U.S. Financial Institutions Will Spend Over $1 Billion on Online Bill Payment by 2010

Online bill payment has grown to become an integral part of financial services institutions’ Internet banking offerings. New research from TowerGroup finds that expediting payments by speeding the posting time of bill payment transactions can create a new revenue stream for financial institutions — via instituting an online bill payment user per transaction fee to guarantee same-day posting.

TowerGroup estimates that nearly 24 million consumers are currently active users of online banking bill payment in the U.S., and that the volume of online bill payments will reach 3.87 billion transactions by 2012. However, the success of online bill pay has also increased delivery and support costs for financial services institutions.

Offering free online bill payment solutions to retail banking customers will cost the financial services industry $1 billion (USD) by 2010, according to TowerGroup estimates. This aggregate amount represents spending on the portion of the service that financial services institutions (FSIs) outsource. While financial institutions traditionally accepted this expense as a cost of doing business, the "soft" revenue associated with online bill pay (enhanced customer retention, cross-sell opportunities, reduced call center activity, and higher profitability of online bill payment users) no longer compensates for the "hard" dollars institutions must spend to facilitate it.

TowerGroup defines an expedited payment as one that posts within 24 hours or same day, with the ultimate solution in real time. TowerGroup predicts that by 2010 payments posted within 24 hours of coming due will generate $40.7 million in revenue for financial services institutions, offsetting approximately 4 percent of that year’s online bill pay costs. A graphic illustrating the forecasted revenue and transactions of U.S. online bill payment expedited payments can be seen and downloaded at: http://www.towergroup.com/research/content/page.jsp?pageId=3462

Although expediting payments can present many challenges for financial institutions, TowerGroup believes that today’s economic climate and credit-score focused consumers will welcome this new solution. By collaborating with online bill payment processors and online bill payment solution providers, expedited payments can become a source of sustainable recurring revenue.

The TowerGroup report titled "Expedited Online Bill Payments: A New Revenue Stream for Financial Institutions," is authored by Jennifer Roth, a research director in the Global Payments practice at TowerGroup. To request a copy of the research or to arrange an interview with Roth, please contact Rachael Adler at +1.917.595.3038 or radler@cooperkatz.com. Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email service-info@towergroup.com.

About TowerGroup
TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit http://www.towergroup.com for more information.