Creative newcomers offering bill-payment services, such as Pageonce, Mint,, Billeo, Doxo, Manilla, Volly and Zumbox, are gaining traction while many banks are missing out on the service’s strong retention potential, suggests a new report released April 3.

“The threat of disintermediation is wide and varied in financial services,” says Mark Schwanhausser, senior analyst for multichannel financial services at Javelin Strategy & Research. “Financial institutions have benefited greatly from bill pay; it's an integral reason why more consumers didn’t switch during Bank Transfer Day last year.”

Banks say when customers sign up for online bill payment, customer retention skyrockets. In Javelin’s survey of 4,728 consumers conducted in December, 83% of those who paid all their bills through their financial institution were satisfied with their banking relationship. Among those who paid their bills through their billers’ websites, a lesser 73% said they were satisfied with the financial institution.

The upstart innovators in Javelin’s report are trying to offer a better alternative to banks’ traditional bill-payment offerings. Although they are not quite there yet, they are building the right pieces, Schwanhausser says.

“A financial institution that's blinding itself to the threat that other companies can’t steal a piece of their business is vulnerable,” he says. “If somebody else can convince the consumer that he would get a better way to pay bills, that's a significant threat to a financial institution.” he says.

For instance, nonbank bill-payment providers could let consumers pay all their bills in one place, for all bank accounts and all billers, providing a big-picture view of their finances.

The nonbanks also potentially could provide more flexibility. A financial institution typically will let customers pay bills with their checking account, but an outside provider could let them use a credit card or other payment method.

“We have reams of evidence that consumers have complex financial lives, frequently are dealing with a lot of products and financial institutions, and have bills all over the place,” Schwanhausser says. “The more they move to a digital lifestyle, the more they’ll say they need help to tame the mess and bring order to it. What they really want is some way to consolidate the chore, make it easier, all in one place with control.”

Although this should be a wake-up call to the financial industry, Schwanhausser says that banks are still in the best position to provide bill-payment services directly tied to finances because they can offer control, convenience, practicality and security¬–a package that's tough to beat.

What many banks have today, he says, is an “entanglement strategy,” in which they’re good at keeping customers in bill-payment relationships simply because it’s very hard to unwind these accounts.

“One could take the view that the thing that’s great about bill pay is it entangles consumers, and they’ll be too tied up in a spider web to get away,” Schwanhausser says. “That kind of business plan has value and logic, but that's not the way I’d want to build my business plan.”

A better focus for banks would be to find a way to make their bill-payment services so good that consumers wouldn't even consider trying to unravel them.

A weakness of the nonbank innovators is their lack of mobile offerings. Other than Pageonce, which built a mobile component to its service from the start, the bill-payment newcomers have focused on the online experience, he says.

Banks have been offering mobile alerts to let customers know about bill payments, potential fraud and potential overdrafts for several years, though not always perfectly, Schwanhausser notes. Getting alerts right could give the consumer the sense that he’s got always-on control and access to his money and help the bank provide a personal relationship through electronic means.

“The personal part is it’s about your account–what just happened, what you need to do,” he says. “That’s going to be another reason why financial institutions are in a better spot to build on their bill payment relationships and not let them erode.”

Bill-payment innovators will build their products in four phases, Schwanhausser believes. They will work on money management, tie bill payment to financial management, offer mobile access to those services and archive bills.

Doxo, Manilla, Volly and Zumbox are all in that bill-archival space.

“They will have to be patient because consumers aren’t clamoring for an archiving solution right now,” Schwanhausser notes. “They’ve got reams of digital stuff, but they’re going to have to see proof that it can be done in a way that’s simple and safe.”

Wells Fargo & Co. offered such a service, called vSafe, in 2008. The bank provided digital-document storage for a minimum $4.95 monthly fee.

Last month, the bank announced it was shutting vSafe down. The product may have been ahead of its time.

“That’s the challenge of being one of the first adopters, if you’re too early it’s just as costly as being too late,” Schwanhausser says.

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