Transforming Bill Pay Into An Engaging Personal Finance Tool
A little over 25 years ago, paying bills required some effort. Back then, your options were to write and mail a check, pay over the phone or pay your bank to do it for you. As the Internet grew from obscure curiosity to popular, albeit costly, obsession in the early ‘90s, banks began to offer a new, more convenient option: online bill pay. No longer would you need to write check after check; all you had to do was log on and make the payments electronically.
Granted, to enjoy this convenience at the time required spending thousands on a personal computer, and hundreds more on network equipment and service fees. Still, despite the relatively small target market, online bill pay was popular among those who could afford it. For banks, that made it a powerful tool for digital engagement and customer retention, simply because no one else could offer anything like it.
Banks soon realized that if they offered this online bill pay service for free, their customers were more likely to stick around and open a savings account, take out a home loan, seek financial planning advice, and so on. The “stickiness” that free bill pay created far outweighed the cost of the service.
Unfortunately, for financial institutions, we’re not in the year 1995 anymore. Consumers have a number of choices in not only how they pay their bills, but also in how they deposit, move and even borrow money. Today, 76% of online bill payments are made directly at biller websites, with online payments made at direct billers growing 123% in the past decade. Meanwhile, banks’ share of online bill payments have shrunk in the past decade, from 38% down to 22%.
What’s more, a number of dynamic challenger banks and fintech startups are starting to encroach on other established bank products, displacing deposits and diminishing the importance of the checking account. Payment apps like Venmo make it easy to move money between friends, and consequently, just leave money in the app. According to the Financial Brand, some $2.2 billion just sat in users’ accounts in 2017. Health savings accounts now account for $97 billion in assets in 2021, Denevir Research estimates — doubling in just four years. Banks and Credit Unions are no longer the central hub of their financial lives. It could be, though, if you think of today’s millennial mobile user as 1995’s desktop internet user.
How Times Change
While online bank bill pay was truly a transformative technology when it was introduced a quarter-century ago, it hasn’t changed much since. Payments can take anywhere from 1 to 10 days to post, often with no assurance from the biller that the payment has been posted. By today’s standards, it’s an inconsistent system that fails to include the many payment methods consumers now rely on: debit cards, credit cards and digital wallets. If I can get a 72” big screen delivered the same day by Amazon, why is that my “electronic/digital bill pay” is still a multi-day process?
With your average consumer paying between 12 and 15 bills a month—and most of those consumers reporting feeling uncomfortable and even anxious about paying bills on time— traditional bank bill pay simply just doesn’t meet the consumer's needs anymore.
In the absence of any meaningful innovation in bank bill pay, most billers went ahead and created a better experience themselves. You can see your amount due and bill details if needed. You can pay with your favorite debit card, rewards-based credit card, or digital wallet. Most importantly, you can see your payment post in real time. It’s just a better experience.
While this might seem like all doom and gloom for banks, the good news is that the same logic from 25 years ago still applies today: Bill payment is still an opportunity to engage customers; the approach just needs to change.