The Bill Payment Landscape – 2020 Updates and Future Trends Abstract Each year, consumers in the United States pay trillions of dollars’ worth of bills, ranging from housing and car loans to utilities, credit cards and insurance. In 2020, the need to stay socially distant, along with the increasing number of tech-savvy consumers, has amplified the importance of quick, frictionless electronic bill payment options. While most consumers have a specific plan for paying their monthly bills, almost half say they get anxious and worry about being able to pay them on time. To help reduce some of these concerns, the payment industry has been hard at work for years to create faster and easier ways to make a payment, and these methods are being adopted by Americans, both young and old. Keeping an eye on these ever-changing bill payment options and how consumers use them is increasingly important for billing organizations as they navigate these uncertain times. New NACHA Rules go into effect in 2021 which will require action by billers that accept ACH bill payments via WEB authorization channels to explicitly include “account validation” as part of the rule definition of a “commercially reasonable fraudulent transaction detection system” and a new requirement to protect deposit account information by rendering it unreadable when it is stored electronically January 2021 The Bill Payment Landscape – 2020 Updates and Future Trends A Clearwater Payments White Paper - January 2021 The Evolution of Payments Where once paying a bill was synonymous with writing a check or standing in line to pay in person, today’s consumers can simply pull up a website or whip out their smartphones. They have more options, more payment channels and more accepted payment methods than ever before. Today, consumers can choose whether they want to receive account information and reminders by text, email or paper statements. They can pay by credit card, debit card, bank bill pay or check. They can choose one-time or recurring payments. They can pay their bills directly through biller websites, or they can set up a biller in their bank bill pay system. They can simply mail in a payment, or they can call and take care of it over the phone. In many cases, they can choose to make mobile payments through their smartphones, and get actionable alerts that help them pay immediately using credit card or bank information stored inside their phones. Consumers made roughly 10 billion one-time bill payments in the last year. Of those, about 58 percent – or 5.8 billion bills – were paid online. Comparatively, just 2.3 billion were paid by mail, 1.2 billion were paid in person, and 736 million were paid over the phone.1 Does the rise in adoption of online payment mean that the consumer experience is now, finally, frictionless? If you ask a consumer, the answer is likely, “no.” A typical consumer has multiple bills to pay through separate interfaces every month. This means they have to set up and keep track of multiple accounts, all with different account numbers and login credentials. They have to either take extra steps to set up a recurring automatic payment schedule, or remember to log in or mail a check when it’s time to pay. They still need to figure out how much they’ll owe and when it’s due, choose a payment option and make sure funds are in place, and estimate how much delay time is needed to process the payment and still meet the deadline. All the while, many consumers have at the back of their minds some worry about the security of the bank account or credit card numbers they have to provide. Also underlying consumers’ ability to pay their bills on time is an undercurrent of anxiety related to the many health, social and economic challenges faced in 2020. In a recent Aite survey of American consumers, 68 percent said they feel confident that they can pay their bills each month. Yet, just under half of those surveyed (46 percent) noted that they sometimes, rarely or always need a credit card or a loan to pay an unexpected bill. More than half of Americans (53 percent) said that they feel at least somewhat anxious about their outstanding bills, while 48 percent are genuinely worried about whether they can meet their financial obligations.2 The consumer mindset surrounding bill payment, and consumer preferences for interacting with product and service providers, has shaped the payment landscape over the last decade, and will 1 Aite, How Americans Pay Their Bills: Sizing Bill Pay Channels and Methods, 2020 Update 2 Aite, How Americans Pay Their Bills: Sizing Bill Pay Channels and Methods, 2020 Update 2 Copyright 2021 Clearwater Payments The Bill Payment Landscape – 2020 Updates and Future Trends A Clearwater Payments White Paper - January 2021 continue to drive innovation in the