Why is BILLPAY free?
August 23, 2009 3:15 PM   Subscribe

Why is BillPay free?

I have never seen a bank that charges for BillPay, the service where you login to your banks website, enter all of the vendor details, and click to send a check via US Mail. They pay a discounted rate for presorted mail, but its still >25c an item. Printers aren't free. Paper isn't free. I don't see any reason why a bank would want to subsidize me using their system to send free checks when they would otherwise charge me to buy paper checks from them.
posted by SirStan to Work & Money (10 answers total) 3 users marked this as a favorite
A fairly sizeable amount of vendors who receive payments via banks' BillPay option receive their payment electronically, so in those cases, there's no printing or postage costs.
posted by WCityMike at 3:21 PM on August 23, 2009

I was wondering this myself recently. All I could figure is that overall, electronic processing saves them a significant amount of money vs. processing paper checks. And also, free online bill pay gives the bank a competitive advantage. Don't really know if either of those ideas are correct though.
posted by spilon at 3:34 PM on August 23, 2009

Best answer: The money comes out of your account the day you set up the payment. For paper checks, it may take days or months for the receiving company to cash the check. That money is essentially the bank's until it's cashed.
posted by saffry at 3:35 PM on August 23, 2009

Ditto Saffry's answer.

The money comes out of my account instantly, but doesn't actually get out of the bank for a few days. I think the bank is making it's money on that.
posted by SLC Mom at 3:37 PM on August 23, 2009

I can add a couple things. Any company whose payments are "electronified" (I hate that word) has paid a pretty large fee to the bill payment vendor in question to make that happen. That is to say, if your gas company or credit card company does in fact get an electronic payment from, say CheckFree, they have paid a large fee to CheckFree to set up that payment stream. That's one big way the bill payment vendors make money. In additon, your bank pays a fee to CheckFree (or other vendor) for the bill payment service, typically in the form of a monthly maintenance fee plus a per-transaction fee (the per-tran fee usually goes down as bank volume goes up) but the consumer tolerance to pay for bill payment as a service is VERY low. Banks who charge for bill payment wouldn't be very competitive.

Bill payment services are also in direct competition with what are referred to as "biller direct" services. That's when you log in to the electric company or credit card company to pay your bill directly. Biller direct is usually free, too, unless you are making a "rush" payment - then you pay a fee for the privilege of not having a ding on your credit report if you need to make a last minute payment and make it fast. Some bill payment services also offer "rush" payments, and they usually also charge a fee.

Bill payment was originally a consumer-paid service, then slowly banks all went free. Interestingly, ATM usage was the same "back in the day" - first a fee, then free. Then, of course, everyone started charging again. LOTS of bank fees are based on "what the market will bear" + "someone else went first".
posted by ersatzkat at 3:49 PM on August 23, 2009

I should add that for instance, for CheckFee (I don't work for them, but I've worked with them), roughly 85% of their payments are "electronified", which means that a check is never cut - that figure is about 4 years old, so I'm sure the percentage is higher by now.
posted by ersatzkat at 3:52 PM on August 23, 2009

Response by poster: Ah brilliant -- thanks saffry.
posted by SirStan at 3:52 PM on August 23, 2009

To extend on saffry's very correct answer: this is not just a BILLPAY thing; this is how pretty much all banks made money for a very long time while offering free toasters, free savings accounts, free checking accounts, and even paying interest on those accounts: they had and used your money, and profited from that. I don't remember seeing a single "bank fee" for anything until the mid-90's.

The rise of fees for every little service is very recent, and has been driven, I believe, by the simple realization that they can get away with it.
posted by rokusan at 4:12 PM on August 23, 2009 [2 favorites]

Saffry's right, banks can juice a few cents out of floating your check for a few days, but you also need to recognize that cutting a check and bulk rate stamps will easily exceed a few day's interest a gas bill's worth of money would earn. It's mostly electronic check clearing drastically reducing costs here that helps.

In fact, I have no idea if electronic checks have any significant float time between you and the payee that the bank could take advantage of. It's probably fees from the payee they're after. For example, my bank offers checking accounts with debit/credit cards. You can tell they earn more money with credit transactions because:

* they charge me 10 cents per debit transaction, while credit is free
* they have an incentives program to use the card as credit

One other aspect of bank operations is that even with checking accounts, they'll be able to loan some deposits out. Overnight loans are one way it happens. And there's a reserve ratio for checkable deposits, so the more you have in low interest checking, the more they can earn. I imagine most consumers deposit enough in checking to cover BillPay from their paycheck, rather than transfer from savings say 1 day before.

Which is another point -- if you tell the bank exactly when your bills are due, they'll be better able to plan loans in accordance with the reserve guidelines.
posted by pwnguin at 4:28 PM on August 23, 2009

Also, that Billpay service is a "glue" or "sticky" product for the bank. The more sticky products, the more likely the customer finds it a pain in the ass to change banks, the more likely the bank has that customer for a long, long time. And trust me, checking account customers are the sweet spot for banks .... overdraft, anyone?!
posted by cyniczny at 5:31 PM on August 23, 2009 [2 favorites]

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