Paying bills is central to consumers’ lives. Consumers in the U.S. pay about 15 billion bills annually, which is an average of 15 to 20 monthly bills per household. This adds up to more than $4 trillion spent paying bills, equating to nearly 30% of all consumer spending, according to Mercator Advisory Group’s report Disrupting The Bill Pay Market: Innovations Create Opportunities To Upgrade the Experience For All Participants.
Even though bill pay is a common part of nearly every consumer’s life, it remains complex and inefficient for the entire bill pay ecosystem, including consumers, banks, and the billers themselves, making it an area ripe for innovation.
Current bill pay market is inefficient for billers and banks, and frustrating for consumers
For consumer, making an electronic bill payment, particularly when paying through bank bill pay, can be a complicated exercise. Setting up a biller can be cumbersome and prone to errors. Consumers often can’t see the amount owed or the details of each bill they are attempting to pay. The process lacks transparency, so consumers are unclear when payments are actually received by their billers, particularly with ACH-based payments. Consumers are also not typically provided with a choice of payment types.
The alternative of using billers’ websites to pay bills is not easy either. For example, consumers have to remember multiple unique logins and passwords when making payments on each biller site individually. Potential security issues result as consumers enter their payment credentials and other details on multiple websites.
For financial institutions and billers alike, bill pay transactions have been similarly complicated by a need to support varied payment types, the associated support expenses, and limited remittance data.
Of the 15 billion paid bills each year, only half are paid online, and checks account for 5 billion of the paid bills. For both banks and billers this adds costs for processing and customer support. In addition, billers have the incremental cost of mailing 8.5 billion paper bills each year.
The market is due for a new bill pay solution to improve the customer experience and to help banks and billers capitalize on the opportunities to move the market toward more digital interactions. Innovation will also enable stronger engagement between financial institutions and consumers through bill pay services at a time when those relationships are fragmenting.
Consumers’ expectations are shaping the market
The issues with bank bill pay has caused consumers to turn away from the service. In 2010, almost 40% of consumers made their online bill payments through their bank, but the number is now down to as few as 27%. The drop has been caused, in part, by people choosing to pay bills directly on the biller’s website. Even if a consumer avoids the headache of electronic bank bill pay, and instead elects to pay bills through the billers’ websites, there are problems here, too. However, there are interesting signs that the trend could reverse.
Consider this: 93% of consumers rated their banks’ online and mobile app experience as “excellent,” “very good,” or “good,” according to a survey conducted on behalf of American Bankers Association.
In addition, 53% of consumers say bill pay is the most important mobile banking feature, according to an S&P U.S. Mobile Banking Survey. Of the transactions completed using a mobile phone, the most common activity is paying a bill, according to Mercator Advisory Group’s Customer Monitor Survey Series.
Despite the clear desire for mobile bank bill pay, the survey found that 11% of consumers reported such a feature is not available in their bank’s phone app.
Consumers want a consolidated place to view and pay their bills, yet such a service is often unavailable in current mobile banking apps. Individual billers might offer these services on their respective websites, but this requires consumers to set up multiple accounts, one for each biller, a cumbersome process with added security concerns.
New capabilities are set to transform the market
As consumers choose the convenience of paying more bills digitally and with a clear shift toward mobile, a solution built with a “digital-first” approach will attract more users and has built-in opportunities. Online and mobile channels with the right technology represent a communication platform for notifications, payment tracking, and connections with budgeting solutions. Financial institutions are a natural fit to bring all these digital capabilities together in one place, providing a holistic view of a bill payer’s obligations.
Real-time payment solutions in the United States are still evolving, but the benefits they offer to the bill pay market are already getting attention. The near-instant settlement of good funds gives consumers an option to avoid late payments and the associated fines, as well as providing the peace of mind that a bill was definitely paid.
Real-time payments have benefits for billers because they receive irrefutable funds that can be immediately used for other business needs. Just as important as the speed of a real-time payment transaction is the quantity of data that accompanies the payment. Leveraging the expanded real-time messaging capabilities provides the necessary information to match a bill with its payment, making reconciliation automatic and fast for billers, improving efficiencies and reducing costs.
In this environment, the biller sends the payer a notification via text, push notification, or email informing them that the bill is due and requesting payment. The notification also includes access to billing details. Upon receipt of the bill, the payer can respond by crediting the biller with funds immediately or scheduling a timeframe for the payment to be made.
The payment can be made from a variety of funding sources including a checking account, debit card, credit card, or another eligible source. The biller sends confirmation data back within seconds so the consumer is assured that the bill has been paid.
Taking into consideration all the current friction points, trends, and new opportunities, any transformative innovation in the bill pay market would need to improve the customer experience, embrace mobile payments, incorporate real-time payments, and provide an accessible platform for billers and banks to work together.
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