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
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.
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’
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.
Or visit www.memberstreet.com.