Financial Institutions Face Threat of Slow Growth in Online Banking, Bill Pay

Once the bright stars in the financial world’s firmament, online banking and bill pay are no longer growing for banks and other financial institutions and will likely see only incremental growth over the next five years, a new report projects. Unless financial institutions can ignite growth again, they will drift to the sidelines in consumers’ lives, displaced by billers and tech firms, the report warns.

Since the depths of the recession in 2009, the number of online households banking online has grown from 72 million to 81 million, but as a percentage of online households this number has barely budged from 82% to 83%. In the three years up to 2009, that percentage had shot up from 72% to 82%. That’s according to the 2012 Online Banking And Bill-Payment Forecast from Javelin Strategy & Research, Pleasanton, Calif. Javelin projects the number of online-banking households will grow only 2% per year through 2017, reaching 92 million households, or 87% of online households.

The situation with online bill pay is even more alarming for banks. Here, 44 million online households are paying bills online with a financial institution, up only a tick from 43 million three years ago. As a fraction of online households, this number has actually dwindled from 50% to 45%. Household growth will be just 2.7% per year over the next five years, reaching 52 million, the report says.

Such sluggish growth in these key service and payments channels poses serious problems for banks, the report argues. “The risk here is that financial institutions will become irrelevant and out of touch. They won’t be the places consumers will turn to,” Mark Schwanhausser, director of multichannel financial services research at Javelin and the report’s author, tells Digital Transactions News.

To kickstart growth, banks will need to introduce new services and features that place them at the center of their customers’ financial lives, Schwanhausser says. Examples of such features include advisory services, alerts, mobile deposits and bill pay, and person-to-person payment capability. Already, some 35% of consumers pay their bills on mobile devices, the report says, while 18% have used mobile to move money to another person. All told, person-to-person transfers came to almost $22 billion in 2011, according to the report.

Enhanced services, both online and mobile, will also be necessary to ward off what Schwanhausser sees as a threat to banks’ bill-payment franchise from non-bank technology firms like Bill.com, Pageonce, and others. This threat may be more distant, however. While 11% of consumers say they have used a non-bank service to pay a bill, only 2% do so routinely, according to Javelin research.

Person-to-person payments, in particular, hold high promise for financial institutions looking to reinvigorate their online offerings, Schwanhausser says. The service helps promote digital banking and points up the advantages of such access devices as handsets and tablets, he argues. “P2P capabilities will provide an opportunity to reenergize marketing for online banking and augment the immediacy and simplicity of mobile banking,” he notes in the report. P2P payments are also important as a way of allowing users to pay persons or organizations not included in banks’ biller directories, he tells Digital Transactions News.

Already, both banking and non-bank companies have formed major P2P ventures. Fiserv Inc. last year acquired CashEdge Inc., allowing it to fold CashEdge’s Popmoney service into its own ZashPay program, using the Popmoney name. PayPal Inc. has aggressively marketed its P2P service to banks for several years now. And three of the country’s largest banks—Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co.—started a P2P service called clearXchange that could potentially allow payments among 37% of all banking customers.