Guest Column: Electronic Bill Pay: Another Prepaid Opportunity

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As competition for unbanked consumers heats up and new technologies arise, prepaid card issuers cannot overlook any opportunity to capture that elusive unbanked market. One such opportunity is electronic bill pay.
Though many early players in the electronic bill-pay space went bust like many of the early dot-coms, the rebounding of new players might just rival what we have seen in the explosion of Internet-based businesses of today. After all, if traditional banking customers can shred their checkbooks and instead opt to log on to their computers with user names and passwords to check account activity and pay bills, why would prepaid cardholders not do the same?
Aside from the "green effect" from eliminating paper from bill-paying, electronic bill pay really is one of the greatest conveniences prepaid card issuers can offer their customers. And the money it can save cardholders is even greater than the money saved by traditional banking customers who have gone electronic.
The unbanked often pay their bills with money orders and cashier's checks. According to Mercator Advisory Group Inc., 830 million money orders with a value of $110 billion were issued in 2007. Money orders cost from $1 to $1.50. Cashier's checks can cost $3.50.
So when companies such as Bank Freedom can offer their cardholders a bill-pay product for $4.95 per month for 10 payments, the savings is difficult to ignore.
Mercator estimates that within the next two years, consumers will use prepaid cards instead of money orders to pay billions of dollars in bills. So issuers and processors really should be considering their position in the market as this happens.
Certainly, prepaid card issuers and marketers can increase their attraction to and retention of customers by offering products that truly benefit the cardholder. Ease of use also is important.
Most electronic bill-pay systems require access to the Internet. Consequently, no Internet, no electronic bill pay.
Aliaswire Inc., a technology provider for payment processors based in Cambridge, Mass., found an answer in PayVox, a voice-activated bill-payment system it designed for prepaid cards. PayVox enables users to pay bills over the phone or the Web, so online access is not a requirement to use the service.
According to Xenia Kwee, Aliaswire director of product management, Aliaswire has offered PayVox as a bill pay-product to prepaid card processors and their program managers for the past 18 months. Program managers and processors use PayVox mostly with payroll and general-spend prepaid cards. Prepaid cardholders that use PayVox pay bills differently from how many traditional banking customers pay their bills electronically, Kwee says. Cardholders typically set up fewer payees, and often the payees are for reoccurring payments such store credit cards, insurance, mobile-phone and land-line phone bills, and cable TV, she says. "There are fewer payees," she says, "but it is very predictive usage."
From an issuer or processor's standpoint, offering electronic bill payments often can mean funds being on the cards longer and higher retention, Kwee says.
Milwaukee-based Metavante Corp. developed a bill-payment product for prepaid cards in 2006. It based the decision to get into bill payments on the evolution of reloadable prepaid cards, according to John Focht, Metavante president of issuing solutions.
The cards of today have surpassed the single load, closed-loop cards of five or six years ago and are more like checkless direct-deposit accounts, he says. Adding features such as bill pay shows a movement beyond just trying to find cardholders in the unbanked market to reaching traditional consumers opening their first accounts.
Both new prepaid card program owners and more-established reloadable programs are opting for bill-pay services. They view the offering as a way to differentiate themselves in the market, Focht says. That differentiation also means looking at additional load options and other features like text messaging.
"What we are starting to see is that the issuers of the cards who are in this space are making these (prepaid cards) a more well-rounded financial instrument," Focht says.
No unilateral decision on pricing exists among issuers offering bill pay. Some are opting for a flat rate; others charge a per transaction fee.
One consistency, however, is that, while issuers are asking for bill pay, cardholders are not adopting it at a very fast pace. Much of this can be attributed to the newness of the product. Still, issuers are looking into the future of their prepaid card programs, and many are seeing that the future runs parallel to what they are offering their traditional banking customers.
Tania Warnock is the marketing director for Interactive Transaction Services, a prepaid card issuer and processing company located in Enid, Okla.