Despite Slow Start, Paying Bills Online Is Starting to Click

Snail mail may inch along more slowly than email does, but it's been winning the race so far when it comes to consumers' means for paying their bills.

Online billing services are taking steps to make themselves more attractive, though -- the recent merger deal between Paytrust and PayMyBills was the latest move -- and analysts are confident the industry will emerge as a strong alternative to traditional methods of bill payment.

Companies like Paytrust, CheckFree(CKFR Quote) and CyberBills allow customers to have their bills sent directly to their online paying services, which then provide a variety of features, including scheduled payments, email notifications and sometimes checkbook balancing.

With a customer base of about four million so far, these services haven't immediately caught fire. But neither did banking concepts such as ATMs initially, points out Gomez Advisors senior analyst Paul Jamieson -- and check out how ubiquitous ATMs are now.

"You can kind of use that as an example of the slow rite of consumer adoption when this kind of technology is employed," Jamieson said. "Consumers are wary and have a lot of inertia when it comes to changing their behavior, particularly when it comes to finances. When they learn about it, when they've tested it, they will find it to be a benefit." (For a look at the options for online bill-paying services, check out this recent article).

So how's online billing going to catch on?

Large commercial banks aim to generate the exposure that these services need. Spurred by their own needs to save money by offering more cost-effective online banking, banks such as Bank of America(BAC Quote), Bank One(ONE Quote), Wells Fargo(WFC Quote) and Citibank, which is owned by Citigroup(C Quote), are encouraging their customers to manage their finances on the Internet, Jamieson said. And the bill-paying companies provide their services as part of traditional banks' online packages.

For example, Jamieson said, Bank of America agreed two months ago to earmark $45 million to promote CheckFree's bill-payment feature to 30 million households with which the bank does business. Paytrust works with American Express(AXP Quote), General Electric's(GE Quote) GE Financial Network, NextCard(NXCD Quote) and Ameritrade's(AMTD Quote) OnMoney.

Meanwhile, online billing services are racing each other to attract initial customers. Paytrust receives bills by mail, scans them into computers and pays them electronically. CheckFree both receives and pays bills electronically -- a more efficient method, but one that requires participating companies' willingness to send their bills electronically.

Ultimately, says Jupiter Communications senior analyst Jim Van Dyke, all online billing will be completely electronic like CheckFree's. But many companies currently won't agree to send their bills to the services electronically, because most of their customers still want them sent home -- which means that CheckFree can't receive bills from those companies.

In the meantime, Paytrust, whose scanning allows any company to send bills by mail, could attract a customer base that could eventually help convince companies to send their bills with the cheaper, electronic method, Van Dyke said.

CheckFree said about 3.5 million consumers use its service to pay their bills. The customers receive some bills by snail mail and pay them electronically, and have willing companies send bills electronically to CheckFree for payment. Van Dyke estimated that Paytrust, PayMyBills and CyberBills combined have fewer than 100,000 customers. Paytrust and CyberBills would not provide their own numbers.

Van Dyke said commercial banks might also use both CheckFree and Paytrust in a complimentary manner by providing Paytrust for companies that want to send their bills through the mail, and CheckFree for those that are willing to send them electronically.

"I think there is significant consumer demand," Van Dyke said. "It's just a question of which model will allow for a complete package that consumers can use."