Debating Bill Pay Decline
Bill pay, a staple of many credit union online banking sites, will be declining and even obsolete within five years, according to Terence Roche of Cornerstone Advisors, the Arizona-based consultants to credit unions and community banks.
Roche made that argument in a recent blog entry and subsequent interview with CU Times. “I don't mean to say bill pay will necessarily disappear in five years, only to point out how uncompetitive it is,” he said.
Roche built his case on three foundations: The cost of bill pay relative to other payment strategies, the smaller volumes represented by bill pay, and the growing number of less expensive and easy alternatives.
First, costs. Bill pay costs credit unions five to 10 times more than other payment methods, according to Roche, a cost which bill pay providers initially justified on the grounds of the service's recent entry into the market and the additional service bill payment providers offer.
But Roche pointed out that the circumstances–a lost check, the need for dispute resolution, etc.–that used to justify the extra expense have become quite rare.
What usually happens with payment systems is their costs drop as they become commodities over time, Roche explained. “That hasn't happened so far with bill pay and I am not sure I see it happening anytime soon,” he added.
Second, volume. Roche pointed out bill pay transaction volumes do not stand out, even against a slowly but steadily shrinking check writing world. According to Roche, consumers used bill pay 2.7 billion times in 2013, but that's compared to 18 billion checks written in the same year and 20 billion ACH transactions initiated. The bottom line, Roche maintained, is despite its ubiquity, bill pay still came in a distant also-ran behind the other payment methods in terms of volume.
Third, ease of use and popularity. Middle age consumers that have the money now tend to favor bill pay they use at their institutions’ online banking site. But younger generations favor mobile payments or biller-initiated ACH transactions, debit or credit card payments.
“My point was a growing number of different payment methods are coming up, all of them less expensive than bill pay and many of them easier to use or more profitable to the consumer,” Roche said.
An informal survey of this reporter's friends and neighbors bore Roche out.
One, Anna, a 30-something who declined to use her last name, reported having written checks to pay bills until a couple of years ago when she began using her bank's bill pay service. And she still does for some things. But now she also sometimes goes to the biller's website to initiate payment.
“They credit my payment immediately that way,” she said, “so if I need to, I can hold off on paying that bill until that day. Also, I know the money will come out of my account the next day. Sometimes with bill pay, you don't know that.”
The biggest shift in Anna's payment patterns came last month when she went to her condo association's website to pay her fees.
“I used to always pay that by bill pay and then wonder if it would get there or not until the money came out of my account. But this way I know it's done,” she said.
Eric Labiak, senior vice president at ACI Worldwide, a leading provider of bill pay, remained confident in bill pay's viability. Florida-based ACI is uniquely positioned to evaluate bill pay's place in the market, Labiak said, since it offers not only bill pay, but also facilitates some of its principal competitors, such as biller-initiated ACH and the bill payment aggregators that have become popular lately.
Labiak pointed out that while bill pay growth has not been as robust after the recession as it had been before, it has picked up from having ground to a near standstill at the height of the recession.
“Oh my God, in 2009 it was a disaster,” Labiak said. “Not only were users slowing down on bill pay, they stopped paying some bills regularly as their resources changed. It stopped growing entirely.”
Now, he said, bill pay transactions are steadily growing at about 4% per year.
Further, he turned Roche's observation about volume around by pointing out bill pay's low share of overall payment transactions gives it room to grow.
He also explained why bill pay's costs have not declined like other payment methods have. Unlike other payment methods, bill pay has to cover what he called the last mile.
“How many bill payment transactions can be electrified?” he asked. “In a major metropolitan area, maybe 80%, but that's about it. And in other places it's going to be a lot less. That means there will be thousands or tens of thousands of bill payments that we need to generate a check, mail the check, pay the postage, etc.”
All that remains expensive and keeps bill pay from being as inexpensive as payment strategies that use ACH, he explained.
Even with the expense, Labiak predicted credit unions will keep using bill pay. “It's keeping their best members on their site longer,” he said. “Their best depositors are using bill pay, on their site to pay 10, 15 or 20 bills per month. Credit unions will happily pay that bill each month.”