Bill pay has been a core service for financial institutions for years. However, aside from the digital exterior, the nuts and bolts of bill pay have been largely unchanged since their introduction. This lack of modernization is beginning to show now that the open-banking model is gaining momentum.
As James Wester, Co-Head of Payments at Javelin Strategy & Research, detailed in The Great Bill Pay Reset: How Real-Time Payments and Open Banking Are Upending the Status Quo, bill pay can be much more than a by-the-numbers financial service. What’s more, the same technologies that are reshaping financial services can transform bill payment into a service that keeps banks at the forefront of their customers’ financial lives.
Rethinking Technology
Although bills are necessary to keep day-to-day operations afloat, consumers and organizations would likely rather spend their money elsewhere.
Unfortunately, the tough macroeconomic climate has meant less money to spread around, and consumers have become increasingly creative in how they budget and pay bills. This cash management process requires ongoing attention, which can be a struggle for consumers with myriad other obligations.
This is where new technologies like event-driven architecture can make a powerful impact on the bill pay experience. Once a bill is issued and a due date is submitted, a bank customer can automate the payment so they can pay at the last possible moment.
Another powerful innovation is the application programming interface (API), which is a foundational technology for the open-banking system. APIs are the rails that allow third parties to facilitate services most banks aren’t equipped to provide. These third parties can reshape bill pay by shouldering certain aspects of the experience.
“All of these things are now possible, and what financial institutions need to look at from their consumer retention and satisfaction standpoint is rethinking bill payment,” Wester said. “That’s why we call it the bill payment reset, because it’s an important part of financial health and an important financial service that can now be rethought from a technology standpoint—in ways that are just better in every way.”
More Than a Money Vault
In the United States, many financial institutions have held off on tech updates because they were awaiting a clearer picture of open-banking regulations.
Last year, the Consumer Financial Protection Bureau finalized its rules governing open banking. These regulations were derived from Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted after the 2007-08 financial crisis.
However, the future of Section 1033 has been uncertain after a change in presidential administration stymied its implementation. After some speculation about whether the rule would be scrapped entirely, it now seems Section 1033 will be revised before it comes to fruition.
Regardless of the ultimate outcome of the rules, U.S. open banking is moving forward. The goal of the model is to leverage third-party fintech companies to give consumers the power to protect their data and to shift between financial institutions with ease.
Fintechs already play a substantial role in the financial services industry, so much so that many financial institutions are beginning to feel the pinch.
“Open banking is pushing toward data sharing where the consumer ultimately owns their data and access to their financial services data,” Wester said. “What that allows is the aggregators to work with billers and to work with other companies to link automatically into those bank services.
“So, I don’t need the bank necessarily to provide a payment. I can go to a third party. That third party can access that data and drive a payment, so what you’re beginning to see is the bank is taken out of that central role within a consumer’s financial world. That’s not where banks want to be.”
This means that open banking is a threat and an opportunity for financial institutions. The threat comes from the substantial number of digital-first challengers that have entered the market. However, the open-banking opportunity can be far greater.
“It’s an opportunity to say, ‘These are the things you expect from all of these partners that you may be bringing in touching your accounts,’” Wester said. “’Why not come to us? We’ve got products that can do all of that for you, but we can also do it from the perspective of we’re the center of your financial world. All that stuff is here, and you trust us because we’re your bank.’
“In other words, banks have been repositioned now as being nothing more than a money vault. Well, they don’t want to be that. They want to be a place that’s now a part of their consumers’ financial services world, so that a consumer continues to come there for mortgages and car loans and credit cards and financial services products.”
Delivering the Message
Because of the powerful benefits of a modernized bill pay process, a consensus is growing in the financial services industry that bill pay is long overdue for a redesign.
“I’ve been pleasantly surprised at the level to which we have had so much interest from the vendors who have said, ‘We’ve been trying to deliver this very message,’” Wester said. “Anytime that you have a product that consumers can access, it’s something where you want to make it as good as you possibly can. But I think that a lot of bill payment has languished over the last few years because banks look at it as something they have to deliver, not something they have to deliver well.
“On the vendor side, we’ve had many of them reaching out saying, ‘This is exactly what we have been telling banks for a long time, which is to rethink that product.’ It’s a service that has been something banks had to provide before, and now they are being told by their vendors that there’s more here.”
