The Bill-Pay Revolution

For banks, introducing real-time bill pay is not enough. They must also spruce up the online and mobile experience. Some are starting to, but can they finally leave the biller-direct model in the dust?

It’s been a long, steady retreat for banks in online bill payment. Since 2010, banks’ share of the bill-payment market has declined from 38% to 27% in 2016. The losses have come at the hands of direct billers, which grew their market share from 62% to 73% during the same period, according to Aite Group.

Despite the absence of more recent data, experts suspect banks have lost even more share to direct billers since.

The most frequently cited reason is that consumers prefer biller-direct sites because they provide faster proof of payment. With biller direct, consumers can initiate a payment on the due date, even if it is a weekend, and receive same-day confirmation, which allows them to better manage their cash flow.

In contrast, bank bill-payment applications initiate payment days ahead of the due date, the same as if the consumer were paying the bill by mail. Confirmation by a bank that a payment has been sent is not the same, however, as confirmation from the biller for receipt of payment. As a result, consumers must keep money in their account to cover bill payment for days on end to avoid incurring an overdraft.

Same-day bill payment confirmation is of huge value to consumers, especially those working in the gig economy, because it allows them to match bill payment to their availability of funds, payments experts say. Even if a biller-direct payment does not officially post for 24 hours, same-day confirmation assures consumers the bill has been paid.

Because payments are central to banks’ relationships with their customers, failing to meet expectations for speed of bill payment can hurt those relationships and make it harder to attract new customers.

“Bill payment is an important part of the financial-services lifecycle, and Millennials aren’t particularly attached to online-banking platforms [that include online bill payment],” says Patricia Hewitt, chief executive of Savannah, Ga.-based PG Research and Advisory Services. “If banks are going to bring back bill-pay customers, and attract new ones, they need to compete with the immediacy of the biller-direct model.”

A Growing Field of Players

For banks looking to match the speed of biller direct, the solution is real-time payment (see “2020 Vision,” this issue). Many banks in the United States already have real-time payments capability for peer-to-peer payments, cross-border payments, and business-to-consumer payments. Extending this capability to online bill payment is a natural next step for banks, payments, experts say.

Already, there is a growing field of players looking to bring real-time capabilities to online bill payment. These include such payment-industry stalwarts as Mastercard Inc., ACI Worldwide Inc., Fidelity National Information Services Inc. (FIS), and Fiserv Inc., as well as fintech startups like Fort Collins, Colo.-based BillGO, a provider of digital bill payment and presentment.

Even tech companies such as PayPal Holdings Inc. are eyeing the bill-payment space, with or without real-time capability. In January, PayPal revealed it is working with Paymentus Inc., a North Carolina bill-payment processor.

In May, Mastercard raised its real-time bill-payment profile by acquiring Transactis, a New York City-based provider of digital-billing services. The acquisition is expected to provide Mastercard’s real-time bill-payment platform, Bill Pay Exchange, with enhanced end-user interfaces, expanded payment options and digital bill-presentment capabilities in online bank applications and with biller Web sites.

Bill Pay Exchange, which Master­card announced last fall, will allow consumers to view and pay their bills online in real time using existing banking apps. The technology comes from Vocalink, a real-time payments platform acquired by Mastercard in 2016.

Bill Pay Exchange was scheduled to launch in mid-2019 with about 135,000 billers. Mastercard did not make executives available for comment.

Meanwhile ACI, FIS, and Fiserv are expanding their real-time payments capabilities for their bank customers to direct billers, such as utilities and telecom providers.

The ‘Wow Factor’

Despite progress on online bill pay, simply adding real-time settlement to the mix won’t be enough for banks to win back share lost to biller-direct sites in meaningful numbers, payments experts say. The winners will be the ones that deliver enhanced user experiences in addition to faster payment.

“The online-bank bill-payment experience hasn’t changed in years,” says Dan Holt, chief executive of BillGO. “If banks are going to use faster bill-payment models to help consumers better manage their money, the user experience has to be refreshed.”

One prevailing school of thought is to add online bill presentment and automated consumer messaging. These features, payments experts say, can strengthen the customer relationship by giving users a one-stop shop for all their bill-payment information, as opposed to moving between individual direct-biller sites to get the same data.

“With faster settlement, there is an opportunity to create a ‘wow’ factor when it comes to the user experience,” says Norman Marraccini, line-of-business executive and vice president for retail digital payments, ACH, and real-time payments at financial-services technology provider FIS. “What banks need to remember about consumers’ preference for biller-direct payments is that it’s based on muscle memory. To win back customers, they have to give consumers a reason to change their muscle memory and key to that is improving the user experience.”

FIS is looking to create common user interfaces for the three primary types of real-time payment—P2P, money transfers, and bill pay—regardless of the device used to initiate those services, Marraccini says.

Other ways to enhance the user experience include automatic email or text messages reminding customers a bill is coming due, and including a link to immediately pay or set up a payment date. To receive such messages, customers would have to opt in to the service, Marraccini says.

