By Troy Wolverton
Staff Writer, CNET News.com
May 30, 2002, 4:00 a.m. PT
Internet consumers can get instant messaging, watch on-demand video and trade stocks as the market moves, but most still can't pay their bills in real time.
Wells Fargo, for instance, recommends that customers pay bills online three to six days before they are due and charges $6.95 per month for the service unless a minimum balance of $5,000 is maintained at all times. Bank of America warns customers that most online payments will take two days to be processed and that some will take up to five days.
"The problem you are seeing--and it's a broader problem in financial services, not just limited to banking--is that the true connectivity beneath the hood isn't all that connected," said John Patterson, chief executive of Business Logic, a financial software company. "You've got a high-tech coating over a legacy environment."
Customers may be even more frustrated to learn that the technology to make instantaneous transfers has been available for years. Such payments have long been made over ATM networks and through electronic fund transfers.
But instead of transferring money instantaneously, banks send online payments to large clearinghouses that process transactions in batches. This system is far less expensive for banks than real-time transfers, costing only a few cents per batch.
Industry analysts describe the situation as a classic supply-and-demand stalemate: Consumers are waiting for better bill-payment services before signing up, and banks are waiting for clear market demand before building them.
Some 34.2 million U.S. adults banked online last year, according to a recent Gartner study. Although the percentages vary at each institution, about 30 percent of checking-account customers at large banks such as Wells Fargo are using the Internet to check balances and transfer funds among their accounts.
About 17.6 million customers--roughly half the number of those using basic Internet banking services--paid their bills online last year. In addition to higher fees and concerns over lag times, many consumers resist paying bills online because they still don't trust the Internet to provide sufficient security for those transactions.
"Early predictions of electronic bill presentment and payment as a killer application have faded," Forrester Research said in a recent report. "Firms now believe the industry is years away from a critical mass of billers and consumers."
Until then, customers may find their payments arriving late when they were expecting immediate money transfers online. Clearinghouses typically process a payment on the day after it is made, and it usually takes another 24 hours for a payee to process the payment and credit an account.
And that is often the most optimistic scenario, occurring only if a biller accepts electronic payments in the first place. Many billers still can't process such payments, forcing banks or their online partners to send paper checks.
"It's easy to get one party wired: the end user," said Jim Bruene, editor of the Online Banking Report, an industry newsletter. "To get billers such as the AT&Ts able to receive money electronically was, and is, a huge challenge."
CheckFree is the nation's largest online payment company, providing the technology for the U.S. Postal Service, Yahoo, Bank of America and many other large financial institutions. Despite pushing electronic bill payment since the 1980s, about one-third of bill payments made through CheckFree end up being sent by check.
"We would love to do all of them electronically," said Hans Myklebust, Metavante's vice president of electronic payment and presentment. "It's not a matter of technology. Billers have to be set up to allow consumers to send them transactions. And their volume has to warrant it."
Payment processors such as Metavante and CheckFree also face the law of diminishing returns.
Online banks and payment companies allow customers to pay these bills online, but the billers will actually receive a paper check.
"There are lots of disparate billers," Myklebust said. "We'll never get enough mass for all of those billers to go electronic."