The growth in popularity of paying bills online. (1 page, Organizing and presenting data)

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E-COMMERCE REPORT, NYTIMES Pay Bills With a Click? More Americans Are Doing It and Banks Are Loving It By BOB TEDESCHI Published: May 29, 2006 FROM the annals of Online Economics 101 comes this shocker: free is good, especially when it comes to paying bills. Big billers like Verizon Wireless and ConEd learned this bit of wisdom years ago, when they offered customers the ability to pay bills free online. But most banks have come to the same realization only in the last 18 months. The result has been a boom in the number of bills viewed and paid online. According to a recent poll by Harris Interactive, a research firm, the gap between the number of bills paid by check and the number paid online has closed significantly in the past year. More than 37 percent of bills are paid by check; 35 percent are paid online. The remaining 28 percent are paid with cash, debit cards or other payment methods. Given that trend, Web payments could surpass checks over the next year. (Last year, 46 percent of bills were paid by check, and 25 percent online.) Banks are hoping to accelerate the move by marketing online services far more aggressively. Television campaigns, radio spots and, of course, online advertisements from the Bank of America and Wells Fargo, among others, now promote the benefits of such services, where in years past banks advertised other features like online statements and account balances. The caveat with these numbers is that the Harris poll was commissioned by CheckFree, which helps banks and billers build online bill presentment and payment services. But analysts said the data mirrored other research showing the growing popularity of the service. "The days when people see the U.S. mail as a safe and rational place to do our bills are numbered," said James Van Dyke, president of Javelin Strategy and Research, a consultancy based in Pleasanton, Calif. According to Javelin, roughly half of all households with Internet access have paid bills at a biller's Web site; about 40 percent have paid bills through a bank or credit union site in the previous month. Analysts say consumers still greatly prefer to pay bills at the Web sites of their financial institutions, not just because customers trust banks and credit unions with their finances, but also because these Web sites can display and process multiple bills at once. Banks generally agreed with that logic in the past, but they were not willing to pay the fees charged by CheckFree, Metavante and other technology companies who processed electronic payments and bills on their behalf, and their customers were not willing to cough up $6 a month to subsidize the effort, either. A consortium of banks including Wells Fargo and Wachovia tried building their own technology several years ago. In 2002 Metavante bought the company, called Spectrum, that the consortium created. Since then, technology vendors have cut fees by 20 percent to 30 percent and banks have recognized the considerable leverage of online bill payment services, thereby making them more willing to absorb those fees. Customers who pay bills online "have increased loyalty to the banks," according to Greg Cardinali, Wachovia's vice president of product management for online services. Mr. Cardinali would not say how much more money these customers keep with Wachovia, but said, "we have a deeper share of their wallet." According to Catherine Graeber, an analyst with Forrester Research, a technology consultancy, a bank's online bill payers are substantially more likely than their check-writing counterparts to rely on the bank for credit cards and other financial services, and they also call the bank less frequently, so they are less costly to serve. "Online bill pay does have a halo effect," Ms. Graeber said. Banks still have some obstacles to overcome, though, before that halo illuminates the full breadth of their customer base. Forty-one percent of United States households with Internet access now pay their bills online up from 31 percent in 2004, when most banks still charged for the services. Ms. Graeber predicted that it would take four more years to top the 50 percent mark. Why would the rate of growth slow down? Ms. Graeber said part of the problem was that online bill payment was tied to online tenure: the more online experience someone has, the more willing they are to consider the service. As a result, many Internet users who have had access for only a few years may not be ready to move into more sophisticated Internet transactions like bill payment for some time. In the meantime, the technology has steadily improved, making it simpler to understand and use. Bank of America, which was the first to offer a free service, in 2002, and which claims to have the most online bill payers of any bank, with 7.7 million, has tweaked its system regularly in recent years. According to Sanjay Gupta, Bank of America's e-commerce executive, users now typically enter nothing more than the company name and account number to sent payments, whereas in years past they were required to enter the company's full address, among other things. Earlier this year, Bank of America also changed its system so the customer's money remains in his account until the biller has deposited the payment. In years past, the customers' checking account was immediately debited. Other banks are also developing systems where customers can pay bills at the last minute and have the biller paid instantly. Online Resources, an online bill payment and presentment company serving mostly local and regional banks like New York Community Bank and Ohio Savings Bank, will probably offer such a feature to its clients early next year, according to Matthew P. Lawlor, the chief executive. Indeed, just as the banks have profited from the growth in online bill payment, so too have the vendors that serve them. Online Resources, which acquired the online payments company Princeton eCom for $180 million earlier this month, posted revenue of more than $60 million last year, up from $42 million in 2004. CheckFree, meanwhile, posted $758 million in sales in fiscal 2005, an increase of 25 percent over fiscal 2004. Matthew Lewis, CheckFree's executive vice president, said the company had created new sources of revenue over the past year, crunching data for banks and helping them identify potentially fraudulent transactions. But he said CheckFree's core mission remained focused on consumers. "Mainstream America is increasingly finding ways the Web can really improve their lives," Mr. Lewis said. "We want to make this more part of the way Americans live their lives."