent LLC, said the number of billers signed on to accept expedited payments is crucial. The most successful provider "is going to be the one that has the most biller connections," he said.
Despite vendors' efforts to initiate a fee-earning service, he warned, competition among banks may eventually force them to waive their fees for expedited payments, just as they did for standard online banking.
"There is a definite value for consumers," Mr. Woods said, but the fee "will be short-lived because we're too competitive a space … that's just the way it is."
