Generally speaking there are two types of bill payment processing models; good funds and risk based. Each of the major third-party bill payment providers support one or both models with some variations in how they process.
In a good funds model, the debit (funding of the bill payment) is secured in advance. Consumers usually see the debit of funds immediately or the next-business day. If the biller receives payment electronically it is usually posted the next business day as well. If the biller is not able to receive electronic payment, then they receive a check and a consumer can see funds out of their account for days before the biller actually receives the check.
In the risk model, the debit (funding of the bill payment) is posted from the consumers account on the day the consumer scheduled it to be paid, i.e. the payment due date. For example, if today is the 29th and I scheduled my AT&T bill to be paid on the 5th, that is the payment due date. If the biller receives payment electronically, the debit to the consumer and credit to the biller, is timed to both post on the same day - the day the consumer scheduled the bill to be paid. The bank (or bill payment provider) is sending the payment “at the risk” there may not be sufficient funds in the consumer’s bank account on the future date. If the biller is not able to receive electronic payment, then the paper check is mailed and timing of debits and credits is again timed to both clear the same day - the day the consumer scheduled the bill to be paid. The upside is most consumers prefer this model as they can pay their bill but hold on to their money until the day the biller actually gets paid vs. having money come out of their bank account days or more before the biller gets the money.
Huh? Online bill payment for my bank allows me to schedule the payment, and the money doesn’t leave my account until the scheduled day. I figured they all worked that way.
I recently switched from a bank to a credit union. Yeah, canceling bill pay at the old and setting it up at the new account sucks, and I found a few bills I had missed, later. And getting direct deposit switched over was a bigger pain in the ass, or rather coordinating it with my bill pay switch over so I wasn’t paying bills on an empty account. But it wasn’t the most awful thing I’ve done. Nevertheless, I wouldn’t do it on a whim, either.
I am not so sure that this is true. I would have thought that the most profitable customer is the one who regularly goes overdrawn and has to pay their high-interest rate and fees. It’s the same with credit cards; people like me who clear the balance every month are poor customers. What they want are people who carry a high, but manageable debt. This is why I keep getting 0% interest offers; they want me to borrow and reach the end of the deal, still owing them, so that they can start charging me 21% or whatever.
Here’s an article about this. It’s complicated - originally there were more tellers because banks opened more branches, but fewer per branch.
My experience is that banks are a lot less crowded now than they were before ATMs. But that’s anecdotal.
And I’ve seen ads from banks for apps that scan checks to be deposited at home, so someone making a deposit doesn’t even have to go to the bank. I think that supports the notion that eliminating paper checks as soon as possible saves them money.
Well to be fair, I did not say they were the most profitable customer. I said they were more profitable to the financial institution. Earlier some of that data was quoted from sources like American Banker and Fiserv. Fees for over-drafts and customers who carry balance on credit cards certainly are a revenue stream for an institution and regulations impacting that revenue during the Obama administration made for a lot of heartburn within the banking industry. But the question was related to whether online bill payment was a profit/cost center and the debate boils down to how the financial institution views the relationship. Is it about fee revenue from each service offered? Many institutions do have this mentality but look for fee revenue from non-bill payment since really… pretty much no one charges for bill payment anymore. So they’ll look to other possible fee-revenue from digital services like P2P, external transfers, expedited payments, mobile deposit capture, etc. What you’ll find though from larger financial institutions and ones who approach this more strategically and holistically is that the digitally engaged consumer is more profitable overall than the non-digitally engaged consumer. There is a lot of data analysis and industry research performed on this topic that supports this view. I work with a lot of banks who prescribe to one view or the other. The former certainly makes it much harder to get to think more strategically vs. bottom line costs for the service itself.
If they have a bill-paying system, where merchants have to sign up and be part of the system to receive payments - then I would not be surprised if the bank skim a percentage off every transaction going by. After all, when you make a credit card transaction, then card/bank takes 1% to 4% from the merchant depending on various terms. It’s a river of money going by, it’s a massive convenience for all concerned, why would the bank dip its bucket in that river and take a percentage from the merchant? Plus some banks, depending on terms, charge fees by the transaction - so much for each deposit, withdrawal, etc. If an online payment counts as a transaction, it could be hidden in your fees.
