Does It Pay to Pay Bills Online?

June 3, 2004 -- An estimated 35 million Americans now pay bills online and that number is growing. But before you switch on your computer, you should know both the advantages and disadvantages of online bill payment.

While millions of Americans already pay their bills online, the number is expected to continue to increase, according to Gartner, Inc., a provider of research and analysis on the global IT industry. In fact, it is estimated that within three years, more than 65 million Americans will view their monthly bills online.

If you are not currently paying your bills online, now may be the time to log on and start clicking. According to a report from Wells Fargo, if everyone in the United States paid their bills online, 18.5 million trees a year would be spared — enough to build 216,000 single-family homes.

How it Helps

The typical consumer pays between 8 to 15 bills every month. Converting your paper to online payments is a sure way to prevent losing a bill or even forgetting to pay.

In fact, many third parties and banks offer a bill reminder feature which automatically sends you an e-mail notifying you of outstanding balance or an upcoming bill due date. Furthermore, most guarantee the receipt of payment and will pay the merchant any late fees associated with a timing issue.

Additional benefits of online bill payment include selecting your own bill payment dates; creating a log of your payments; making multiple payments at once, saving significant time; and assisting you as you organize your overall finances.

Your Choices

Pay through your bank. Many banks, including Bank of America and Citibank, now offer customers online bill payment services with no fees attached. Generally, a customer who signs up for online bill payment either has their bills automatically debited from their account or manually pays their bills online each month.

Today, 18.8 million customers use online payment options through their bank, according to Gartner. This is good news for banks, as customers who use their banks to pay their bills online usually stay with their banks longer and have higher balances. For example, Bank of America customers who bank online tend to have 38 percent more money in their accounts and have 45 percent higher loan balances than customers who do not bank online.

One-third of the nation's banks and brokerage firms offer free online bill payments, according to TowerGroup. The growth in this area is attributed to both consumers demanding online access and companies increasingly encouraging their customers to trade in the envelope and stamp for a connection to the Internet.

Many banks which previously charged a monthly fee of $5 to $10 now offer free online bill payment services. If your bank does not, contact them to discuss lowering or eliminating the fee. If they are unwilling to negotiate, consider switching your accounts to an institution which does not charge any fees.

Pay the company directly. Many utility, electric, phone, mortgage and cable companies now allow you to pay them directly via the Internet by credit card or automatic debit from your bank account. Currently, 75 percent of all online payments are made directly with the biller, according to Jupiter Research.

Companies can cut their cost by a reported 80 percent when a consumer goes online instead of to a mailbox. According to the Federal Reserve, it can cost a biller as much as $5 to process a paper check whereas electronic payments can be processed for just 7 cents. Use an online bill payment intermediary. Companies such as Paytrust act as an intermediary between you and the company or individual to which you owe money.

With this type of service, you simply change your billing address from your home address to the online company which will receive your bills. Instead of paying your bills directly to the billing entity, the amount is debited from your bank account and electronically submitted.

In cases where the entity does not accept online payment, the intermediary will cut a check and mail a paper copy.

While convenient, these services do come at a cost. Paytrust, for example, costs $4.95/month plus $0.50 per transaction or $12.95 a month with 30 free transactions ($0.50 for each additional). Paytrust pays the billers from an operating center where they run a program which estimates the window of time anticipated when a bill will be received and when it is due.

According to Paytrust, the company will take responsibility for any late fees or credit issues due to any system errors on their end.

Pay through a Web portal. Web sites, including Yahoo!, MSN, Quicken and AOL, act as a Web portal for online bill payment to several hundred entities. Many of these sites offer free online bill paying for the first 100 billers (merchants/service providers).

Beyond 100, there is often a monthly fee as well as a per transaction fee. For example, Quicken partners with 250 different entities for its online Bill Pay service and charges consumers $9.95 a month for up to 20 payments, with a $0.50 per transaction cost for each additional payment. Many of these Web portals used to cut a paper check to pay your bills, requiring you to request payment in advance. But most now make electronic payments decreasing the time significantly — from five days to same-day processing.

This past March, America Online entered the bill payment game with its own online bill payment service, AOL Bill Pay. With more than 2,500 firms participating, AOL subscribers can pay many of their bills online and can even opt to consolidate their bills into one monthly e-mail.

In addition, AOL Bill Pay offers a simple way to organize all outstanding bills and enables you to send yourself reminders about due dates via cell phone, e-mail or instant message. This service also allows you to monitor your credit card spending by notifying you if you have exceeded a preset spending limit. AOL does not act as a payment intermediary, but instead provides users with direct links to merchant Web sites.

Security Issues

According to a study by Javelin Strategy & Research, online bill payers are 10 percent less likely to have their identities stolen versus those who use the standard brick and mortar payment because it is easier for thieves to view your paper invoices.

However, it is still very important to take some precautions when paying bills online. First, make sure your computer is armed with the most up-to-date anti-virus software, such as Norton Antivirus, as well as some type of security or firewall protection. In addition, you should never select the option to automatically save your password and credit card information as even a novice hacker could crack the site and access your credit number.

For another level of protection, you may want to consider using a temporary credit card number. Some credit card companies, including Citibank, Discover and MBNA, are offering cardholders temporary account numbers to provide them with added assurances that their credit cards will not be misused online. These temporary numbers are linked to the customer's permanent account number and generally expire after one purchase or transaction.

Depending on the issuer, temporary numbers can be attained a couple of ways: the card holder can either download software that creates temporary numbers upon request or they can access temporary numbers on the card issuer's Web site.


While online bill payment offers many advantages, it is important to clearly understand any online bill payment options that you elect.

To ensure your bills are being paid on time, it is important to pay close attention to how long it takes to process each bill.

Payments through a third-party intermediary can sometimes take up to five days to clear whereas those made directly at a company's site can be debited almost immediately.

In addition to process time, if you are having money directly debited from your bank account, it is important to know when the money will be removed in order to avoid overdrafts.

Shop Around

If you are interested in paying your bills online, as always, it pays to do your research. If you decide to work through your bank or another third party, look for online bill paying services at no/minimal cost.

In addition, ensure that the intermediary offers assistance to users by phone and e-mail and make sure you have a firm understanding of the guarantees regarding security and timeliness. Not doing this could affect your credit standing.

E-mail Mellody with your personal finance questions.

Mellody Hobson, president of Ariel Capital Management ( in Chicago, is Good Morning America's personal finance expert. Ariel associates Matthew Yale and Aimee Daley contributedto this report.