Online bill payment is a competitive necessity. Most financial institutions are using a third-party provider for the bill payment service. Comparatively very few financial institutions do bill payment themselves. The age of charging consumers for bill payment disappeared a long, long time ago when Bank of America stopped charging their customers. That had an affect on the rest of the industry who quickly followed suit to remain competitive and retain their customers. There may be financial institutions still charging for bill payment but is the exception. Because the overwhelming majority of financial institutions are not charging fees for bill payment means it is not a profit center for the bank.
The bank is paying a third-party vendor for the use of their bill payment services. Pricing models vary, from per registered user monthly fees to fees per bill payment transaction to a combination of both. Purely from a pricing perspective, bill payment cost the financial institution money. Many institutions will charge for expedited delivery (i.e. same day bill payment) if they offer this service but the volumes and fees to a consumer do not off-set the overall cost of providing bill payment.
There are a great deal of industry studies on the overall profitability of a digitally engaged payment consumer. Financial institution customers who engage with digitally, and particularly for their payment needs, tend to carry higher balances, have more revenue generating products, etc. and are thus more profitable to the institution. Many banks get the importance of providing a robust set of payment services, from bill payment, P2P, external transfers, online wires, etc. and although many of these services don’t directly create a profit indivdiually they deepen the relationship with the consumer leading to a more profitable relationship. Every digital engagement is an opportunity to provide payments services their customer needs and cross-sell other profitable services to broaden the relationship.
Lastly, financial institutions and bill payment providers are competitive threatened by “biller direct” sites, for example consumers who pay their utility bill at the utility company website instead of through the bank. This disintermediation of the payment relationship is a threat to the financial institution. You also see this in other payment areas such as P2P with providers like Venmo among others engaging consumers for payment transactions outside their financial institution relationship resulting in less profitable relationships for the bank. Again, not profitable directly from the payment service offered by the bank but through the deeper and larger relationship with digitally engaged customers.
MeanJoe - Who in the interests of full disclosure has worked in the payment industry and banking for most of his career including currently for the largest bill payment provider in the business.