Practical Cost-Saving Decisions Can Help Credit Unions Offer Free Bill Pay

Credit unions are closer than they realize to offering free electronic bill payment services. A few cost-saving tips could mean the service is only a click away.




If you are considering offering free electronic bill pay to your members, you aren’t alone. With all of the recent “fee vs. free” discussions, more and more credit unions are evaluating this option.

A recent study conducted by Online Resources (ORCC) shows that financial institutions that offer free bill payment experience adoption rates that are 80 percent higher than those that charge for the service. Plus, TowerGroup estimates that 78 percent of the top 50 U.S. bank and thrift-holding companies offer some form of “no-fee” policy for online bill payment, with 32 percent offering the service at no charge to all account holders.

Despite these industry statistics, credit unions often struggle with the transition because of balance-sheet concerns and vendor-contract impediments. However, there are many ways that credit unions can build an economically viable business case for offering free bill pay. Listed below are several factors that credit unions should consider when going from fee to free:

The credit union should evaluate whether it is paying the provider a bundled rate or per-item pricing for bill pay transactions. With a bundled rate, an established number of transactions and a per-user fee are incorporated into one cost. This can lead to wasted transactions if credit unions are not using the full number of transactions included in the bundled pricing.

For example, imagine a credit union that is paying a bundled fee of $5.00 which includes 10 transactions. This credit union is currently processing an average of six payments per user. In this scenario, the credit union is paying for unused transactions. This is not an uncommon scenario as many credit unions process between four and seven transactions per user and pay a bundled rate for a much larger number of transactions.

With per-item pricing, the credit union pays a separate per-user fee and a set price per transaction. In this model, the credit union only pays for those transactions it actually uses.

Split rate or blended rate
Another important distinction is whether the credit union is paying a blended rate (one flat rate for all transactions) or a split rate (two different per-item charges – one 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.

Because electronic transactions cost less to process, a split rate is a better choice for credit unions with a high electronic rate, such as those in major metropolitan areas.

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 add up to be a costly addition if the credit union’s members are not taking full advantage of them. It can be more affordable to provide such services in-house.

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 reducing costs. To manage inactive users, the credit union needs access to the appropriate information. This can be as simple as a report of inactive users, or as sophisticated as an automated process that deletes members after a set period of inactivity. The credit union also should determine whether there is an activation fee for every new member enrollment.

Contract terms
The bill pay contract should be flexible enough to meet the credit union’s needs over time, as rapid changes currently are taking place within the bill pay arena. For instance, if the contract term is longer than three years, it may prevent the credit union from pursuing cost-saving measures. The contract term should allow for pricing negotiations and new feature additions as the credit union needs. It is important that a credit union has the ability to grow functionality to meet the changing needs of its members. Features like ACH initiation, bill presentment, account aggregation and funds transfers are becoming increasingly important to online members. The credit union’s vendor needs to be flexible enough to incorporate new features and interfaces with other vendors’ solutions.

The automatic renewal clause also needs to be considered. If the credit union has a renewal clause in its contract, the credit union should require the vendor to contact the credit union prior to the auto renewal. The credit union also should require pricing changes to be directly authorized, rather than leaving room for the vendor to automatically increase prices.

While no single cost-saving option may provide all the answers, cutting costs in several areas like those mentioned above help credit unions to keep pace with the competition.

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, Or visit




Aug. 9, 2004


  • Excellent insight for evaluating contract pricing!