The Competition for Online Bill Payment Customers

eMarketer, in a recent report, debated which of the two online bill-payment models - biller-direct or consolidator -- will prevail in the future. On one side are utilities, credit card companies, telecom service providers and other consumer businesses that issue bills regularly. More of them are allowing customers to view and pay those bills from their Web sites. Meanwhile, consolidators, mainly banks, but also Web portals, such as AOL, are offering customers the convenience of paying multiple bills from a single Web site screen. This year, according to Forrester Research, 21 million U.S. households will pay bills online, and the market is growing. Billers are eager to have consumers pay bills from their sites because the customer data they collect leads to cross-sell and up-sell opportunities. Banks as well want this business. Several studies have found that bank customers who use their bank's bill payment service are more profitable.

So who is winning the competition? From 2004 to 2008 the biller-direct model is expected to grow at a 9.3% compounded annual rate while the consolidator model increases at a slower 7.1% pace. An interesting trend is the overlap from households paying bills at more than one type of site. This suggests that consumers are choosing to exploit the best features of each bill-payment option as needed -- such as the capability of timing a last-minute payment at a biller site.

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