New Products Key to Revving up Growth in Bill-Pay Adoption

More evidence that the online bill-payment market isn't exactly a slam-dunk for banks emerged Monday when Aite Group LLC issued a report saying that while adoption of online bill-pay is still growing, the rate of increase is slowing. Bill-pay vendors need to get serious about innovations if they want to reinvigorate growth rates, according to Boston-based Aite. Aite's report follows a study released last week by Javelin Strategy and Research that found while the average expedited bill-pay fee rose 45% in 2009 over 2007, banks and billers shouldn't count on continued hefty increases. Improving economic conditions will reduce the need consumers feel to delay bill payments to the very last minute, Pleasanton, Calif.-based Javelin concluded (Digital Transactions News, Oct. 7). The new Aite study examined the business prospects of the four leading industry vendors: Fiserv Inc., which bought bill-pay giant CheckFree Corp. for $4.4 billion in December 2007; Fidelity National Information Services Inc., a minor bill-pay player until it closed on its acquisition of Metavante Corp. this month; Online Resources Corp., and small but fast-growing iPay Technologies LLC. Another provider, Yodlee Inc., declined to participate. The report also examined MasterCard Inc.'s RPPS, the dominant third-party bill-pay switch. Aite estimates that the total number of U.S. bill-pay transactions through consolidators?chiefly banks or credit unions?has grown at a compound annual rate of 24% from 2002 into 2009. But growth is slowing, with transactions predicted to hit 2.07 billion this year, up only 8.9% from 1.90 billion in 2008. Last year transactions grew 13.1% from 1.68 billion in 2007. Growth in the number of end users also is slowing. While the estimated compound annual growth rate is 16% across the full-service processors since 2006, this year's estimated 68.3 million users represents only a 6.1% increase from last year's 64.4 million users. Aite research director Gwenn Bézard tells Digital Transactions News that he doesn't have a definitive reason for the growth slowdown, but he has his suspicions. “In the wake of the recession and the financial crisis, some institutions have been keeping a tight purse when it comes to spending on marketing,” he says. Possibly also playing a role is a recent effort by consumers to reduce the number of bills they're paying. Jump-starting growth rates will require bill-pay vendors to emphasize new products, according to Bézard. He notes that bread-and-butter consumer bill-pay remains the main offering, with no vendor making emerging products such as expedited bill pay or specialized services for small businesses a core part of its service. Many small-business owners pay their bills through consumer bill-pay sites, but more differentiated services for them would be “a new source of revenue,” he says. Vendors' expedited transactions grew 78% in 2007-08 while small-business transactions grew 29% compared with the aforementioned overall 13% market growth rate. On the other side of the coin, about 20% of consolidator bill-pay transactions result in a paper check being cut to the payee, mostly because the payee can't receive electronic transactions. Fiserv, FIS/Metavante, Online Resources, and iPay collectively handle about 90% of total consolidator bill-pay transactions. Banks route another 8% of transactions to MasterCard's RPPS. The number of U.S. financial institutions offering online bill pay in the first half of 2009 was up to 9,190 compared with 9,156 in 2008, 7,623 in 2007, and 6,735 in 2006. Fiserv dominates the bill-pay market with an estimated 76.1% of end users in 2009's first half compared with 19.0% for Metavante, 2.9% for Online Resources and 2.0% for iPay. And of the transactions handled by the top four processors, Fiserv had an estimated 74.1% in 2009's first half compared with 14.5% for Metavante, 8.4% for Online Resources and 2.9% for iPay. Online Resources has lost market share in recent years due to some customer defections in the wake of its 2006 acquisition of Princeton eCom Corp., according to Bézard. IPay, meanwhile, while still small has more than doubled its transaction market share since 2006.