Banks and billers have often been depicted as two rival teams vying for the title of 'EBPP Champion'. Each new industry statistic becomes a competition in which one player will win and one will lose. The recent Thomson Financial EBPP Conference was no different where billers appeared to be a step ahead of banks.
Despite banks efforts to get customers to consolidate and pay bills at their Web sites, industry research shows that billers have been more successful at signing up customers for online billing at their own Web site. It is not surprising that billers' free online account management tool is more appealing to consumers than the average financial institution's EBPP offering, which can charge $5 - $10 for each month of service.
The convenience factor of a financial institution's consolidator product-which requires only a single log in to view multiple billshas yet to resonate with consumers. A CheckFree study performed by Harris Interactive found that 94% of consumers are willing to visit multiple Web sites to view and pay bills onlinepotentially undercutting financial institutions' value proposition. According to Forrester, if banks do not alter their product offering, the biller-direct model could account for 80% of the growth in EBPP by 2005.
While banks and billers support two different EBPP models, the two need each other to thrive in the EBPP marketplace. In fact, the two entities share a common goalto change consumer's billing preferences from the traditional paper-based method to electronic statements and transactions. In this environment, the more consumers that subscribe to EBPP services--whether directly with a biller or a bank-the more advantages exist for both parties.
While major billers have become efficient at handling paper checks, the most dominant bill payment method, lockbox fees and remittance processing costs add up. Electronic payments remove the cumbersome and expensive paper trail (i.e. from the consumer to the biller to the Fed to the bank back to the consumer) to the extent that cost per payment processed can decrease by over 50%. Banks, who represent both the consumer and the biller, benefit doubly. As the ODFI and RDFI, banks' own processing costs will decrease as consumers increase usage of electronic payments such as direct debit or recurring ACH.
As a payment provider, banks also benefit from the success of EBPP at billers' Web sites. More and more billers are now accepting card based paymentsboth credit and debit, in addition to other forms of electronic payments. Card transactions improve cash flow for a biller because they typically post to their account faster than other forms of payment.
Billers are also interested in card-based EBPP because they gain a compelling mechanism for increasing consumer EBPP enrollments, thus bringing them closer to their goal of paper suppression. Payment cards are the preferred payment method for making purchases over the Internet. Online purchasers are familiar with keying in their debit or credit card numbers and entrust their numbers to be stored at merchant sites. Registering for ACH, on the other hand, isnot an intuitive act for most consumers. Consumers are often confused by the ABA and routing numbers which can lead to an incorrect registration. By accepting payment cards for bill payment, billers tap into consumer's familiarity and high comfort level with using debit and credit for --Internet purchases.
As an issuer of credit and debit cards, banks earn interchange revenue from each card transaction accepted by a biller. With approximately 15 billion consumer bills issued each year, credit and debit are positioned to gain a piece of the transaction pie. In addition, as consumers increase use of a card to pay bills, the more valuable that card becomes to the consumer. This will strengthen bank customer loyalty and reduce churn, without challenging the consumer/biller relationship. Banks should continue to work with billers to encourage widespread acceptance of card-based products for bill payment.
Banks as billers
Banks can learn from the success of the biller direct model. Consumers have chosen to sign up for EBPP one bill, one biller at a time. Does this mean that banks should stop supporting their consolidator bill pay models? Absolutely not. Rather, banks need to think about themselves as a biller.
As providers of credit cards, mortgages, and other financial loans, banks are a major source of recurring bills to consumers. A bank's primary goal should be to sign up customer's to use EBPP for their own bank issued products as a first-step towards consolidating all bills through their Web site. By signing up customers for EBPP for a single bank-issued product, banks initiate their customers to the idea of paying bills through their Web site. Over time, customers can easily receive and pay other bank bills through the Web site without handing over user names and passwords. Once customers are accustomed to paying multiple bills through a bank's Web site, the bank can expand into offering other companies' bills.