Demand Increasing for Online, Electronic Payment Methods

Consumers continue to show a growing interest in using the Internet as a bill payment medium, according to a Yankee Group survey that found 5.1 percent of consumers are paying bills online.

The Yankee Group’s Technologically Advanced Family Survey, which measures consumers’ experiences and interaction with more than 100 products and services, has seen a steady growth pattern among electronic bill presentment and payment (EBPP) services.

The survey found that the relatively low adoption rates of such services have been due in part to poor marketing in the past by billers such as communications service providers, ISPs and banks. Since then, many have refocused their efforts to drive consumer adoption, and the results are showing. Nearly 30 percent of consumers showing interest in using EBPP stated that the convenience of eliminating check writing was the primary benefit, and 14.9 percent stated time-savings as their primary benefit.

“Consumers are now much more aware of EBPP than ever before, thanks to a big marketing push by service providers, banks, credit cards and even online brokerages,” said Paul Hughes, director of the Billing & Payment Application Strategies research and consulting practice at the Yankee Group. “Ultimately, the provider that can offer simple log-in and password access, and provide the consumer with the largest bill access point, will own them in the long term. Currently, our data shows that consumers look to their banks as the ultimate bill consolidator, but it is still early enough in the game for any of the above mentioned service providers to capture and own these high-level customers.”

A survey of consumer payment preferences by the American Bankers Association and Dove Consulting found that electronic payments, online and offline, will soon overtake cash and checks as the preferred method of payment.

The study found that one out of every two in-store purchases are made with electronic payment instruments, such as debit cards, credit cards, prepaid cards and direct payment. In addition, 51 percent of consumers are now paying bills online or through direct-payment methods.

Despite the growing market for payment options beyond traditional checks, trying to predict widespread adoption of electronic payment methods has proven difficult.

“Entrenched consumer habits, pricing mechanisms, trial experiences and service features will continue to fuel a complex adoption cycle for payment options,” said Beth Costa, a director at Dove Consulting.

The Dove survey examined how consumers make payments for a variety of purchases. At physical points of purchase, cash is the most frequently used payment method, accounting for 33 percent of respondents’ self-reported transactions. Combined debit (PIN and signature) accounts for 26 percent of the transactions. Although the majority of Internet purchases are made with credit cards, nearly half have used checks/money orders to pay for Internet purchases. Peer-to-peer methods were used by one-quarter of shoppers.

For bill payment, two-thirds of consumers now pay at least one bill using an electronic payment vehicle — whether credit card, debit card, direct payment or online banking. The most significant gains in bill payment occurred for debit options. The survey found that consumers are now nearly as comfortable using debit to pay bills as they are using credit cards and checks.

Online bill payment will see significant growth as one-third of respondents expect to begin using or increase usage of this option by 2003. In contrast, use of paper-based payments is expected to decrease. Nearly 21 percent of the respondents to the Dove survey report that they expect to reduce their use of checks for paying bills over the next two years.

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