Washington Mutual Inc. has dropped its fees for online bill-payment services for both individuals and small businesses.
The decision, announced Monday, is meant to remove one of the obstacles to customer adoption and contributes to an ongoing debate in online banking circles that pits advocates of a free service against banks that continue to charge a fee to offset the expenses of processing electronic bill payments.
“It’s part of our ongoing strategy to prevent us from nickel-and-diming our customers,” said Clark Collins, a Wamu senior vice president of consumer group marketing. The Seattle thrift company conducted a customer survey that indicated that the fee for bill-payment services was “one of those nagging fees consumers don’t believe that they should be charged.”
Beth Robertson, a senior analyst at MasterCard International’s TowerGroup Inc. research firm in Needham, Mass., said several major banks have eliminated their consumer fees for bill payment, but Wamu’s decision to also eliminate the fee for small businesses is unusual. “One of the reasons banks do charge a fee for small businesses is that their volume of payments tends to be higher.”
Offering free bill payment can increase customer retention and drive up activity on individual accounts, Ms. Robertson said. Customers who use online bill payment also typically maintain higher account balances, since they need to keep ample funds available to pay bills. As a result, the bank’s loss of fee income is often offset by the increased revenue customers can generate from carrying a higher balance or using additional banking services.
One of the best examples of this involves Bank of America Corp., which dropped its bill-payment fee in May 2002 but experienced an “incredible growth in numbers of users and volume of activity” almost immediately, she said. B of A had 1.1 million online bill payers and 3.3 million online banking users in mid-2002; last month it reported 3.8 million bill payers and 8 million online banking users.
Mr. Collins said Wamu hopes the decision to drop its fess will help it reach its goal of adding a million checking accounts this year. The survey also indicated that bundling free bill payment with other checking account features such as identity theft protection could cause customer interest to nearly double.
Though many advocates of the bank-consolidated model of bill payment, which allows users to pay multiple bills from a single Web site, say it is more convenient than paying separate bills at several biller sites, analysts also say consumers favor the biller-direct model by a wide margin.
A study released this month by the bill-payment processing giant CheckFree Corp. indicated that just over half of U.S. consumers pay at least one bill online every month. Twenty-nine percent of U.S. consumers use only biller sites, 10% use only consolidated sites, and 11% use both types of sites.
Penny Gillespie, a senior analyst at Forrester Research Inc. of Cambridge, Mass., said part of the reason some customers prefer biller sites is speed. “In the bank-consolidated model, they’re not getting the same-day credit. Generally, it takes three days,” which is no help for the many consumers who pay their bills at the last minute.
Ms. Robertson said some billers credit customers’ accounts the day the payment is submitted through their site. However, billers face the same delay as banks and cannot settle the transaction any sooner than those initiated through the bank. “A lot of them cannot post on a same-day or next-day basis.”
Ms. Gillespie noted that Wamu and most other banks often debit a customer’s account as soon as a payment is initiated — several days before the funds reach the biller. She called this another reason customers have avoided the bank-consolidated payment model.
Wamu guarantees that a bill payment will arrive on time, but only if the customer initiates it at least five business days before the bill’s due date. Ms. Robertson said this is “a disincentive, in a way, for the consumer,” because customers perceive that payments initiated from the biller’s site are posted much faster.
Wamu has also changed the format of its bill-payment site. Customers can now pay multiple bills from the same page and view 18 months of past payments.
