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Companies, Consumers Both Get Payoff From Online Bill Payment

April 29, 2001|KATHY M. KRISTOF

June Langton never imagined she'd be paying bills over the Internet.

The Laguna Beach grandmother was so technophobic that she didn't even want a computer. But she was coaxed into buying one, and in August started paying bills online through a program offered by the U.S. Postal Service. Now she can't imagine doing it any other way.

"It's so much easier," she says. "I don't have to use stamps. I don't have to address envelopes. I have a running total of what I've paid that I can look up any time."

Businesses hope Langton is part of a trend. Companies spend roughly $18 billion a year printing and mailing bills and late notices, and about four-fifths of the billing cost is wiped out when a customer switches to online payment, says James Van Dyke, senior analyst with Jupiter Research in San Francisco.

Even though online bill paying has grown significantly, it still represents less than 10% of the market. "Online bill paying has been next year's killer app for about five years now," Van Dyke says.

Part of the problem: Consumers' savings usually amount to little more than the cost of a few stamps--and even that is usually offset by the cost of using the online payment service.

The Postal Service, for example, charges $6 a month for a service that allows users to pay 20 bills a month online. Figuring each online payment saves the cost of a 34-cent stamp, someone who pays 20 bills a month will save a grand total of 80 cents. Other services cost as much as $12.95 a month, although several online banks provide the service free to customers who maintain a minimum balance.

To attract users, the Postal Service is offering six months of free service. Meanwhile, some big billers--such as AT&T--are attempting to encourage online payment by offering customer discounts.

Perhaps the most significant consumer savings are reserved for those who have been hit with late fees for payments they believe were made on time--a fairly common complaint.

If you schedule a payment within a specified period--usually a few days before the due date--most bill paying sites will guarantee that you'll never suffer a late fee. The site either will have the fee reversed because they can prove the money got to the recipient on time or they will pay the fee for you.

One reason online bill paying has been slow to take flight is that few companies had the technology to send bills online, even though their customers had the ability to pay electronically, Van Dyke points out. In fact, about 7.7 million people pay bills online, but only about 2.8 million receive them electronically.

For businesses, the worst of all possible worlds occurs when consumers get their bills through the mail but pay them online. The company's mailing costs remain high, but the chances that they'll get paid early--and have access to customer funds for a longer period--or get paid late enough to generate late-fee revenue are drastically diminished.

If the company is able to both send bills and receive payments online, they can save a bundle in mailing and customer service costs. AT&T's online bill service is a good example of how this can work to a company's advantage.

AT&T's online customers get a summary phone bill by e-mail. To see a detailed bill, customers click on a link, which takes them to a secure site.

There they can find their entire bill, showing all their long-distance calls--just like a paper bill. If customers have a question about a call, they can click on it and the bill will give them a reverse-directory listing of the number, answering the question of who was called without having to call an AT&T representative.

Customers also can contest a charge or change their calling plan online, says Mike Tempora, operations vice president of billing and Internet solutions at AT&T.

From the customer's standpoint, such bells and whistles are certainly handy, but the big benefit of online bill paying is convenience, Langton says.

These systems have a memory, so you don't need to type in names and addresses for recipients of recurring bills. You can simply click on a recipient, fill in the number, and go. The fact that everything is on the computer also makes it easier to manage your money and file your tax returns if you use other financial software programs.

"It's so convenient," Langton says. "I was one of these people who never even wanted to have a computer, but I just fell in love with it."


Times staff writer Kathy M. Kristof, author of "Investing 101" (Bloomberg Press, 2000), welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail For past Personal Finance columns visit The Times' Web site at

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