Mercator Blog

Why Banks and Credit Unions Should Staunch the Outflow of Bill-Pay Transactions to Biller-Direct and Other Nonbank Bill-Pay Sites
Date: April 28, 2017
Sarah Grotta
Director, Debit and Alternative Products Advisory Service
Bill Pay, a Critical Banking Function
Paying bills, however distasteful or boring it may seem, is a critical and occasionally dire and emotional payment transaction. Consumers are increasingly trusting this important transaction to billers, not their primary financial institution. If a financial institution (FI) believes that part of its role is to be the provider and initiator for the management, communication, and delivery of critical payments (a question that every financial institution should contemplate), then retaining customers who use the bank’s bill-payment function and as many of their transactions as possible is also critical. Some FIs may be comfortable allowing their customers to pay bills elsewhere since the profitability profile for bill pay by itself is rarely attractive. The topic of this Mercator Advisory Group report is current trends in electronic bill payment, including where bill payments are being initiated, emerging new technologies, and the tactics that financial institutions which believe bill pay is a core function are implementing to keep payers from wandering.

Bill Pay’s Role in Banking Relationships
Digital bill-pay users tend to be the type of engaged customer that most FIs aspire to engender and attract. Fiserv, a leading electronic billing and payments solution provider, found through a consumer survey that online banking customers who also used bill pay through the online channel had on average 2.7 revenue-generating services. Regardless if this correlation occurs because consumers who have bill pay also look to the same institution for other products or because they have several other products they also use bill pay from the same source, these customers tend to be “well banked.”

Bill pay also has the effect of encouraging frequent visits to an FI’s online and mobile banking sites. More visits to an FI’s digital solutions provides opportunities for more impressions, the opportunity to provide financial advice and to cross-sell relevant products. 59% of users of bank and credit union digital channels in the United States visit the FIs’ sites to conduct bill payment. Of those digital bill payments, 26% were competed through a mobile phone or tablet.

Although bill payers may be loyal to their FI, that loyalty is being tested by an increasing number of choices in how, when, and where U.S. consumers can pay their bills.

Losing bill-pay transactions should be a matter of concern to FIs for many reasons. Consumers’ relying less on their primary FI and putting their faith in a non-financial organization feeds their belief that non-financial organizations are trustworthy for important transactions. It can mean not just fewer transactions initiated by a consumer from an FI, but also fewer return visits to the mobile and online sites and less data available to the FI regarding the consumer’s financial habits. Bill-pay transactions represent a treasure trove of information. FIs use bill-pay data to feed automated budgeting tools, alert the customer to funding issues, and promote other products that may improve the consumer’s financial outlook.
Mercator Advisory Group’s report, Bill Pay: Fast and Simple Wins, provides an understanding of current U.S. bill-pay market, characteristics of bill-pay customers, and tactics being deployed by financial institutions that are interested in keeping and attracting bill-pay transactions in order to retain this critical consumer interaction.