An inflection point in US bill paymentsMay 1, 2020 | By Joe Proto
The coronavirus pandemic looks set to be an inflection point for the global payments industry. Just as the 9/11 terrorist attacks catalysed the US’s migration from paper to digital cheque processing, the coronavirus pandemic is already accelerating the transition from cash to contactless, and from in-branch to mobile banking. In the bill payment space, it’s likely to fuel the growth of real-time request to pay-based solutions.
New request to pay-based solutions offer consumers greater control and flexibility over their finances and bill management, while enabling billers to improve their user experience and drive billing efficiencies. Financial institutions can serve both consumers and businesses more effectively, and innovate on top of billing and payment technologies to grow digital adoption and increase their revenues — while promoting better financial wellness for everyone.
Now is the time for our industry to come together and create a sustainable transformation beyond this crisis.
The current state of US bill payments
In the US, bill presentment remains largely a paper-based process: 4.2 million billers in the US issue over 15 billion bills every year with the majority still in paper form. Even in cases where e-billing is available, people still ‘double dip’ with less than 20 percent of households using digital-only billing. Beyond costs and inefficiencies, the sheer volume of paper amounts to considerable and unnecessary environmental impact.
When it comes to paying bills, the experience is marked by friction and fragmentation. The US industry adopts new payment technologies but never retires old methods. With the vast amount of payment channels available, Americans end up managing their bills and making payments through a multitude of different means.
A popular option is visiting biller websites to pay a bill — what is called a biller-direct model — but this doesn’t provide access to every bill a household has, and requires remembering many login credentials or downloading multiple biller apps.
Many banks offer online banking bill pay services so customers can pay all their billers in one place, but this method requires manually searching and adding billers, and entering customer account information, which is prone to error. This also lacks the ability to view their bill so they must rely on a paper copy, and there is no confirmation the payment has been received.
Alternatively, consumers can allow their billers to ‘pull’ payments from their accounts via direct debit, but it doesn’t provide them with much control or flexibility. This makes it an unpopular option for the financially disadvantaged, who risk overdrafts or falling into arrears.
Finally, there’s still a significant proportion of US consumers (and even more small businesses) that continue to pay their bills either in-branch at their bank or credit union or through mailing a paper cheque — a time consuming, complicated and costly process that offers little certainty that a payment made will be reconciled with their customer billing account. This also applies to payments made by cash, which underbanked and digitally excluded populations rely on.
Billers meanwhile have to deal with reconciling all of these different types of payments, and all at different times, which makes it challenging to manage their cash flow and get timely access to vital working capital. Unless they’re paid via a biller-direct platform, payments can be difficult to match with customer accounts, which leads to manual reconciliation processes, added posting time, cost and inefficient use of resources.
Despite these challenges and even with the growth of digital bill payment technology, there’s been little change to bill presentment and payment methods in the US. But now, with traditional paper-based processing methods limited by office closures, and the potential health concerns of contact with cash, consumer preferences are trending toward electronic processes.
We've now come to an inflection point in US bill payments, where compounding factors look to accelerate the adoption of request to pay-based solutions — in some cases, leapfrogging digital bill payment and presentment solutions.
Unlocking value with request to pay and the 'real-time' factor
In November 2017, The Clearing House, a private firm owned by 23 of the largest US banks, launched an instant payment service called the RTP® network in partnership with Vocalink, a Mastercard company.
“The impetus for developing the RTP network for the US was about improving and driving the electronification of payments for banks and their customers, which include billers and their customers,” says Peter Davey, head of innovation at The Clearing House. “Financial institutions, third parties and their customers can leverage those tools to create better experiences in a 21st Century digital world.”
The RTP network supports ISO 20022 message standards to enable a range of payment and non-payment transactions, including ‘request to pay’ (or ‘request for payment’) and ‘request for information’. Both these messages are used by Mastercard Bill Pay Exchange, which connects billers (and billing service providers) to their customers via their respective financial institutions to enable electronic bill presentment and payment within the customer’s financial service provider’s app.
In 2019, Mastercard acquired Transactis, an electronic billing presentment and payment provider offering biller-direct capabilities to merchants. Transactis has since strengthened and extended its biller direct capabilities to financial institutions to help power Mastercard Bill Pay Exchange. In late 2018, we announced we were rolling out Mastercard Bill Pay Exchange to US banks, credit unions and processors , bringing an enhanced, real-time bill pay experience for consumers, billers and financial institutions.
The real-time factor of these rails is crucial for those people that pay their bills in cash. With the RTP network, a bill payer can have their payroll deposited directly into their bank account and have immediate access to their funds and direct immediate payments for bills. “There's an immense amount of opportunity to migrate away from cash as we start to enable these more real-time environments,” says Davey.
Real-time confirmation of payment can also function as a proxy for trust, giving payers surety that the payment has been made. This instant gratification is no more than people expect in in today’s on-demand world.
For billers, the ability to receive payment in real-time is a significant benefit. To meet expectations in a biller-direct model, for example, billers tend to credit customer’s accounts as of the moment the transaction was made — but the payment might still take 3–5 working days to settle. If payment is made via RTP, they have instant access to those funds. It’s particularly beneficial for smaller billers that have less working capital, as it can help to improve their cash flow and overall business health.
Finally, the ‘richness’ of the payment message — having all bill and customer account information embedded — enables straight-through-processing resulting in time, cost and resource efficiencies. Indicatively, since the US industry migrated from paper to digital cheque processing, it has saved businesses more than $3 billion a year.
