February 20, 2006

On Feb. 11, Bank of America has modified its online bill-payment policy, allowing its customers to earn interest on their money until the payment is effectively carried out, rather than having funds deducted from their accounts immediately.

"It's a big customer win. This was the number one customer request," said Sanjay Gupta, e-commerce executive with Bank of America. "There's no reason to write a paper check anymore."

A few U.S. banks and financial institutions already allow their Internet customers to hold their money longer. Citizens Bank, for example says that since 1999 it has allowed online bill-paying customers to retain money in their accounts until the payment is done.

Bank of America is the largest and most influential convert to the approach. Gupta said 7.3 million customers use online bill payment at Bank of America. He said the bank's customers represent 59 percent of the U.S. online billpay market.

Peter Marx of Wellesley, Mass., said he is glad Bank of America is changing its policy, saying the old one was "incredibly annoying."

"People think the online payment service is free and aren't aware of how this works," Marx said in an e-mail.

Gupta said many customers had the impression that Bank of America was benefiting financially from its old online bill-payment policy, but he said that was not true. He said money deducted from a customer's account was held by the bank's third-party payment processor, CheckFree, until the payment arrived at its destination.

Gupta said CheckFree is the company that will "take a hit" financially from Bank of America's new policy. A spokesperson for CheckFree in Atlanta confirmed the company would incur unspecified "float loss" as a result of Bank of America's new policy, but she said that revenue loss would be more than offset by gains elsewhere, and from more consumers paying bills online.

"Consumers like this model," said a CheckFree spokesperson, Judy Wicks. "We encouraged Bank of America to do this."

Under Bank of America's old policy, customers paying bills online would designate a date by which the bill had to be paid.

The funds would be withdrawn from the customer's account four business days in advance for checks that had to be sent by regular mail and two business days in advance for checks that could be transmitted electronically. Business days are Mondays through Fridays, excluding federal holidays.

The customer would lose access to his or her money as soon as the funds were withdrawn, but the funds wouldn't be credited to the person or corporation receiving the payment for two to four business days. Gupta said CheckFree held the funds in the meantime and earned interest on the money.

The new Bank of America policy, which withdraws the funds from the customer's account only when the payment arrives at the recipient, closely resembles how a paper check is processed. Offline, customers write a check and have the funds withdrawn from their account only when the recipient deposits the check.

Gupta said funds had previously been withdrawn immediately for online billpay customers in part to assure that sufficient funds were in the account to complete the transaction.

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Under the new policy, that will no longer be the case, which means an online payment could in theory bounce.

Gupta said he expects no upsurge in overdraft charges. "Really, there should be no change," he said.

A spokesperson for the Massachusetts Bankers Association said other banks, small and large, are adopting similar online bill-payment systems, while some, like Citizens, adopted it years ago.

"It's not a new way of doing things for us," said Debby Miller, director of New England corporate affairs for Citizens.

Source: eCommerce Times

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