Fee vs. Free: Facts and Figures to Support Your Bill Payment Strategy

Should your credit union charge for bill payment? Here are five pricing considerations to evaluate before going from fee to free.




Forrester research reports that 38 percent of consumers that do not use online bill payment cited a monthly fee as the reason they did not use the service. Not surprisingly, financial institutions that offer free bill payment have seen dramatic growth in the number of active online bill payers. Forrester conducted a study of its bank clients who had switched to free compared to those who still charged a fee. The free bill payment banks had a 78 percent higher quarterly growth rate in active bill payers compared to the fee-based bill payment banks.

To further analyze the impact of free bill pay, Callahan surveyed its Survey Consortium of bill payment users and non-users. Of the 19 Survey Consortium credit unions, those with free bill payment services had penetration rates twice as high – averaging 18 percent – than the fee- and relationship-based services, which averaged nine percent. Plus, according to comScore Networks, there is the added bonus that electronic bill payment is a big driver for consumers to use other online services. The average banking customer logs on to their bank’s website between nine and 10 times a month. However, bill payment customers visited their banking sites an average of 14 times a month.

While the evidence in support of offering free bill payment is compelling, many credit unions still struggle with the decision because of balance-sheet concerns. However, there are many ways that credit unions can build an economically viable business case for offering free bill pay. Selecting a low-cost, high-value provider with flexible pricing options can go a long way towards helping a credit union offer free bill pay.

Below are several pricing considerations that credit unions should evaluate before going from fee to free:

Pricing for Transactions
It is important to evaluate whether the credit union is paying per-item pricing or a bundled rate for bill payment transactions. With a bundled rate, a set number of transactions and a per-user fee are bundled into one cost. If credit union members are not using the full number of transactions included in the bundle, this can result in wasted transactions. With per-item pricing, the credit union pays a set price per transaction and a separate per-user fee. In this model, the credit union only pays for those transactions it actually uses.

To see the true difference in these pricing models, imagine a credit union that is currently processing an average of six payments per user. This is not an uncommon scenario as many credit unions process between four and seven transactions per user. A typical bundled option runs about $5.00 per member and includes 10 transactions. In this scenario, the credit union is paying for four unused transactions. If this credit union instead paid for per-item pricing, it would only be paying for the six transactions that the member actually used.

Split Rate or Blended Rate
The credit union also should evaluate whether it is paying a blended rate (one flat rate for all transactions) or a split rate (one rate for electronic payments and another for paper check payments). The blended rate works well for credit unions with a lower percentage of electronic payments, such as those located in rural areas. This is because the blended rate is an average between the cost of paper check payments and electronic payments, so the credit union can take advantage of the cost savings of the electronic items, even if its electronic percentage is low.

Because electronic transactions cost less to process, a split rate is a better choice for credit unions with a high electronic rate because the credit union is only paying for the paper check items it actually processes. In the majority of cases, a credit union paying per-item pricing at a split rate will pay less for bill pay than a credit union paying a bundled rate.

Managing Inactive Users
Most vendors charge a per-user fee regardless of whether the user is active or inactive, so managing inactive users is critical to managing costs. To reduce inactive users, the credit union needs access to tools such as a report of inactive users. The credit union also should determine whether there is an activation fee for every new member enrollment.

Bundled Services
The credit union should evaluate whether it is paying for multiple services bundled together or for only the services it needs. Ancillary services such as call-center support can be costly if the credit union’s members are not taking full advantage of them, and it is usually more affordable to provide such services in-house.

Contract Terms
The bill payment contract should be flexible enough to meet the credit union’s needs over time. For instance, if the contract term is longer than three years, it may prevent the credit union from pursuing cost-saving measures. The credit union also should limit future price increases to contract renewals rather than leaving room for the vendor to automatically roll in large price increases.

For more information about bill payment products and services, contact a corporate credit union or Nate Truelson, national sales director, (888) 656-4050, ext. 6126, ntruelson@memberstreet.com. Or visit www.memberstreet.com.




Sept. 19, 2005


  • I would like to see some research that demonstrates the value of the free bill payment. We hear lots of discussion about the stickiness of the bill pay product but do we actually see it?