The Check Is In The E Mail
The idea of paying bills on the Net has long been more promise than reality. Just ask Pittsburgh executive Bill Kerwin. He signed up to pay his bills over CompuServe almost a decade ago and quickly dumped the service because his payments were repeatedly delayed or misrouted. "It was pure hell," he says.
But now Kerwin is back to paying bills over the Net--and he's happy with the service. What changed? For starters, when he zaps off a bill from his computer it gets to his phone company or utility on time. Even better, he can get most of his bills sent to him electronically, instead of through the mail. "It's like having a personal accountant," he says.
Online bill paying is beginning to live up to its potential. The primary reason is that people like Kerwin now can get all of their bills sent in digital form to their computers. Until recently, paying your bills on the Net meant you had to gather your paper bills, sit down at your computer, and then type in information to make payments. Now, consumers who sign up for one of the bill-payment services can simply respond to an e-mail and send off payments with a few mouse clicks. That has helped boost the number of people who pay their bills online to 6.3 million, up from 2.6 million a year ago, according to Jupiter Research analyst James Van Dyke. International Data Corp. estimates that 2.5% of consumers' bills will be paid online next year, up from 0.5% now, and that figure will increase to 14% of the 17.1 billion bills consumers will pay in 2005. "The value proposition is managing your accounts online," says Gartner Group Inc. analyst Avivah Litan. "You can change your address easily, sort your business and personal expenses."
FIERCE COMPETITION. Here's how the process has changed. Thanks to heavy lobbying from banks and their software partners, utilities, credit-card companies, and other businesses are increasingly willing to deliver electronic bills directly to customers. Now, the average consumer can get five e-bills from utilities and other billers, out of a total of 15 to 20 each month. And it's possible for consumers to get all of their bills online, if they'll settle for a copy of their paper bill scanned into a server by a bank or payment service. Such startups as Paytrust Inc. and StatusFactory.com collect paper bills for their customers, make digital copies, and then forward them as e-mail.
At the same time that online bill payment is getting easier, it's also getting cheaper. Banks, brokerage firms, and Web portals are competing to provide the service to customers, so prices are starting to fall. In the early 1990s, banks such as Citibank (C) charged up to $15 a month for the service. Now prices run as low as $5.95 a month at major banks. Portals such as Yahoo! (YHOO) and Microsoft Network (MSFT) offer it for $7 and $5.95, respectively--and both have teaser promotions with three months to six months of free service.
Indeed, a fierce competitive battle is breaking out over the online bill-payment market. Beyond banks and portals, it's attracting competitors as diverse as General Electric Co. (GE) and the U.S. Postal Service. They're all betting that online bill-payment services will be critical in attracting consumers' time and money. Financial-services companies, for example, offer cut-rate bill-payment services to persuade customers to give them more assets to manage. "The extra cash that comes into Schwab more than justifies the program," says Mark Helliker, vice-president for cash products at Charles Schwab Corp. (SCH), which offers free bill-paying services to customers who keep $500,000 or more with the firm. Schwab is now providing the service to 20,000 clients.
HOLD THAT LINE. Web portals such as Yahoo! and Excite@Home (ATHM) want a piece of the action, too. They're offering bill-payment services in hopes of boosting their advertising revenues. "It makes the site much more appealing to advertisers," says Chris Jolley, lead product manager for MSN's MoneyCentral. He figures that bill-pay services will draw clients to MSN an average of 10 times a month. "It reaches a lot of people, it's high in frequency of use, and people stay a long time." The Postal Service is entering the action to protect its franchise of delivering bills and payments.
Of all the big companies in the bill-payment business, none has more at stake than banks. For years, their customers have been moving their money to other companies, including brokerage and mutual-fund firms. But one service banks still dominate is checking, which generates service fees and attracts deposits on which banks pay very little in interest. By offering online bill payment, banks figure they can hold onto their customers and their money. Internal research by Wells Fargo & Co. (WFC) shows that customers who use that bank's online bill-payment service are 54% less likely to switch to another institution. Not surprisingly, the bank is marketing the service aggressively. Some 500,000 of its 9 million checking-account holders pay bills online now, compared with 350,000 a year ago.
Analysts say that if banks lose e-payments to the portals and brokers, they have only themselves to blame for not developing similar services years ago. "The wait-and-see approach that most banks adopted may come back to haunt them," argues Jason Briggs, a senior analyst for the Yankee Group Research Inc. "They weren't proactive enough and run a huge risk of losing this business to the brokers and the portals."
LEVERAGE? There may be an even more dangerous threat. Credit-card companies, telecom players, and some other billers want customers to come to their own Web sites--not a bank's--to review and pay their bills. The reason is that these companies think online bills are a much better marketing opportunity than the relatively untargeted offers they stuff into paper statements. Consider Saks Inc. (SKS) Given the logistical challenge of printing and stuffing 3.5 million paper bills monthly, the retailer can send each customer one of no more than six promotional flyers each month. When Saks launches its digital billing program later this year, the company will be able to send individualized banner ads or even streaming video advertisements. "The stuff we can do now is minor league compared to what you can do online," says Senior Vice-President Michael Rodgers.
Banks say they don't feel threatened. They think consumers will never do what Saks and other billers want: Go to a dozen different billers' sites to pay one bill each. "The winning game is to allow customers to come to one spot and see all their bills," says Katherine DeWit, executive vice-president at Wells Fargo.
Maybe, but banks may not have as much leverage as they think. Billers have a powerful weapon. They know optimistic forecasts for online billing growth can be met only if most bills are available on the Web. And billers are the ones with the power to decide whether those digital bills go to banks or their competitors. To grab a piece of the new world of online bill payment, banks and other institutions need to figure out how to work with old world retailers and phone companies.