The Tech Scene: N.Y. Fed Slams EBPP and Gets Slammed Back
American Banker Wednesday, September 4, 2002
By Steve Bills
When financial services companies start pushing hard on a new technology application, there is inevitably some measure of debate over how successful their efforts are.
But there was practically no debate last week after an economist from the Federal Reserve Bank of New York issued a report slamming banks' promotion of electronic bill payment and presentment. His work was promptly pounced on by EBPP aficionados, who called it everything from a year out-of-date to "bizarre and poorly researched."
Was this a case of an Ivory Tower theorist clashing with the folks in the trenches, or did the economist's evidence simply take a jarring look at the glass-half-full aspect of EBPP?
The economist, Chris Stefanadis, wrote that less than 1% of U.S. bills - consumer-to-business and business-to-business - were both presented and paid through the Internet in 2001. Presentment has especially lagged, but payment has done a bit better: 8.7% of consumers paying at least one bill online in 2001, said the report, which was posted on the New York Fed's Web site last week.
Meanwhile, in a curious disconnect, financial services companies are boasting of high EBPP adoption rates among their customers.
Wachovia Corp. is paying more attention to internal technology issues related to the First Union/Wachovia merger rather than to EBPP right now. Nonetheless it is signing up 20,000 bill-payment customers a month, compared with around 7,000 two years ago, said Lou Anne Alexander, a senior vice president at Wachovia Bank and the director of e-payments.
"To me, that's great," Ms. Alexander said. "We are very happy with our growth and our continuing expansion of bill pay."
At Bank of America Corp., which has more online customers than any other bank, Web bill payment more than doubled in 2001, said a spokeswoman, Betty Riess.
Bank of America, like other banks, has found that customers seem more comfortable authorizing online payments first and viewing bills later, perhaps starting with a biller-direct site, Ms. Riess said. "Then, after a point, the customer might find it more convenient to go to a single site" to view multiple bills, she said. "It's an evolutionary process."
Bank of America, which eliminated monthly fees for EBPP in May, now presents more than 500,000 e-bills a month from more than 200 billers, Ms. Riess said.
American Express Co., which is considered a pioneer in EBPP, began presenting its bills directly to card customers online in 1995. Through the first half of this year, 8.7 million of its 30 million U.S. card customers were enrolled in the service, against 1.6 million in January 2000, said Amex chief information officer Glen Salow.
"We're very happy about our growth," Mr. Salow said in an interview before the New York Fed report came out. "There's still a lot of room to grow," and "the shift is really starting to happen now."
Charter One Bank, part of Charter One Financial Inc., has been offering EBPP for less than two years. It has gotten 30% of its online customers to pay bills over the Internet, helped by aggressive marketing, said Michael Dobbins, the Cleveland bank's senior vice president of direct banking.
"This year we are seeing much better adoption than we did even in our entry year," Mr. Dobbins said.
Charter One, which does not charge for online bill payment, brought in 20,000 customers in 60 days last year with an introductory deal that it called "one for 10." New EBPP customers enrolled themselves as payees and sent themselves a $1 check, which was delivered by mail. When the customer visited a branch to deposit the check, the bank added $10 to the deposit.
"It was a wildly successful program," Mr. Dobbins said.
Mr. Stefanadis, who was not available for an interview, said in his report that "the spread of EBPP has been very slow, falling far short of initial projections" and that "past experience with electronic payment systems suggests that even if the shift to EBPP technology is successful, it will not be accomplished quickly."
This comes despite acknowledged advantages of e-payments, Mr. Stefanadis wrote. Billers benefit from lower customer service costs and potentially from a reduced need to send out paper statements, while improving their ability to market to their customers, even on an individualized basis.
For consumers, benefits include lower bill payment costs, better money management capabilities, convenience, and time savings, Mr. Stefanadis wrote.
Still, his report said, "expectations that EBPP systems would find immediate favor with firms and households were never realized."
Mr. Stefanadis cited a number of impediments. For one thing, a biller will probably spend $450,000 on average to develop an e-billing system and must count on consumers to adopt the service at a rate high enough to justify the expense. Meanwhile, consumers have to invest the time to learn how to use an online payment system - or several - and everybody has to contend with the dual systems of electronic and paper bills and payments. This, Mr. Stefanadis argued, leads to a "chicken and egg" problem.
"The spread of EBPP systems thus depends largely on a coordinated response among billers and customers," he wrote. "It is precisely the lack of such coordination that appears to account for the failure of the new billing and payment technology to take hold."
James Van Dyke, the principal and founder of the technology consulting firm Javelin Research and Strategy in Pleasanton, Calif., said the report's conclusions were hogwash.
"Bill payment is the fastest-growing application online," he said. Calling EBPP "a killer app," Mr. Van Dyke cited consumer surveys from his former employer, Jupiter Media Metrix of New York, that found bill payment to be the No. 4 online activity in 2000, No. 2 in 2001, and No. 1 in the survey completed in May. It has had "not only a high growth rate but an accelerating growth rate over the last three years," he said. He predicted that the New York Fed report would not be taken seriously.
Avivah Litan, who heads the financial services research practice at the Gartner Inc. consulting firm in Stamford, Conn., had a similar view and said she was standing by her previous finding that adoption is zooming, especially among credit card issuers and telephone companies that present their bills directly to consumers online. Gartner had found 60% growth in EBPP last year. |
