StreamALERT AR: February 2006

Consumer Electronic Payments: Are We There Yet?

Consumers are poised to enter a new era in payment behavior. The recent Federal Reserve’s Retail Payments Research Project revealed that electronic payments will soon overtake payments visa paper checks for all consumer-to-business (C2B) remittance payments in the U.S. Consumers are shifting to electronic payments by substituting credit cards, debit cards, and Automated Clearing House (ACH) transactions for checks. In fact, our research shows that consumers’ use of these methods for remittance payments currently stands at over 45 percent and this year their share of remittance payments will finally surpass paper checks.

Now more than ever, consumers are demanding freedom of choice when it comes to purchasing and paying for goods and services. When it comes to payments, consumers today require a level of convenience and control that would have been unimaginable just ten years ago. They want the freedom to select the channel and method of their payments, as well as their frequency and timing. Conventional paper checks cannot provide this level of flexibility, so consumers are turning to electronic payment options—credit card, debit card, and ACH transactions initiated over the Internet and telephone—that provide greater control over their time and money.

For organizations, it is not enough to provide a wide range of product offerings—they must also ensure that their customers have options when it comes time to pay the bill. It is time for billers to revisit their consumer payments strategies and examine Consumer Collection Automation (CCA) solutions as a way to balance the cost and complexity of their billing and collections operations with their customers’ needs. A well thought out strategy can benefit both billers and their customers by allowing billers to collect funds more quickly and cheaply, and consumers to choose when and how they pay.

Why Do Billers Care About CCA?

Billers are taking a serious look at CCA solutions based on their potential to satisfy their customers’ desire for simplicity and flexibility throughout the billing and payment process. For some billers, offering a diverse range of payment options is a way to achieve competitive differentiation. Others are being drawn to CCA for the exact opposite reason—to defend against the possibility that their customers might defect to a rival based on the availability or absence of suitable payment options.

Billers are also turning to CCA solutions because they deliver substantial savings. Our research indicates that a biller with 250,000 accounts that processes 150,000 bills each month pays $8.03 to process each bill. Using an automated solution, it can reduce this by 57 percent to $3.43. Faced with cost savings of almost five dollars per bill, billers are finding that they cannot ignore electronic payments any longer.

Payment Without Presentment (PWP)

Many market observers predicted that Electronic Bill Presentment and Payment (EBPP) would grow exponentially. In theory, EBPP enjoys an advantage over PWP due to the marketing and cross-sell opportunities inherent in presented bills. However, customized bills that provide line item details cost several times more than simpler, electronic payment options that do not involve the bill at all. EBPP also overestimated consumers’ willingness to relinquish their payment responsibilities to their banks or billers. Only recently, as banks have rolled out free bill payment services, has consumer adoption of EBPP increased.   

These factors, coupled with the relatively high cost and complexity of EBPP, fostered the growth of PWP as a way for billers to satisfy their customers’ payment preferences. Today, PWP accounts for the lion’s share of electronic remittance payments. As consumers have sought greater convenience and control over their bill payments, they have migrated toward electronic methods and channels. Once they have tested the electronic payment waters with non-enrolled payments, most enroll in biller-side electronic payment programs. A smaller percentage—roughly eight percent of consumers—has adopted a full presentment and distribution relationship with their bank.

Our research shows that consumers are less likely to use full service electronic presentment. However, both EBPP and PWP remittances continue to grow, which will lead to fewer consumers paying through traditional paper channels and methods. Increased Internet usage, growing comfort with electronic payments, and ever increasing consumer demand for convenience and control will drive this overall growth. Over the next five years, we believe that EBPP and PWP will both experience strong growth and together will drive electronic payments as a percentage of total C2B remittance payments upward at a strong compound annual rate.

PayStream's Corporate Insights Report titled, “Payment without Presentment—Six Solutions to Super-charge your Consumer Collections Strategy,” is available for download from our website at https://paystreamadvisors.com/store/details.cfm?id=45.  This report profiles six of the leading thin-presentment electronic billing solution providers including BankOne, BillMatrix (Fiserv), Electronic Data Systems (EDS), Fort Knox National Company, NCO Group and Princeton eCom. 

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