Expedited Bill Payment Heating Up for Banks
Glenbrook's Allen Weinberg and Jim Salters attended this week's Payments 2008 conference in Las Vegas. Here's Jim's report about the expedited bill payment opportunity for banks.
Expedited Bill Payment Heating Up for Banks
For years, bank-offered bill pay has been a net cost to banks. However, banks and their service providers have been increasingly looking for ways to shift those payments from a net cost, to a source of revenue.
Generally speaking, there are two ways to do this:
- Shift ACH and paper-check-based payments to credit, debit, and prepaid cards (for which billers pay acceptance fees)
- Offer expedited/emergency payments as a for-fee service (for which consumers pay a fee)
Online Resources announced their expedited bill pay solution this week, which offers same-day payments to "several hundred" billers. In their booth demo, a 2-3 day payment was free, and the option to make a same-day payment included a charge for $9.95 (although banks could set their own prices). I asked Sheila Narayan, EVP of Banking Payment Services, what differentiates their solution from others. She believes Online Resources is the first integrated solution, with expedited options included right alongside traditional payment options. They also offer an expedited payments API, which could allow a bank or other provider to use ORCC's capabilities without necessarily running their hosted solution. This gives banks and walk-in providers flexibility in how they access the expedited service, and extends the reach of their solution. Among early bank adopters, the first 60 days has seen customers select expedited options 1% of the time, with more than 7% of that volume from repeat customers.
I also talked to David Shapiro and Pat Frazier from Western Union about their emerging bank-based bill payment offering. In the fall, Western Union announced its first foray into bank-based bill payment through its partnership with Yodlee. Western Union is an interesting new entrant into this space, in part because it has one of the largest biller networks available (over 4,000 billers), and because they believe they have the largest network of billers that they can reach with same-day payments. While long a player in the walk-in bill payment space, their move into bank-based bill payment is timely, given the increased interest and adoption of expedited payments. Western Union could become an interesting additional back-end option for existing bill pay vendors, as well as those banks who run in-house operations (like Citi, Wells, WaMu, and others).
Lastly, I spoke with Jeff Lewis, president of Metavante's ePayment Solutions group. Metavante announced its expedited bill payment solution in the fall, and since then is seeing impressive adoption. For those banks who have turned it on, they are seeing expedited volume grow by 10% per month.
Given the growing adoption of Metavante's Monitise mobile solution, I was curious about Jeff's thinking on how Metavante could leverage mobile banking to grow expedited payment volumes for its banks. In my opinion, actionable "emergency" bill pay alerts are one of the first potentially killer applications for mobile banking. This type of alert doesn't just extend online banking to the mobile, but exploits a unique capability of the mobile channel to provide a new valuable customer service. And it could generate meaningful revenue for the bank! In theory, a bank would send an alert to a customer's mobile device with not just a reminder, but the ability to pay the amount right then, and deliver the payment same-day or next-day to avoid late fees, finance charges, and other consequences.
To do this effectively, the bank needs to know the payee, the due date, and the amount due. However, stubbornly low adoption of bill presentment makes this a challenge. Metavante, however, is approaching this challenge with a creative solution. They are analyzing customers' payment histories to find bills whose amounts don't change (e.g. car payments) to create the alerts and avoid the limitations of bill presentment. Ultimately, this could lead to more opportunities to offer customers expedited bill payment alerts, and generate more revenue for its bank customers.
After years as a net cost, bill pay is slowly becoming a source of revenue for banks through expedited and card-based bill payments. While an interesting trend in its own right, the intersection with mobile banking makes this opportunity even more important to banks. Done well, effective implementation and integration of expedited bill pay and mobile banking with actionable alerting could be a killer application that drives higher adoption of both mobile banking and revenue-generating expedited bill payments. This is definitely a space to keep an eye on!
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