TowerGroup: No Payoff in Online Bill Pay?

As bottom-line pains rage on and online bill pay adoption through bank sites remains sluggish, banks will find it harder to justify the expense of provisioning free online bill-pay, according to a new report from TowerGroup.
Senior analyst Jennifer Roth wrote that the freebie offering is going to cost U.S. banks $903 million in 2008, and more than $1.2 billion by 2012, as usage increases from 2.11 billion transactions to 3.87 billion, an 18 percent growth rate. TowerGroup estimates 24 million users of online banking bill pay services; a new survey from CheckFree found that 63.1 million U.S. households now pay bills online, including direct billing sites, up from 61 million in 2007.
Meanwhile, banks find that the “soft” revenue opportunities in cross-selling, paper reduction and fewer call center interactions just aren’t making up the difference in online bill pay investments. Even with fee-based expedited bill pay revenues – the supposed white knight solution that should wrest user activity away from direct billers – banks are only expected to gain $40.7 million by 2010, “and offset approximately four [percent] of that year’s online bill pay costs,”  which include transaction and user fees to processors and vendors. TowerGroup projects those fees will exceed $100 million by 2010, which will still only offset eight percent of online bill pay costs.
“The anticipated cost savings never materialized,” writes Roth, “and there is little relief in sight.”