Wow. Well, this makes a lot of sense! Just today I closed my account at the bank I used as my primary for maybe 20 years because they couldn’t keep the ATM/debit card chips working, and moved my main direct deposit to another bank that had been one of my alternates. But it turns out we can’t get their online bill pay to work with my mac and Safari – it’s a local, rural bank, and I might possibly be their only customer with an Apple desktop. So now I have to get the direct deposit redirected primarily to another bank I just joined, whose online banking worked right from the start. But I actually had to drive across town to another one of my company’s buildings to get the direct deposit done last time, because the fax machine doesn’t work either.
My life is so convenient I can’t get it to function.
I’m not saying this is the main reason they do it, but online bill pay can give banks another opportunity to gouge fees out of their customers. Most people probably think that the funds for an online bill payment are immediately transferred out of your account and into a sort of outgoing bill pay bucket, but that isn’t how it works. It’s true the customer’s bank account will be debited almost immediately when they initiate a payment. However, after that, if the payee doesn’t process the transaction at their end within a short enough period, the bank reverses the transfer so the money ends up back in the customer’s account. Unaware that this happens, the customer might not realize that the “extra” money needs to stay there for when the merchant’s debit finally does come through or they’ll be dinged.
I would guess that transaction fees are predictably triggered by some percentage of transactions. So one way to increase the fee income would be to simply increase the total number of transactions. Promoting online bill payment and debit card use both increase the number of transactions over a single ATM or teller transaction for cash. If 1 out of 100 transactions triggers a fee, then 10,000 transactions obviously makes more money than 100 transactions. So how does a bank make money offering a free service? They make it up in volume.
Sorry to resurrect this not-yet-zombie thread, but I find myself in the market for a new bank (unless my current bank starts doing some serious hoop jumping to resolve an issue). Is there an easy way to determine if a particular bank uses the “good funds” model or the “risk model”? I sure want to avoid the “good funds” model as I like to schedule payments way in advance. I assume the terminology would not be familiar to the typical bank employee - is the only way to dig into the bank’s terms of service?
Is this a peculiarity of the US banking system? Here if I make an online payment my account is debited almost immediately (same) but the funds are in the payee’s bank account within the hour with no action required from them.
In the US does the payer not know / have the details of the payee’s bank account number?
In the US, you usually have to schedule a bill payment a day or two in advance.
Generally, no you do not know the payee’s account number. Your bank’s bill pay service gives you a list of available payees, you choose one, and the bank initiates a payment. If you want to send to someone not on the list, you type in their address and the bank snail-mails a paper check to them.
There are person-to-person transfer services. Generally, you give the service (which may be through your bank) the payee’s email address or phone number. The first time a payee receives such a payment, they are sent an invitation to register with the service, giving the service their bank account number. If the payee is already registered, the money is directly routed to their registered account. But the payer does not see the payee’s account number.
There is an alternate form of bank-to-bank transfer called a “wire” which generally costs $25 or $35 (and may also cost the recipient a fee) where you can send money using the recipient’s bank account and bank routing number. But most regular people rarely have occasion to use this.
I understand that in Europe, you are given an account number that is good only for making EFT deposits that you can freely publish in the newspaper without worries. We don’t have anything like that.
Thanks Alley Dweller that explains things. Banks here (NZ) typically offer preset payees too, for many large companies, local authorities, traffic infringements etc., but customers can set up their own, or just pay to bank accounts - and like you noted for Europe, bank account information is given out for payments… any bill I get from a tradesman for example will have their bank account number printed on it.
We also have the pay to mobile, pay to email as you describe, but it’s usually only for small sums informally (paying a friend back for a movie ticket sort of thing), almost all payments go directly bank to bank, I don’t think any bank mails cheques, and a wire is almost exclusively for making foreign currency payments (sending money offshore) and costs ~USD 10 to 20 depending on whether you do it self service or through a teller.
etc., but customers can set up their own, or just pay to bank accounts - and like you noted for Europe, bank account information is given out for payments… any bill I get from a tradesman for example will have their bank account number printed on it.