The Bankwatch

Tracking the consumer evolution of financial services

Online bill pay represents a huge cost, that will drive irrational Bank behaviour

Before 1996, and the advent of online banking Banks made money from bill payment.  Each bill paid required a cheque that incurred service charges, or an in branch payment, that incurred a fee.  No more.

Online bill pay to cost US banks $1bn by 2010 – TowerGroup

The provision of free online bill payment services to retail banking customers will cost the US financial services industry $1 billion by 2010, according to research from TowerGroup.

The research house estimates that nearly 24 million Americans currently use electronic bill payment and presentment services (EBPP). Usage is increasing at a compound annual growth rate (CAGR) of 18% and is set to rise from 2.11 billion transactions in 2008 to 3.87 billion in 2012.

The reality, 12 years later, is that bill payment is an expected service, and one that is a net cost to Banks. 

In time I would expect some Banks to attempt to recoup this cost, or avoid it by altering their fee schedules. 

Banks in the US are attempting to offset these costs, with charges for expedited payment.

One way in which banks can offset some of the costs is by charging for expedited bill payments. TowerGroup says many customers are willing to pay to ensure that payments are made within 24 hours to avoid being charged for late payments.

The report forecasts expedited payments growing at a CAGR of 38% through 2012, reaching 19.35 million transactions and revenue of $101.6 million.

Relevance to Bankwatch:

While online banking has become the norm and offered by every bank, bill payment results in significant cost, including customer service and expensive telephone banking costs to manage errors.  In light of the pressures on profitability we can expect some Banks’ to attempt to recoup costs associated with online banking and bill payment in other fees.  This will be disastrous in my view.

Written by Colin Henderson

August 28, 2008 at 21:56

5 Responses

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  1. Smart banks should realize that many of them could do a lot better by encouraging the customer to go to the merchant directly for billing and enroll in pre-authorized billing to their (interchange bearing) credit or debit cards. Trying to own the bill pay experience with consumers themselves really doesn’t gain the bank a lot anything, other than little revenue and more customer support. But then the online banking channel and the cards group are often managed on far opposite sides of the bank…

    Thomas Purves

    August 29, 2008 at 09:11

  2. I have been banking with Tropical Financial Credit Union for some time now and I have been using their online bill pay program. I have never been charged a fee by my credit union and would be appalled if they ever asked me to pay a fee.

  3. @Thomas

    Actually the banks have identified that the users of pervasive online bill payment are by far the most valuable clients to the bank. They have higher balances, hold more bank products, and show the lowest churn in their customer base.

    They don’t want to send the bill payers to the biller sites because then they disintermediate themselves from the relationship between those payers and payees.

    Banks are looking for least-cost payment routing and are trying to make the billpay service cheaper, but they want to keep those users on their sites as much as possible


    September 7, 2008 at 23:43

  4. I use Bank of America and could not believe their bill pay practices. On the day I schedule my payments, Bank of America automatically takes the funds from my account, regardless of if the payee has actually received payment. I have five payees that never received their payments, yet those funds were not available to me because Bank of America took that money on the scheduled payment date. When I asked for verification that the checks were sent (ie. a copy of the check, signature, ect) I was told that the funds were drawn off Bank of Americas corporate account and the check copies were their property. So I found myself with no money, a good portion my bills weren’t paid, I no longer have proof of processed checks, and more insulting was that I had to pay stop payment fees to get the funds credited back to my account just to re-issue payment to my creditors along with their late fees. Don’t be a victim of your banking institute,work with your creditors and the payment options they offer.


    September 9, 2008 at 19:11

  5. In response to the post of September 9, 2008, I have run into the same situation. Money was debited from my account yet my payee was not paid. This “corporate check” mthod of payment for bill-pay rhis results in an interest-free loan, without consent or knowledge, to BofA from me, the consumer. I am planning a lawsuit and would like to know more of your situation.


    November 10, 2008 at 15:31

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