The idea is that giving consumers an opportunity to pay a bill when a reminder is sent makes bill payment more convenient by offering the opportunity to handle the transaction in one click, versus logging into the bank’s, or biller’s, bill-pay application to make a payment. The convenience of one-click, real-time bill pay can also reduce the risk of late payments, payments experts say.

“We can also pull in data based on a consumer’s past payment behavior with the biller to determine when best to send a reminder,” Marraccini says. “The aim is to create features that make it easier and faster for consumers to pay their bills without having to stop and think where is the fastest, most convenient place to go to pay their bill every time a bill is due.”

‘A Big Point’

Yet another way to spruce up the user experience, and one likely to appeal to Millennials with their preference for mobile wallets, is to download bills to a digital wallet along with an option to pay using the wallet. ACI has paved the way for this capability through its acquisition of Walletron Inc., a mobile bill-presentment provider, from The Western Union Co.

Walletron works on Apple Inc.’s Apple Wallet and Alphabet Inc.’s Google Pay wallet. Walletron has a network of billing and payment partners managing more than 12 billion bills, according to ACI.

Last October, ACI and Walletron, which is used by more than 6 million consumers in more than 100 countries, agreed to a deal allowing customers of ACI’s bill-pay clients to view bills from smart-phone wallets and make payments using ACI’s UP Bill Payment service. Concurrent with the Walletron acquisition, ACI acquired Western Union’s Speedpay bill-pay business.

“For many consumers, bill payment is a mobile-centric experience,” says Sanjay Gupta, executive vice president for ACI Worldwide.

For consumers not comfortable with managing bill payment through mobile wallets, ACI offers text reminders with a link to pay the bill.

“The more options that can smooth the customer experience, the better,” says Gupta. “The key is that consumers feel in charge of how they manage their bill payment.”

An obvious, but overlooked, aspect of improving the bank bill-pay experience is removing the friction for consumers to add new billers to their bill-pay account. Typically, bank bill-pay customers must enter all the details about the biller into their account before the bank can route payment to the biller.

The process can be so time-consuming many consumers limit the number of billers entered, such as including only those they pay monthly. As a result, billers that consumers pay irregularly, such as on a seasonal, quarterly or annual basis, tend to be omitted.

One way to improve the onboarding process, says Tim Ruhe, vice president for electronic payments at Fiserv, is to leverage the customer information in banks’ and billers’ customer databases to cross-match a bank’s bill-pay customers to payees.

Armed with that information, a bank can recommend to its bill-pay customers which billers to onboard and automatically download the biller’s information for the customer. With connections to both billers and banks, Fiserv is in a position to facilitate such a service, provided consumers opt-in.

“This can address a big pain point for bank bill pay,” says Ruhe. “It also makes the bank’s bill-pay apps more user-friendly than having to go to individual biller sites to pay.”

‘Large Opportunity’

Despite all the technological advances available to banks to enhance the bill-payment experience, payment experts question whether consumers that have embraced biller-direct models will shift their bill-payment preference to banks that offer real-time payments. Banks must decide whether they will be better off rolling out real-time bill pay to commercial customers first.

“There is a large opportunity for banks to offer real-time bill pay to small and medium businesses with tight cash flow that would welcome paying electronically closer to the due date,” says consultant Hewitt. “Banks took a similar path with remote deposit capture before opening it up to consumers.”

Another question facing banks is whether to charge for real-time bill payment. Predicting which way banks will lean on that question is tricky. Even though consumers have shown a willingness to pay for speedier services like overnight delivery, they know they can pay a bill last minute on a biller’s Web site, at no charge, and receive immediate confirmation of receipt of payment.

Should banks opt to charge for real-time bill pay, they must be careful to avoid overpricing the service, Hewitt says. That’s because direct billers can benefit from real-time payment too by using it to lower their payment-acceptance costs.

To enable speedier payment, many direct billers accept credit or debit cards, in addition to payments processed through the automated clearing house. Since card issuers guarantee the biller payment, minus a transaction fee, the biller can issue a same-day receipt of payment confirmation.

Payment experts say it would not be that big a leap for direct billers to move away from card acceptance to real-time payment to reduce or eliminate card-acceptance fees as long as they continue to provide consumers same-day confirmation of receipt of payment.

Accepting real-time payments would further benefit direct billers by allowing them to receive actual funds faster, says David Albertazzi, research director for Aite Group’s retail banking and payments practice. ACH transactions, for which direct billers issue same-day payment confirmation, typically clear within 48 hours.

‘The Long-Tail Play’

For banks to successfully forge ahead with real-time bill pay, they must be prepared to present a clear and persistent marketing message to consumers that highlights its benefits, including how it enhances the user experience, says BillGO’s Holt.

Payment experts figure it will take at least 12 to 18 months for consumers to start wrapping their arms around the advantages of real-time bill payment.

In the meantime, payments experts warn of false starts.

“Consumers are not ready for real-time bill payment because of the perception they have of what real-time bill pay is, which is why meaningful consumer adoption will be slow in coming,” says Marraccini. “The long-tail play for banks is going to be improving the user experience, making sure consumers can easily download billers into the bill-pay account, and providing same-day confirmation the bill has been paid.”

Banks that put those elements together will likely win faster rewards in the race to deploy faster bill payment.