In a recent chat with PaymentsJournal and Mercator analysts, Ron Shultz, Senior Vice President, Global Bill Pay at Mastercard shed some light on what the future of bill pay should – and can – look like… starting with the four areas of pain that financial institutions must address if they hope to transform the Bill Pay consumer experience and drive step change to reduce the use of expensive and inefficient paper checks.
Financial Institutions No Longer Central to the Online Bill Pay Experience
Consumers in the U.S. pay about 15 billion bills annually, noted Shultz – an average of about 15 to 20 bills per household, per month. Of those 15 billion, only half are paid online and 5 billion are still sent by paper check in the mail or by phone.
Historically, financial institutions’ online banking website and later mobile apps were central to a consumers’ bill pay experience. However, the process of paying bills online through an FI has become increasingly more difficult. For example, consumers who want to pay bills electronically from their checking account have to go through a very manual process to set up their billers within their FI’s online website or mobile app and often times this results in a consumer becoming frustrated and giving up. FI-based bill pay was championed as a great customer retention tool for banks. And yet, financial institutions have not invested heavily in their bill pay capabilities. Currently, as few as 27% of consumers[i] make their online bill payments through their FI. In 2010, this number was closer to almost 40%. The dramatic drop has been the result of online bill pay users finding a better experience by paying directly on billers’ websites.
Why are FIs losing grounds with online bill pay?
As Mercator Advisory Group’s Director of Debit & Alternative Products Sarah Grotta notes, “In the last two and a half years, we’ve seen large billers and sellers take advantage of the prevalence of mobile phones to use that channel to communicate directly with their consumers. Through messaging alerts, payment confirmation and payment choices, Billers have improved the consumer bill pay experience and are seeing results.”
According to Shultz, consumers are facing four key pain points in their online bank bill pay experience. With new technologies banks can address these pain point:
- Biller setup: Sure, bill pay is convenient once it’s all set up, but the process for getting it there can be a major headache for consumers. They’re using outdated search algorithms to find the biller and can’t tell for sure if the one they’ve found is the right one. Then, they must manually enter data such as the billing account number. With today’s technology, says Shultz, there’s just no reason to force that inconvenience on the consumer any longer.
- Bill presentment: In a perfect world, the consumer would be able to see their bill and pay it in the same place. This view should include a summary of the bill, the amount due, the due date, and an option to click through to see more details on the full bill. Once again, Shultz says, the technology is out there; it just needs to be applied to this use case.
- Lack of payment choice: Today, if a consumer wants to pay bills through their online banking portal, it is assumed the money will be withdrawn from their checking account. However, future tools and platforms must support multiple payment options such as real-time payments and card payments within the security of the online bank application.
- Lack of transparency: Billers are leveraging enhanced messaging to communicate directly with consumers, but with banks, bill payments are a matter of what Shultz calls “click and pray.” There’s no way to see when – or even if – the payment got to the biller or whether the account balance has been updated to reflect the payment. This fuels customer doubt, not confidence, and that user experience can be improved.
Are Banks left behind in online Bill Pay
A consumer who pays bills online may go to different sites for credit card payments, utility bills, insurance, healthcare expenses, telecom, and other bills. Biller direct sites are offering benefits that consumers appreciate such as the choice of payment and the opportunity to see their entire bill not just the amount due, and they are getting consumers’ attention by communicating with them directly through alerts and notifications about their bills. These features are sufficiently beneficial in that consumers are willing to go through the cumbersome effort of creating separate user names and passwords and log into separate biller sites each time they need to pay a bill.
However, this requires users to visit multiple different biller websites to pay on average 15 – 20 bills per month. They must keep track of bills that have been mailed or emailed to them, manage usernames and passwords for different sites, and leave payment credentials scattered across the web – a trail that is making consumers more and more uncomfortable as their concerns around privacy and security continue to grow.
Running counter to this trend is the satisfaction that consumers show with their financial institution’s online and mobile app experience. In a survey conducted on behalf of American Bankers Association, 93% of U.S. consumers rated their respective banks’ online and mobile app experience as “excellent,” “very good,” or “good.” The survey also found that 70% of Americans use a mobile device to manage their bank account at least once per month and 46% do so more than three times per month.[ii] In addition, consumer research shows that consumers are looking for a consolidated place to view all their bills, pay all their bills and help support their monthly budgeting process. This data suggests that financial institutions have an opportunity become central to consumers’ bill pay routine once again by creating a better bill pay experience.
With all this in mind, said Shultz, it’s clear that the opportunity for a digital transformation in online bank bill pay is eminent. Sure, cash and check payments will continue to taper off over the years, but there will be no dramatic step change away from these methods until the alternatives become more attractive.
What about the continued prevalence of checks in Bill Pay?
The industry has been proclaiming the death of the check for years now, but the reality is that billions of bills are paid by checks per year, even with all the technological advancement of the past two decades, there still is not a better way to pay bills for many consumers.
The check will go away, but to bring step change it will be incumbent on the ecosystem to bring “advanced” features to bill pay – that is, easy setup, more useful bill presentment, greater payment choice, and increased transparency.
“I should have a choice of payment and I should know exactly where my payment is along the way, just like I know when my Uber or Lyft is arriving,” Shultz said. “I should know my payment arrives at the biller and I should have the confidence and satisfaction that my account is up to date.”
Retiring the check stands to benefit everyone involved. Shultz notes that it is an expensive payment method to support, along with cash. Paper payments require manual processing and exceptions, which means more resources are needed and thus there is a greater cost for financial institution and billers alike. The time is now to modernize bill pay features and functionality.
So what role does Mastercard plan to play in all this?
Shultz explains that Mastercard is launching the Mastercard Bill Pay Exchange later this fall. The company is building on three decades of experience in the bank bill pay space combined with the newly acquired Vocalink’s real-time payments capabilities and expertise.
Shultz believes Mastercard will be able to bring new features and functionality to bank bill pay that he says will help accelerate the adoption of online bill payment.
Shultz explains that Bill Pay Exchange will be delivered to consumers via their banks, delivering modern features and functionalities created for today’s economy: Viewing and paying bills in a single place, easier/automated biller set up, broad bill presentment, payment choice and enhanced messaging.
Also important, says Shultz, growing our Biller Network of nearly 140,000 billers – the largest in the US – will go a long way toward creating momentum in this space. Billers also want to deliver bills electronically and get paid on time, with automated reconciliation and robust data delivered where, when, and how they need it.
“The timing is right,” Shultz said. “Perhaps a bit overdue. We see great focus right now from financial institutions on providing an upgraded bill pay experience for the consumers.”
Disrupting the Bill Pay Market
Bill pay transactions make up 30% of consumer spending, with the total estimated at more than $4 trillion annually in the United States. This makes paying bills central to consumers’ financial lives. Despite its importance, making an electronic bill payment can be a complicated exercise for a consumer. The segment is ready for change.