Paying Your Bills Electronically

By Radecki, Lawrence J.; Wenninger, John | Consumers' Research Magazine, April 1999 | Go to article overview

Paying Your Bills Electronically


Radecki, Lawrence J., Wenninger, John, Consumers' Research Magazine


Electronic billing and payment systems are about to change the way many households pay their monthly bills. These systems are likely to increase consumer convenience and reduce billers' costs. Several factors, however, could slow down the widespread use of electronic billing and payment, including customer resistance to change, unequal access to technology, and consumer privacy concerns.

While consumers often use credit or debit cards to make retail purchases electronically, most recurring obligations, such as utility bills and installment loans, are paid from home with personal checks. This practice, however, may soon begin to change. Several electronic bill presentment and payment systems--"e-billing" systems--are under development or at an early stage of implementation. These systems automate both the delivery and the payment sides of the billing cycle: bills and account statements are delivered to customers over the Internet; customers then use their personal computers to review the bills and initiate payments. Developers of e-billing claim that by eliminating paper records and speeding up the billing process, these systems will produce cost savings for billers as well as added convenience for consumers.

What Is E-Billing, and Why Is It Being Developed? E-billing systems shift the recurring bill presentment and payment process from a paper-based format to an electronic format. Utility companies, merchants, and financial institutions can use these systems to transmit bills and account statements to their household and small business customers, and to receive the returning payments and remittance information. The entire exchange takes place over the Internet. The payments themselves typically take the form of debits to a customer's checking account and are processed through the Automated Clearing House (ACH), a nationwide electronic network for transferring small-value payments among banks. Payments can also take the form of postings to a credit card account.

To participate in these systems, a firm engages a system operator to present bills to its customers. The operator may post bills on its own interactive Web site or on a Web site belonging to the biller, the customer's bank, some other provider of financial services, or an Internet portal. From a household's perspective, the most convenient location for receiving and paying bills is the Web site of the bank where it holds its checking account. First, a household will be able to view many, or even most, of its recurring bills at one Internet location. Second, it will be able to monitor its deposit account balance while reviewing and paying bills. From a biller's perspective, however, its own Web site may be preferable because of the opportunity to sell additional products and to cultivate customer loyalty.

To receive and pay bills electronically, a customer must make arrangements in advance with his or her bank, the biller's bank, or the system operator. The customer specifies which deposit account or credit card account should be drawn on to complete transactions. After making these arrangements, the customer can review billing statements on a computer screen and, if the posted charges are correct, the customer can "click" on a special icon to initiate an electronic payment for immediate processing or to schedule payment for a later date.

Once the transaction is initiated, the system operator routes the payment. Funds can be moved between banks by using the ACH network, a credit card network, or an alternative method for settling retail payments. The system operator closes the bill payment loop by sending remittance information to the biller in an electronic form for automated account reconciliation. This technology has the potential to deliver bills and secure payment more rapidly and at lower cost than paper-based systems relying on the mail.

Comparisons with Current Electronic Payment Formats. E-billing is being promoted as a major improvement over current procedures for the electronic payment of bills. …

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