22

In the US, most consumer banks offer online bill paying. It's convenient for me, but what's in it for the bank? Many vendors take payment electronically, but some require a paper check sent via the post office. The bank does not charge either the sender or the receiver for this service. On a small $20 bill, they must be paying a few percent in postage!

Is it cheaper than processing the personal check that I would otherwise write? I might believe that they offer this service to compete with other banks for my business, but they actively encourage me to use it too. So there must be something in it for the bank as well.

(This is thinking from the bank's perspective rather than mine, so apologies if it's off topic.)

9
  • of course its cheaper than processing your personal check (which they need to keep in archives for your account for auditing for 7 years, scan it and present it online, and pay for your next free checking book when you write so many of them)
    – littleadv
    Sep 16 '11 at 6:32
  • might want to wait just a bit longer before choosing accepted answer. This went up at 2am EDT, and approved before most woke up. Sep 16 '11 at 11:46
  • Sorry, seeing more answers come in shows you're right. I wasn't sure that I was going to get anymore and the first seemed reasonable to me. If another one is clearly better I'll change it, otherwise will remember for next time.
    – Mike Kale
    Sep 16 '11 at 14:43
  • Don't most banks charge for this service? That would be an upside.
    – JohnFx
    Sep 16 '11 at 14:57
  • 1
    I am not aware of any bank which charges for this service, and I am aware of several which don't. :)
    – user296
    Sep 18 '11 at 23:18
30

Another reason for banks to push this is stickiness. Once you have all of your bills setup, its more trouble to change banks. This reduces the customer turnover rate, which lowers their costs.

6
  • This is why I use a 3rd party bill payer service. It costs $10/mo, but the UI is great, and I'm not tied to any one bank.
    – RonJohn
    Sep 30 '19 at 19:49
  • @RonJohn But you’re tied to the bill payer service. If you have an account with the service that you deposit cash into, it’s close enough to a bank account that it seems you might as well use an actual bank account and save the $10/month. If you change banks, maintaining one dangling bank account doesn’t sound any more troublesome than maintaining one dangling bill payer service account, right?
    – Lawrence
    Aug 4 at 15:15
  • 1
    @Lawrence it's not "one dangling bill payer service account"; it's all the payees and their regular payments that I'd have to transfer from Bank A to Bank B. Using a 3rd party service means that one only needs to add a new bank account.
    – RonJohn
    Aug 4 at 15:23
  • @Lawrence and this 3rd party service is very stable. (My uncle started using it almost 40 years ago using a modem and Osborne 1; I've been using it for more than 25 years.)
    – RonJohn
    Aug 4 at 15:25
  • @RonJohn Oh, I see now. The bill payment service doesn’t hold cash - it just facilitates payments from your bank accounts to your billers. Thanks for clarifying.
    – Lawrence
    Aug 4 at 15:30
15

Most transactions that the bank performs for you are electronic ACH transactions, so the costs to them are minimal in the long run. Most banks do it now to keep up with the competition. Almost every bank does it now, so they have to do it to attract new business and keep existing customers.

Also, the more you rely on the bank and use them to pay bills, the more they learn about you over time and can use that data in overall marketing plans. It's easier for them to record it into their system if it is all electronic to begin with.

2
  • +1 for marketing plans. If you think that your bank does not use that data based on what you buy with your debit card and what bills you pay you are nieve. Your bank may not be able to give out your actual puchace and payment data but they can aggrate it and put your name into marketing pools it then resells to marketing companies. And you give them permission when you sign the agreement that they can share your name and information with their business partners to provide you with better service.
    – user4127
    Sep 16 '11 at 15:57
  • And +1 for the fact that online bill payment is a service that people use to choose between banks.
    – Xalorous
    Sep 30 '16 at 14:28
5

The paper check method also allows the bank to use your money while the check is in the mail.

My bank debits my account immediately, so while my $100 utility bill is traveling the U.S. Postal System for two days, they can make use of my $100 in whatever slush fund they like.

2
  • 1
    They're already using my money while it sits in savings/checking, but there's always a risk I'll withdraw it all in the next 15 minutes. With bill pay, they know that it's theirs for the next 24 hours at least.
    – mskfisher
    Sep 16 '11 at 19:26
  • Ooh, another good reason. I suppose there are lots of advantages for the bank.
    – Mike Kale
    Sep 16 '11 at 20:00
2

One other aspect of this is that the bank will plan to eventually approach the merchant that they are sending paper checks to and say "why don't you sign up with us and give us your ACH info, and we won't send you checks?" And a lot of merchants will say "sure", because someone has to open those checks and take them down to the bank, and that isn't free. And that time while the money is in the mail, or sitting on someone's desk to be deposited, that is money that isn't working for you. So everyone wins.

0

It’s more convenient for both you and the bank; its much simpler to handle things electronically than it is to go through paperwork. Also, its eco-friendly and by saying that they care about the environment, banks earn brownie points with environmentally-conscious customers.

1
  • OP specifically mentions cases where the payee does not accept ACH, and so the bank must print a check and mail it.
    – Xalorous
    Sep 30 '16 at 14:26

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