Bill payment is a core financial activity for U.S. consumers, amounting to more than $4 trillion divided among a variety of methods from banks’ and billers’ websites to mail and walk-in cash payments. Third-party bill payment service providers are a small but growing force targeting younger adults with mobile apps that centralize bill management in a single location.
Though financial institutions with online bill payment services still command the largest share of the bill payment market, it’s a category with many friction points ripe for disruption.
Mobile payment technology is creating new bill payment options. Along with improved mobile access, consumers may opt to receive reminders and notifications and more control over the timing and mix of available payment options.
Bill payments began the transition to digital channels decades ago, when billers began accepting direct payments on their websites and banks expanded services enabling consumers to pay through online banking. About 75% of $4 trillion-plus of U.S. bill payments flows through digital channels, according to data Aite Group released in August 2017.
But mobile technology is shaking up the market for both banks and billers as bill payment access migrates to mobile devices, according to Mark Schwanhausser, director of digital banking at Javelin Strategy & Research. “The combination of an emerging mobile-first mentality and the rise of millennials who have different bill payment habits is driving demand for new solutions,” he said.
Banks have greater market share in bill payments in part because of their strategic advantage with a captive audience interested in quick, inexpensive methods of paying bills. But in recent years biller sites expanded choices for consumers with more complex needs, including more control over the timing of payments and the flexibility to pay with a variety of methods, including credit.
“In our latest survey, we saw that consumers … often mix and match methods based on changing personal and financial circumstances. When you consider the growing role mobile devices play, it creates a lot of complexity in bill payments that banks must address if they want to retain market share in the sector,” Schwanhausser said.
Sixty-three percent of consumers use mobile banking apps to get account information, up from 46% in 2015, according to a survey Total System Services (TSYS) conducted late last year among 1,200 U.S. consumers with a credit or debit card. A significant majority of millennials use a mobile bank app weekly, while about two-thirds of older Baby Boomers never do, TSYS said.
The percentage of consumers using a mobile banking app to pay bills rose significantly in 2017 to 44%, compared with 34% in 2016. The fact that consumer bill payment habits are shifting to mobile channels should stand out for financial institutions who can see that routine activities like checking balances showed little change.
Billing organizations cut across many verticals including utilities, consumer finance, government, health care, insurance and higher education, and their platforms for accepting payments provide insight into the friction points and opportunities for banks and third-party bill payment sites looking to gain market share.
Biller websites tend to lag behind banks in mobile and other digital technology, according to a new survey by ACI Worldwide. Less than half of billers accept bill payments from a mobile-optimized website, with only 42% providing text notifications/support or the ability to clear payments in real time, ACI said after surveying 1,031 bill payment industry executives in 19 countries between December 2017 and January 2018. Just over a quarter, or 28%, of billers provide any type of voice assistant or voice recognition technology to support bill payment, ACI said.
More than 25% of U.S. adults don’t pay their bills on time, according to a new survey by the National Foundation for Credit Counseling (NFCC), and the problem is worse among younger adults. Two in five, or 39%, of millennial women, said they don’t pay their bills on time, compared with about a quarter of millennial men. The NFCC surveyed 2,017 adults between Feb. 28 and March 2, 2018.
One factor in young adults’ struggles to pay bills is their use of disparate systems to track and manage their finances, which has created an opening for third-party bill payment providers. Handle Financial’s Prism, launched last year, operates a free bill payment hub targeting younger adults to solve this problem. And Paytm Canada recently launched a free bill payment website offering rewards for every bill paid, as a first step toward developing broader financial services.
Third-party bill payment sites account for only a small slice of the bill payment market, but it’s one financial institutions should watch carefully, said Javelin’s Schwanhausser. “Banks are in the best position to serve consumers with leading-edge bill payment services, but younger adults in particular are looking for more and better tools to manage their financial lives, and bills are a big part of that.”
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