Since the dawn of online bill payment, billers and banks have been waging war to handle the payments on their own sites. At last, a victor may be emerging.
Biller sites today offer far more payment options, a factor that is winning out over banks that typically focus on their own accounts to fund bill payments. And younger consumers in particular have fewer bills to pay, a factor that dampens the advantage banks had as a "hub" for bill payment.
Today, nearly three-quarters, or 72%, of online bill payments are made on a biller's website, growing 18% since 2010, according to new research from Aite Consulting Group and ACI Worldwide.
Six years ago, consumers were making nearly 40% of their online payments through their bank's portal. That number has slipped to 27% in 2016, and is even lower at 22% of payments for millennials, the research states. Aite surveyed nearly 2,500 U.S. consumers during the third quarter of 2016.
"Millennials don't have as many bills to pay as more financially established and older generations and they are not as loyal to banks as older generations," said David Albertazzi, a senior analyst with Boston-based Aite and author of the bill payment channels report. "But consumers have had these options for a long time and there is more friction with a bank bill paying site."
Generally, customers using online banking to pay bills have to register their account, enter the information about the billers, insert an amount each time a bill is paid, all while handling various bills in the same place through the same checking account.
By comparison, when paying directly through the biller's site, all of the information to complete the payment is already in place and the customer can choose to pay through ACH, payment cards or other third-party options. The advent of alternative payment options — PayPal, Visa Checkout, Masterpass and even bitcoin — eliminate the hurdle of having to enter a bank or card account number at each biller.
Despite this difference, banks are interested in having their customers continue paying bills through their checking accounts on the online banking portal as part of an ongoing relationship, Albertazzi said.
"It's part of being the primary financial institution, and bill pay is a hallmark of that relationship," he added. "If you have a checking account linked to bill pay, or if you get direct deposits into your account or use other services, it's all part of it."
Still, funding options are naturally limited for banks, simply because many consumers pay their credit card bills through their online banking portal.
"You can't pay credit with credit," Albertazzi said. "If you did, that's a dangerous slope."
In the meantime, many consumers are finding it an easier process to pay those types of bills directly with the card issuer.
Faster payments initiatives such as the same-day ACH will help both banks and billers develop cost-effective payment solutions, considering consumer ACH bill payments already account for more than 46% of total bill payments, the report said.
Other data from the research revealed that 8.2 billion bills, or 56% of all bills, are paid online via a biller, bank or third-party website. Bills paid by check declined 20% in the past five years, while the number of bills paid via ACH increased by 10% and those paid by credit card doubled to 15%.
Credit card issuers represent the largest biller category with 46% of credit card bills paid online, compared to an average of 36% of bills paid online across all other biller categories.
Consumers set up only 32% of bills for recurring payments, while 68% remain as one-time payments.
These trends are good news for ACI Worldwide, a provider of online bill payments and technology, and a partner with The Clearing House in establishing faster payments rails, said Sheri Chin, vice president at ACI Worldwide.
“It is critical to develop cost-effective, innovative payment solutions that appeal to consumers’ gradual shifts toward online and automated payments, which will benefit banks, billers and consumers alike," Chin said in a press release.
Some trends are not changing much, however, as senior citizens continue to pay 40% of their bills through the U.S. mail. By comparison, only 15% of millennials pay bills through the mail.
In general, the report notes, banks and billers need to have a long-term view of digital payment channels because, even though 3.5 billion one-time bills were paid on billers' websites, consumer behavior is slow to change. The report also shows that many consumers still pay bills through the mail (2.4 billion bills) or in person (1.4 billion bills). Another 583 million bills were paid over the phone.
Billers have already been contemplating how their online sites will translate to customers using mobile devices to make those payments in the future.