Expedited payments: A fee service to compensate for the rising costs of online bill payments

Abstract

Offering an online bill payment solution to retail banking customers will cost US financial services institutions (FSIs) an aggregate US$903m in 2008 for the portion of the service they outsource. The majority of banks provide their customers with free online bill payment, justifying the expense based on enhanced customer retention, cross-sell opportunities, reduced call centre activity and the higher profitability of online bill payment users. The anticipated cost savings that banks expected from higher volumes of online bill payment due to consumers' increasing adoption and transactions, however, never materialised. This paper presents the case for charging fees for expedited payments as a means of creating a new 'hard-dollar' revenue stream within the online bill payment business to compensate for the expense of otherwise free online bill payment services. The discussion begins with an overview of online bill payment, including usage trends and projections of continued growth. Next, it describes the multitude of deployment options available, their associated costs and the ways in which financial institutions have traditionally compensated for the costs. An overview of expedited payments and its challenges and viability as a continued revenue stream follows. In closing, this paper delineates opportunities for FSIs to promote the adoption of expedited payments.