future. For different reasons, both billers and consumers are moving toward a more frictionless payment experience, and understanding what consumers want and need can help billers and payment processors make the bill payment process more efficient and frictionless for everyone. Top Trends in Bill Payment Bill payment trends are largely influenced by consumer sentiment. By customizing bill payment options to suit consumer preferences, billers hope to achieve more timely payment and lower their own cost and risk. To increase the chances of receiving their slice of their customers’ monetary pie in a timely fashion, billers and financial entities have spent much of the past decade innovating new ways to engage with consumers and meet them where they are with ever more convenient payment options. Biller-Direct Payments Biller-direct payment, through secure customer accounts on biller websites, is today’s most popular option for consumer bill payment. At this time, 76 percent of all online bill payments in the United States are made through biller-direct sites. That’s 3 percent more payments than just four years ago, and 14 percent more than in 2010. At the same time, consumer use of online bank bill pay has declined by 16 percent over the last decade.3 Bill Payments by Channel 736 102 1153 4340 1358 2270 Biller's Website Mail Bank's Website In Person Phone Third Party Website Aite, How Americans Pay Their Bills: Sizing Bill Pay Channels and Methods, 2020 Update 3 Aite, How Americans Pay Their Bills: Sizing Bill Pay Channels and Methods, 2020 Update 3 Copyright 2021 Clearwater Payments The Bill Payment Landscape – 2020 Updates and Future Trends A Clearwater Payments White Paper - January 2021 While the online direct-to-biller payment channel is in many ways convenient – and clearly very popular with consumers – it’s still far from frictionless. Requiring customers to click and scroll through multiple pages on a biller’s website, and not offering a quick, one-time pay option on the home page, can cause unnecessary frustration and a poor user experience. This can also lead to additional costs for the biller in the form of increased collection activities and higher call volumes in its call center. While using a multitude of different websites to pay different bills can create some extra effort for the consumer, billers that employ tools that securely remember user ID, passwords, and pay accounts can make things much easier. Mobile Payment and eWallets Many billers also offer their customers mobile payment technologies, designed to allow consumers to make payments on the go. Accustomed to continuously increasing capabilities and speeds, consumers expect their mobile bill payment experiences to be instant, accurate, frictionless and actionable. Mobile technology is ideally positioned to fulfill all of these needs, giving consumers real-time account information, an intuitive interface, and the ability to take immediate action to pay a bill, anywhere. Like a biller website interface, eWallets require the user to “opt in” and to set up an account and account preferences. However, once they do, users can receive actionable push notifications and alerts reminding them of their payment due dates. Making a payment is as simple as clicking “pay now” to access the wallet app that already lives in their phones and make a payment on the spot. By 2023, 88 percent of the population of North America – 329 million people – will be mobile device users. That’s an increase from 86 percent, or 313 million people, in 2018. Phones are continuously growing faster and better suited to support all types of transactions, too. By 2023, the average mobile connection speed will reach 58.4 Mbps – nearly three times faster than it was in 2018 (21.6 Mbps).4 With identity fraud continuously increasing, and cybercriminals becoming ever more aggressive, use of digital wallets for contactless “invisible payments” is now recommended by security experts to manage in-store and online payments. The technology – used in tools such as Apple Pay, Google Pay or Samsung Pay – encrypts and tokenizes data, rendering it useless to thieves.5 However, while consumer adoption of near-field communications or contactless payments is growing, it’s still being used by only 30.6 percent of consumers in 2020 – up from 27.3 percent in 2018.6 4 Cisco Annual Internet Report (2018–2023) White Paper, https://www.cisco.com/c/en/us/solutions/collateral/executive-perspectives/annual- internet-report/white-paper-c11-741490.html 5 2020 Javelin Strategy & Research, Identity Fraud Study. https://www.javelinstrategy.com/coverage-area/2020-identity-fraud-study-genesis- identity-fraud-crisis 6 Statista, March 2020, https://www.statista.com/statistics/244498/share-of-us-smartphone-users-accessing-proximity-mobile-payments/