Banks Use Online Bill Payment
In Effort to Lock In Customers

The race to get consumers to pay bills electronically is clicking into high gear.

Bank of America recently did away with its monthly $5.95 fee for online bill payments, and this month, National City Bank is following suit. U.S. Bancorp has stationed "e-experts" in all 2,147 branches to walk customers through online bill payment. And in a just-finished promotion, FleetBoston paid $25 cash to customers who paid bills online for the first time.

It's not just banks. Earlier this summer, phone company Verizon gave customers the option to go completely paperless, viewing and paying their bills only over the Internet. Discover has been running a sweepstakes called "Click, Pay, Win," in which customers paying their credit-card bills online can win a grand prize of $10,000. On top of that, businesses from gyms to student-loan companies are encouraging their customers to have their payments debited automatically from their bank account.

CAST YOUR VOTE What proportion of your bills do you pay online? Participate in the Question of the Day. COMPARING THE BANKS Banks are making an all-out push to get people to pay bills online. They're doing everything from getting rid of fees to allowing consumers to actually see their bills online before they pay them. See a chart.

Why is electronic bill payment becoming a mantra for so many businesses? Some of course hope to save on postage and other administrative costs. But it also reflects how badly companies want to hang onto customers right now. They know that once a customer has gone through all the trouble of setting up electronic bill payment, he or she is less likely to switch loyalties -- 80% less likely in the banking industry, according to Bank of America. "It drives profitability," says John Rosenfeld, e-commerce executive there.

Even those who don't want to bother with online banking are finding ways to dispense with checks and paper bills. Ed Hamilton, a retired scientist from Durango, Colo., set up as many bills as he could, from the electric bill to the local gym, to be automatically paid each month via his credit card. His credit-card bill is then automatically deducted from his bank account. "It's very convenient," he says.

In all, nearly 17 million households will pay bills online this year, up 41% from 2001, according to Forrester Research. Still, that represents only a tenth of U.S. households. And each of the electronic-payment methods being pushed these days has some drawbacks.

Online banking: Despite the many recent deals, most banks still charge $5 to $7 a month for the privilege of paying bills online. Often, customers must initially pull out their paper bills and key in a slew of data like account numbers and addresses into their computer before paying a bill online. "It's a big hassle to set up," says Jeanne Capachin of Meridien Research.

In response to such complaints, some firms are tweaking their online options to make them easier to use. For a fee, some banks will turn all your paper bills into electronic bills. Consumers must arrange for their bills to be sent to a processing facility run by Metavante Corp., a technology subsidiary of financial-services company Marshall & Ilsley Corp. There, the bills are opened and scanned into a computer so they can be viewed and paid by the customer over the Internet.

One problem with this set-up: Items like new credit cards may be sent to the processing facility instead of your home, and there will be a delay before they are forwarded to your real address. Even bankers admit it's not that convenient. "It's still bit a kludgy," says Arlen Gelbard of E*Trade Group, which charges $4.95 per month for the service plus 50 cents per bill.

E*Trade customers can now download bill-payment information into personal-finance software like Quicken and Microsoft Money so they can track their bills in a computerized checkbook. And Wells Fargo just signed a multiyear contract with software firm CheckFree Corp. so that its customers can view bills from more merchants online.

Direct billing: A growing number of companies allow you to pay your bills on the company Web site. Customers enter their bank-account information or credit card online the first time they pay. After that, they just click a "pay" button on the biller's Web site and the money is instantly withdrawn from their bank account. The downside: You have to go to a different Web site to pay each one of your bills.

Citibank credit-card customers can get an e-mail alert when they have reached their credit limit, when their payment is due or when their statement has been posted. Sprint allows local phone customers to see whom they called, dispute charges and download their bills.

Automatic Withdrawal: This is still the most common electronic option by some measures; consumers had about 1.4 billion payments to various companies automatically deducted in the first six months of the year.

The drawback? Customers forfeit control over making the payments. And it's more difficult to dispute a charge if the company already has your money.

Write to Michelle Higgins at michelle.higgins@wsj.com

Updated September 4, 2002