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Bank-Based Bill Pay is Broken and Putting Direct Deposits at Risk

Bank-Based Bill Pay is Broken and Putting Direct Deposits at Risk

This interview was originally published on on August 5, 2021.

The bill pay technology that most banks offer their customers is broken. Consumers know it and that's why they've been fleeing it en masse for over a decade. 

"We've gone from a majority of Americans managing their bills through bank bill pay to only about 40 percent by 2020. And today, we're seeing 20 or 25 percent at best," BillGO CEO Dan Holt told Karen Webster in a recent conversation, noting that instead, about three-quarters of American pay their bills online bills directly to their billers. 

And what's remarkable, he said, is that this isn't the outcome consumers want. When surveyed, three-quarters of them reported they would like to have a single platform from which they can pay all their bills at once. That request shouldn't be that difficult to accommodate, since about 300 billers account for roughly 70 percent of all consumers' bills. And while a lot of different companies have created payment networks, billing has lacked "a network-of-networks effect," in which a single platform would unite fragmented billers, noted Holt.

Banks had the opportunity to consolidate billing to help consumers manage and pay their bills, but the legacy technology used by most banks wasn't sufficient to meet that need. Unlike the easy, straightforward payment experience that has appeared everywhere else in a consumer's transactional life, banking bill pay hasn't really evolved past it's original purpose of providing an option for consumers to pay online instead of having to write and post a check. 

As Holt noted, when it comes to pay and managing their bills, consumers are looking for more than what banks can provide in legacy bill pay platform - meaning banks must rip out the old in favor of building the new, or prepare to permanently forfeit the bill pay market to the FinTechs that are moving more aggressively. 


Predictability, Choice And Service: The Things Banks Are Missing

Banks may have lost a large percentage of bill pay consumers a decade ago, but they still have a big advantage when it comes to creating and keeping the bill pay relationship with consumers. That's because most consumers still have their paychecks deposited at banks, and getting paid and paying bills tend to go together. But, as Holt told Webster, it is not an advantage that most banks are leveraging. There have been almost no moves in mainstream banking to make the bill pay experience cleaner, faster, more digital or more advantageous for consumers. 

First and foremost, said Holt, the bank experience is too slow and too mysterious. Today's consumers want speed. Most of the time, when a consumer hits "send" to pay a bill through their bank, there is a bit of an unknown. The consumer doesn't know if the bank made an electronic payment, or just printed a check and mailed it (as they do about 25 percent of the time). Did they send it to the right account so the funds will be recorded quickly, or will it need to bounce around for a few days before it's processed? These are among the questions that bank-based bill pay leaves unresolved, which is a turnoff to consumers who are used to simply hitting "Buy" on Amazon and knowing the transaction is complete. 

Second, said Holt, consumers want choice. Banks need to expand choices to consumers in how they pay. As of now, the only choice they get is which of their checking accounts or saving accounts they want to use. As BillGO's own research confirms, consumers like optionality when they pay — they want to be able to choose whether to use a bank account, credit card or mobile wallet. Limiting consumers to only savings or checking accounts, said Holt, isn't persuading them to stick with that bank — it's persuading them to figure out another way to pay their bills three-quarters of the time. 

Finally, he said, banks need to deploy data intelligence when they think about using bill pay to connect to their consumers. "Intelligence lies in knowing the trend of a consumer's bills, seeing them going up and being able to tell them. Or telling the customer they are going to be late on this bill if they don't pay it today, and helping them get in front of it," he explained. 

Building new bill pay systems isn't going to be easy for banks, Holt said — when they go back to their current systems, they will likely need to rip them out at the roots and start over. That will be a massive undertaking that only one to three massive U.S. banks have the resources to take on alone, he said. The rest will need to form relationships with partners and providers to get there. 

But get there they must, he said, because FinTechs are coming for their business — and they aren't ignoring bill pay. 


The Encroaching FinTech Competition

It's easy to count out FinTechs, as banks seem safe and secure with bill pay since they own the direct deposit relationship. But while banks are sitting still, FinTechs are exploring new bill pay opportunities — and using them to lure customers and their direct deposits away from banks. 

"Pay attention to these FinTechs," said Holt. "They're on top of it. They make their money through the payments. They need bill pay — and they know it and they're working on it. And they're doing it in a unique manner. At the end of the day, it's the major FinTechs that truly act like and smell like a bank. And I think that's where you're going to see bill pay really get pushed; they're going to take decent market share on that."

As Holt explained, FinTechs are hungry and are pursuing the cutting edge, meaning it is conceivable that mainstream banks could get passed on the road entirely.


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