If you’re reading this now, you probably agree that paying bills online is the most convenient way to handle your monthly recurring expenses. If you’re under 25, it’s possible that you’ve only ever paid bills online. Consider your other options: Use an automated phone system that was designed when handsets and keypads were separate objects, mail a paper check and try not to empty your bank account before it clears, or physically visit a payment office and wait in line to deliver your balance in cash.
Right now, you’re already sitting at your computer. You could have all your bills paid in a matter of minutes. So why do we still think some online payment systems are not convenient, and what still needs to change?
It’s no secret that Europe has been ahead of the US in individual and institutional adoption of EBPP, or, electronic bill payment and presentment. Many banks in the US offer a service that allows you to pay bills from the bank’s website by providing the payee’s information, but you still can’t access your statement without going directly to the payee. In Europe, payment networks attached to post offices and financial institutions allow customers to view and pay bills from one service. To give you a general sense of the divide, Research from the Federal Reserve Bank of Boston shows that, in 2007, an average American used checks for 28.6% of transactions and electronic transfers for 16.8%. In stark contrast, an average German used checks 0.58% of the time and electronic transfers for 84.7% of transactions. That was four years ago, and we haven’t seen much change in the US.
What is EBPP?
In order to understand barriers to widespread adoption of EBPP in the US, it helps to understand the differences in online bill payment methods. There are two main methods, push and pull. Utility companies have offered automatic bill pay for decades, in which you authorize the company to pull funds from your checking account each month. When you use an online payment system and provide your bank account information to a company for a one-time payment, you push funds to the company at a specific time, whether or not the bill is due. When you use your bank’s bill payment system, your bank pushes funds to the company by electronic transfer, or by mailing a paper check if electronic transfer isn’t available.
There have been a few attempts at consolidator models of EBPP in the US, and none have been very successful. A 1998 article from the McKinsey Quarterly describes the model used by CheckFree—the leading EBPP provider at the time—in which payees and banks paid for CheckFree’s software and customers paid all available bills through CheckFree’s interface. Consolidator models require high early adoption rates among both payee and banks because of the high cost of running these centralized systems. A site that allows you to pay your electric and gas bills but not Internet, credit card, insurance, or water bills is not especially convenient.
Despite evidence to the contrary, there are huge incentives for banks specifically to adopt and promote EBPP. Clearing paper checks costs banks between $0.05-0.16, while electronic checks cost $0.007-0.015. (ibid. Fed Boston). Still, banks are unwilling to pay consolidators for software and subscriptions to centralized EBPP, and companies prefer to keep their own direct EBPP systems, which increase web traffic and provide opportunities for companies to up-sell services. With increased adoption of mobile applications, and better engineering and design on direct EBPP sites, the consumer experience is improving. However, unless greater incentives for electronic checking and payment—and perhaps even consolidated EBPP—are developed, it is unlikely that the current system will change drastically anytime soon.