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Finance Banks Join the Online Parade

Posted on: Thursday, 8 December 2005, 21:00 CST

By Kim Norris, Detroit Free Press

Dec. 9--Each month, without opening his wallet or writing a check, David White pays the eight merchants who stock his coin-operated vending machines. In fact, White never actually touches the money.

He takes advantage of a growing trend by paying all his bills electronically through an online service provided by Republic Bank.

"I'd be lost without it," said White, a financial adviser for A.G. Edwards who operates the vending machine company as one of his side businesses. "It's just so convenient."

White has been using Republic Bank's ExpressNet bill-payment system for two years. He can set up his account to make automatic payments to one vendor who gets a flat rate each month. For other bills, he needs only to enter the amount he wants to pay, and the money is electronically transferred to the biller's account or a physical check is cut and mailed to the vendor.

When tax time arrives, White can review his payment history and see how much he paid each vendor that year. If he wanted to, he could link his account to a Quicken spreadsheet program and maintain an electronic ledger.

The electronic system eliminates the need for envelopes, checks, stamps and trips to the post office.

On line bill paying is still relatively in its infancy, and banks are new to the trend, lagging behind vendors and even in some cases portals such as AOL, Yahoo and MSN. Most people who pay their bills online do so at sites operated by the billers, such as cell phone carriers, credit card issuers and utilities.

But banks are waking up to this largely untapped vein of consumer demand and realizing they are in a unique position to offer a one-stop shop where customers can review and pay their bills online.

Between now and 2010, the number of users who pay their bills electronically will grow by 75 percent to about 47 million households, says Forrester Research Inc., an independent research company that analyzes and forecasts technology's impact on business and consumers.

Banks will add users faster than billers' sites over the next five years, Forrester analyst Catherine Graeber predicts. But it will take banks at least another five years to match the number of online bill payers vendor sites have. By 2010, Graeber predicts, the market share for electronic bill presentation and payment will be split nearly in half between banks and individual biller sites.

Currently there are an estimated 74.3 million online households and nearly 27 million of those pay their bills electronically.

Forrester says nearly 15 million -- or 55 percent -- of the 27 million households that pay bills electronically use a bank site. Meanwhile, 21.6 million -- or 80 percent -- pay electronically via a biller's site. Another 5.3 million households pay electronically through a portal. The numbers include nearly 15 million people who use multiple methods of paying online, which is why the percentages add up to more than 100.

Graeber says banks are going to gain market share by following the lead of large banks such as JPMorgan Chase, Wachovia and Washington Mutual that have dropped their fees for online bill payment in the last 18 months. Bank fees for electronic bill payment typically are nominal, ranging from around $3 to $6 a month, depending on account balances.

Banks also are revamping their bill-paying sites to offer more capabilities and make them easier to use.

"Smart banks have stepped up their efforts to grow their base of online bill payers by eliminating the monthly fee. They now understand the impact these customers have on the bottom line," Graeber said. "These customers buy more products, do more self-service and have higher retention rates."

But by 2010, banks are forecast to capture 29.5 million of the 46.8 million households paying their bills online, nearly as many as the 31.6 million who will pay through billers' sites. Slightly more than 22 million will use duplicate sites.

"I think fees are going away," said Brian Black, president of retail banking for Ann Arbor-based Republic Bancorp, which is phasing out fees on practically all its electronic-payment accounts. The service is free to most checking account customers now.

Most customers who pay bills on line started with on line banking, where they could view their checking account, transfer funds and such. Bill paying is a logical extension of that.

"It's not a slam dunk to get people from Internet banking into bill pay," Black said. "You have to get people comfortable with it first of all. But the next thing is to deal with a lot of perceptions that there are real and imagined barriers."

Among them is that the sites are hard to use.

Black admits it takes a few minutes to set up the account, but once the information is entered, it's there for good, unless you remove it.

"The biggest barrier to online bill pay is getting them acclimated to it and showing them how quick and easy it is," said Tracey McLean, assistant vice president of internal operations at Troy-based Flagstar Bancorp. Only a fraction of Flagstar's online banking customers pay their bills electronically, she said.

Security lurks as a concern but doesn't appear to be a primary hindrance, possibly because banks are perceived as safe.

"Maybe I'm naïve, but I don't worry about it," said White, who has several different business accounts through which he pays electronically. "You expect a bank to be safe and have strong security. Their reputations are at stake."

The precautions taken by Flagstar are typical across the industry:

Certain browsers are recognized and granted access. Browsers that aren't qualified are blocked automatically unless manually approved.

Users are encouraged to choose difficult passwords and forced to change them regularly

Customers are encouraged to avoid "phishing" attempts in which hackers masquerade as a legitimate entity (such as the bank itself) and ask for personal information that would enable the hacker to gain access to the account.

A key development that is expected to attract more customers to bank sites is delivering bills to the customers' accounts so they can review their statement and pay at the same site. The industry calls it "bill presentment."

Right now, most banks' systems are set up to pay bills. Customers generally still have to review paper statements they receive through the mail or electronic statements they receive by e-mail or by going on the biller's Web site and plugging in their sign-on, password and account numbers.

It's still evolving to the point where all the information resides in one place.

"There are probably six or seven different billers' accounts I go to and pay bills on a relatively regular basis," White said. "I have two cards in my Rolodex with lists of passwords. It's a huge pain."

If he needs his password sent to him by e-mail, he can't access his home account from work or his work e-mail from home, so he isn't always in the right place.

White said having all the information in one place would make a difference in how much he used the system and might even encourage his wife, Monica, to use on line bill payment for the family's bills.

Flagstar Bank is ahead of the curve when it comes to electronic bill paying. Monday the bank is to launch a revamped site that offers online bill presentment capability for the first time. Customers can receive and pay their bills from one site.

Flagstar also is eliminating its $2.95 monthly fee, and the electronic bill payment system is free to checking account customers.

Another new feature allows customers to pay bills from multiple accounts rather than a single checking account. Users can designate certain bills to be paid from specific accounts every month, for example.

Customers also can access a wireless site that allows them to pay their bills from pretty much anywhere.

"I can do all my banking and bill paying through my BlackBerry," said McLean, the once hesitant convert to online bill paying.

"Our goal is to make on line banking and bill paying available to our customers as easily as possible, no matter where they are.

Although banks don't make any money from the electronic banking and bill-paying sites, they have become important tools in recruiting and retaining customers who, they hope, will fulfill all their banking needs at their bank.

"Online bill payment and presentment is becoming a commodity product," Forrester's Graeber said. "What will differentiate providers in the future is ease of use, the speed of payments and security."

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Source: Detroit Free Press

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