Giving people security, convenience, and control
Fran Duggan is CEO of Payrailz, a digital payments company that provides a smarter, more advanced digital bill payment and money transfer solutions to banks and credit unions. Payrailz is one of several partners that is helping to roll-out Mastercard Bill Pay Exchange to banks and credit unions in the US. “I’d say the number one stress in the average person's life is managing their personal financial situation,” says Duggan. Digitising bill payment and presentment using request for payment messages can help relieve some of that stress by allowing people to view, manage and respond to payment requests in one place.
Request to pay-based solutions, like Mastercard Bill Pay Exchange, allow payers to view, manage and pay bills within their financial service provider’s app.
- This offers convenience — people can access a complete collection of their bills without the hassle of having to set up different accounts, remember multiple login credentials or keep track of when payments are due each month, and they can make a payment using a saved card or directly from their bank or credit union account.
- This offers security — only validated billers are able to submit payment requests so there’s reduced risk of fraud, and the service automatically converts the request (with the biller’s payment information embedded) into a credit transfer so it can’t accidentally be misdirected.
- And this affords greater control and flexibility — for each payment request, payers can choose to pay now, pay later, pay in instalments, or decline the request. They can communicate directly with their biller to request more information or seek an extension, which helps them more effectively manage their arrears.
The impact of a seismic event like the coronavirus pandemic makes these benefits all the more compelling. As the outbreak wreaked havoc on global economic and job markets and forced people into unemployment, people flocked to suspend their direct debits over concerns they wouldn’t have sufficient funds in their accounts. And as cities ‘locked down’, and people were instructed to shelter in place, those who previously paid their bills in cash suddenly found themselves unable to visit branches and stores. Amid the uncertainty, criminals are looking to take advantage of people’s anxieties by increasing their fraudulent activity via phishing emails and unauthorised push payment scams.
As a result of the coronavirus pandemic, “we’ve seen an uptick in new people paying their bills through their bank or credit union’s app,” says Duggan. Whether reluctant or unwilling to enter the digital world until now, people are now turning to digital access to better manage their finances. “These consumers are also seeing the benefits of the service,” he adds.
The opportunity for financial institutions
Transforming the bill payment experience with request to pay-based solutions can help financial institutions secure their position at the centre of their customers’ digital payment experience. “It’s a new relationship-building opportunity for banks and credit unions with their customers or members,” says Duggan. And there’s an added urgency to this opportunity: “Our banking partners need to solve this problem of connecting with customers and members before they’re side-lined by alternative providers.”
Of course, it’s not just the personal bill payment experience that needs to evolve. Business bill payments have long been a source of frustration, where paper-based processes continue to dominate. A remarkable proportion of business bill payments are still arranged via paper and even fax. The subsequent delays, and greater risk of error (including high incidences of CEO and business email compromise fraud), can amount to a lack of trust between suppliers and their customers.
“Business-to-business payments have long been a pain point for our clients due to inefficiencies associated with manually researching and applying payments,” says Chris Ward, executive vice president and head of product and operations at PNC Treasury Management. These pain points are amplified in the current climate: businesses can’t get bills paid if their accounts payables team is at home, because the only way to cut a paper cheque is being in the office.
PNC was one of the first adopters of the RTP network when it launched in November 2017. Earlier this year, PNC collaborated with Transactis to offer request for payment capabilities as part of its bill distribution and payment platform, PayerExpress. This capability generates automated requests for payment, allowing payers the opportunity to pay with certainty and billers to reconcile payments in real-time. “This automated request for payment capability,” continued Chris, “brings greater speed, transparency and traceability to our business customers’ accounts receivables process.”
The richness of the request to pay message allows businesses to automate matching initial work orders or contracts, screening counterparties, processing invoices and making a payment through the network. Pulling this information into back office and enterprise resource management systems helps them to realise massive operational efficiencies.
Financial institutions have a unique opportunity to play a central role to support biller and consumer needs by investing in digital systems that support a holistic billing and payment experience. The seamless integration of new capabilities within existing platforms is key to providing a cohesive experience for financial institutions’ business customers and consumers to better leverage real-time payment capabilities.
For Payrailz’ customers, there’s no time like the present to start building a digital relationship. “We’ve been working with a credit union to implement our solution some time in 2021,” says Duggan. “The client called me two weeks ago and said ‘We can’t wait — we need to modernise now; can you implement this year?
The need for industry collaboration
Transforming the bill payment experience requires collaboration between many parties. The Clearing House enables the real-time payment and rich messaging functionality, third party technology providers like Payrailz provide the essential bill presentment and payment capability, and financial institutions like PNC are making these solutions available to their billing and bill paying customers.
According to The Clearing House’s Davey: “Ultimately, our role as an operator is to help people understand the art of possible leveraging these messages to create new experiences. We’re working with the industry to help people understand the impetus for change, and promoting the use and adoption of these tools among financial institutions, third-parties, billers and vendors to help enable these solutions for customers.”
PNC’s Ward echoes the sentiment: “We’ve got good building blocks. Putting it into production and growing scale should be our priority.”
The request to pay financial message and the solutions it enables offer a value proposition that Transactis and Mastercard have been evangelising for years. With collaboration between billing ecosystem participants, the coronavirus pandemic is just the catalyst to exponentially change our industry.
 Aite research, Jan 2017 – How Americans Pay Their Bills