NEW YORK - It's cheap to use and eliminates the hassle of mailing checks, but online bill payment is still struggling for acceptance. Banks are daunted by the setup costs and the challenge of convincing consumers of the value of such systems.
"The spread" of online bill paying "has been very slow, falling far short of initial projections," despite the initial wave of optimism and the clear cost savings and convenience it offers, says a new study from the Federal Reserve Bank of New York.
For some time, moving the expensive and antiquated world of bill payment into the fast and efficient realm of computers has been the banking system's holy grail. Futurists and bank presidents have waxed rhapsodic about a time when consumers both receive and pay bills electronically, replacing the expensive and logistically complicated mailing and processing of bills and checks.
The Federal Reserve system itself processes about 17 billion checks a year, and it has been estimated that the total cost of processing an individual check can range between $1 and $5. A fully electronic payment averages less than $1.
Some progress has clearly been made. A separate study recently released by the Federal Reserve board concluded that of 80 billion annual retail payments, which also include credit card transactions, about 30 billion are now done electronically. But, that's a long way from 100 percent, and significant savings still await tapping.
The New York Fed's report, written by bank economist Chris Stefanadis, found the cost of developing an online bill payment for a bank averaged around $400,000, and even with an electronic system in place, it must still run for the foreseeable future side-by-side with traditional paper processing.
A bank's decision to make the plunge is further complicated by uncertainty over whether it can persuade customers to use the online payments to the point where it's cost-effective.
"Billers will be reluctant to adopt [electronic payment systems] unless they are confident that they can sharply reduce their paper-based systems. ... Customers are in a similar bind, seeking some assurance that they will not need to use two different forms of bill presentment and payment," the paper said.
The challenge on both the bank and customer fronts goes well beyond the simple issue of cost and presents a "chicken or the egg" dilemma.
Some banks address the problem by letting electronic payers pay those with no electronic access by cutting paper checks authorized by online orders.
But even with the various ways banks are trying to lure their customers online, Stefanadis concludes the rise of electronic bill payment "will not be accomplished quickly."