Press & Events

Paying Bills Online

Paying bills through the mail or in person standing in long lines
can be tedious. But AOL's Regina Lewis says there is an easier alternative.

November, 08 2003 - CBS - Lewis stopped by The Saturday Early Show with the latest tips and techniques for paying bills online. She also suggested some ideas for protection from identity theft.

Companies such as American Express and AT&T are driving the trend of paying bills online. According to Lewis, they have a vested interest in getting consumers to pay electronically. Companies currently spend roughly $18 billion a year printing and mailing bills and late notices. Nearly 80 percent of that cost is wiped out when a customer switches to online payment, according to some reports. Some companies are even beginning to charge customers to receive paper statements.

Facts and figures

• There are about 30 million households taking advantage of online billing; the number is expected to triple in next three years.
• More women are using online bill paying than men, a natural extension of what has happened with traditional bill paying.
• Most Americans have between 8 to 15 monthly bills. Early adopters of online bill paying are paying half of their bills online, while paying with checks for the other half. Lewis explains that some people, such as doctors, don't accept electronic fund transfers.

Lewis says the following are types and tiers of online bill payers:

• Stackers: These are the people who stack all the bills and end up paying bills all on one day.
• Slackers: They wait until the last minute to pay their bills.
• In & Out: These folks pay their bills as they receive them, and go quickly online to pay their bills.
• Advancers: This very small number of people pay in advance; usually they are people who travel a lot for business and don't have time to look at every bill.

Online bill payers use the following three different tracks to pay their bills:

• Direct payment: Bill payers pay directly to the company using the company Web site.
• Advantage: The payment is cleared immediately. The day you pay is the day you pay.
• Disadvantage: You go from one Web site to another, logging in all the time, trying to remember passwords.
• Bank: Bill payers go onto a bank Web site and use the bank to pay their bills. The payment clears within four business days.
• PF management programs: Customers use these programs to pay bills and categorize their bills for monthly budgeting or year-end taxes. The programs are similar to Quicken or Microsoft Money, to some extent. Here, too, the bills clear within four business days.

How does online bill paying work? How can people get started?

Lewis says to start today by picking a bill such as your phone bill. Pay that online just to see how it works.

Also, she suggests that you investigate and see what your bank offers. It will likely be easier than paying bills individually online. Your bank probably offers online billing, and you're halfway there if your account is with them. Three major banks have free and easy-to-use Web sites you can set up for banking from anywhere in the country: BankofAmerica.com, Chase.com, and Citibank.com. These sites allow you to put in "requests" for bills to be paid.

Bill payers can automate the entire online process. They can receive, pay, track and organize bills online with bill-paying software, which can be purchased online and/or at the local computer store.

Online bill payment prices vary, so Lewis says to be sure to keep your eyes open for incentives. Companies and banks are looking to jumpstart this category, so it's a good time to get started. If you don't go through your own bank, typically you'll end up paying $5 to $15 a month -- depending on the number of bills.

Some banks offer online bill paying for free as long as you keep a minimum balance with them. Others also offer incentives such as earning frequent flier miles or "cash-back" for signing up. Banks are driving this as online banking has proven to be a good retention tool. Lewis says once people go this route, they tend to stick with their bank.

What are the advantages of Internet bill paying?

• Saves time over time (particularly with recurring bills like utilities).
• Can be done anywhere/anytime or arrange for auto-payment.
• Guards against late payments and insufficient funds.
• Confirms payment and keeps records in one place (useful come tax time).

What about security?

• Online banking uses encryption (scrambling) technology, which scrambles data so it can't be read en route in cyberspace.
• Online banking Web sites use passwords and PIN for protection.
• Online banking requires secure browser and up-to-date computers.

Disadvantages of online bill paying

• Logins and passwords: For those who use the payees' sites, you have to go from site to site, trying to remember all the logins and passwords.
• Float game: Paying online means, for the most part, there's no delay in the time between writing the check, and the time the check is cleared. Therefore, the money should be available to pay the bill.
• Not everyone is set up: Not all retailers are set up for electronic billing, but that is changing. Since some companies don't have the technology to send bills online, even though the customers have the ability to pay electronically, Lewis says you may not be able to swear off paper checks overnight, depending on the approach you take and online bill paying service you sign up for. But if you decided to do this today, you should be able to drastically reduce the number of checks you handwrite and mail next month.

The online goal, Lewis says, is to enhance personal finance management. The aspirations for the new way of paying bills is for consumers to have a better handle on their budgeting, their organizational skills, and for personal finance management. About 1.6 million Americans filed for personal bankruptcy over the last 12 months, according to the American Bankruptcy Institute.

Lewis says many will claim they just couldn't get a handle of their bills. The future will allow people to receive on-screen alerts to show the balance is low or when a bill is due.

Late last month, President Bush signed into law that would allow banks to clear checks electronically. Banks will now be able to approve digital images of checks rather than physically transport them between financial institutions.

The bill changes the current requirement that banks have specific agreements with other institutions to electronically process checks. Banks, customers and businesses that still want paper checks could request a substitute check, which has the same legal status as a regular one, to confirm the electronic transfer.

If you insist on paying bills the traditional way, Lewis says documents should be shredded. Some bills you'll want to save on paper for a few months or more. But whenever you throw something out, best to send it to a shredder. A favorite technique of identity theft perpetrators is to rummage through the trash on the curb and find bills. You can pick up a shredder for about $50 and take care of that problem.