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U.S. banks encourage online bill paying

By Jonathan Stempel

NEW YORK, April 28 (Reuters) - U.S. banks are trying to attract more consumers by letting them pay bills online.

"It is becoming more strongly recognized within banking organizations as an important service that builds the customer base," said Beth Robertson, a senior analyst at Tower Group, a Boston-based technology and financial services advisory firm.

Banks say electronic bill paying can simplify customers' lives and save both banks and customers millions of dollars of annual postage costs. They hope to benefit from some of the same economies that have long allowed credit card holders to pay for dozens or hundreds of purchases at once.

Wells Fargo & Co. of San Francisco, which offers online bill paying, this week added Ford Motor Co. , Gap Inc. , Sprint Corp. and more than 200 other companies to its ranks of those whose bills can be paid online. The bank charges some customers a fee for the service.

"People are really pressed for time," said Katherine McGee, vice president of Internet services at the bank. "We have found that customers can spend three or four hours a month paying their bills normally, but as little as 15 minutes by paying online."

Analysts, though, say the trend is slower to catch on than it could be.

'COOL RECEPTION'

A report last year from Chris Stefanadis, an economist at the Federal Reserve Bank in New York, identified a "cool reception" for the concept because of "a lack of coordination among billers and customers, combined with the high fixed costs of the new technology."

Stefanadis said that while banks might cut their average bill processing cost in half by moving it online, they have to weigh the savings against the average $400,000 cost to set up a payment system.

In addition, some consumer resistance may stem from worries about the security of banking information sent across the Internet, said William Nelson, executive vice president for NACHA-The Electronic Payments Association in Herndon, Virginia.

"There is always a concern that someone can hack into a server and steal account numbers, which has happened in the credit card world," Nelson said.

Wells Fargo and Bank of America Corp. of Charlotte, North Carolina, say they will make online bill payers whole if something goes wrong.

Sanjay Gupta, an e-commerce executive at Bank of America, likened some of consumers' hesitancy to their initial resistance to banks' automated teller machines.

"There is an adoption curve, and we're finding that once people try the (billing) service, they question why they would do it any other way," he said.

Of Bank of America's 16 million checking customers, 5.2 million bank online and 2 million -- more than twice as many as a year ago -- pay bills online. Of Wells Fargo's 11 million checking customers, 4 million bank online and 1.2 million pay bills that way, up 41 percent.

Others offering online bill paying include Citigroup Inc.'s Citibank and J.P. Morgan Chase & Co.'s Chase.

DEMOGRAPHICS

Some banks, such as Bank of America, find they can attract more customers by not charging them to pay bills online.

"There is some indication the waiving of the fee brings in a broader demographic than typical for online bill pay, which tends to bring in a better-educated, higher-income demographic," said Tower Group's Robertson. "Cost control is going to be increasingly important to banks."

Banks, however, are also finding that customers who pay bills online are less likely to take their business elsewhere -- at Wells Fargo, 70 percent less likely.

Still, getting people to use electronic bill paying takes plenty of marketing. Experts expect more converts over time.

"You have maybe 5 or 10 percent of consumers who are technologically advanced and will sign up immediately, but others would have to understand the benefits -- it's easier, it's cheaper -- before signing up," said NACHA's Nelson.