Will Billers Push Harder for Digital Payments under COVID-19?
As a result of the sweeping stay-at-home orders and shutting down of nonessential businesses, Americans are facing record unemployment. Consumers are struggling financially and those who were living paycheck to paycheck, and many others, are having trouble paying their bills. These individuals have to make difficult decisions and prioritize their spending, which often means groceries and healthcare expenses come first.
The Biller domain is populated with firms and organizations that provide essential services: electricity, water, rental properties, insurance, and unsecured lending in its multiple forms including auto loans.
In this high unemployment, high uncertainty environment, billers are looking at a complicated period ahead.
To alleviate the financial burden facing many Americans, billers and lenders across the country (both in the public and private sector) are providing relief and support. While the relief takes different forms depending on the sector or the state, the impact in the short-term will undoubtedly be lower bill payment volume overall as Americans miss payments and focus their spending on absolute necessities.
Mortgage and Rent: The Coronavirus Aid, Relief, and Economic Security, or CARES, Act, which was signed into law on March 27 includes protections for homeowners with federally backed mortgages. Specifically, it prevents a mortgage lender from foreclosing a property for 60 days (starting on March 18) and can be extended to up to 12 months at the request of the borrower.
Private lenders are working with local governments to offer support as well. In California, for example, around 200 banks are offering a 90-day grace period on mortgage payments as part of a deal reached with Governor Newsom. Similar agreements exist across many other states as well.
Renters are also being provided with relief. Some cities have forbidden landlords from evicting tenants who can’t make payments. In New York City, for example, “no eviction warrants will be issued for at least 90 days.” In other cities, the government is providing direct rent assistance. “like Delaware, which offers up to $1,500 to residents struggling to pay rent or electric bills because of coronavirus.” Furthermore, some landlords are taking matters into their own hands and temporarily cancelling rent entirely for their tenants, like this Brooklyn landlord.
Utilities: While not required by law, many utilities companies are committing to not turning off their customers’ service if a payment is missed. For example, CNBC reports that “Comcast said it won’t disconnect any customers’ internet throughout the pandemic, and New York utility ConEdison won’t shut off anyone’s lights. Verizon announced it will do away with late fees and not suspend the service of customers negatively impacted by the global crisis.” As many as 700 internet service providers have signed the FCC’s Keep Americans Connected Pledge, which asks companies not to terminate service due to the inability to pay, as well as waive late payment fees.
Credit Cards: Many credit card issuers are also providing relief to their customers who can’t make their payments and are experiencing financial hardship. For example, Apple / Goldman Sachs allowed customers to skip their March payment without accruing interest or other penalties. However, the bulk of issuers are providing assistance on an ad hoc basis for customers that seek it out, either online, via the mobile app, or over the phone. Many of these issuers have dedicated COVID-19 support pages and phone lines for customer inquiries. The level of assistance and eligibility requirements varies by issuer and by customer. For more information on how issuers are responding to the crisis, refer to Credit Karma’s tracker here.
The relief being provided by billers expands well beyond these specific sectors, from student loans to auto loans to insurance payments to tax payments (the IRS extended the deadline for filing to July 15).
As a result of, and despite, these relief measures, we anticipate a significant decrease in the number of bill payments made during the crisis. A shift from debit card and ACH-based payments to credit cards has not materialized as higher value sales using credit cards are put off. No doubt some consumers, struggling with unemployment, are making payments with money they don’t currently have. Of course, that presupposes that their issuers have not proactively and defensively lowered credit lines.
However, it is important to note that some billers may not be impacted as drastically as others in the short term. Companies that offer subscription services to home-bound customers may see an increase in bill payments and new customers. For example, Netflix and Peloton have both seen record sales during the pandemic’s first quarter. Of course, those subscriptions take share from other sectors such as movie theater, gym memberships, and sports team tickets.
Further, some consumers will be financially astute enough to recognize which bills they can be late on without impacting their credit scores.
Longer Term Impact
In the long term, the virus will have a structural impact on how billers send bills and receive payments, rather than on the volume of payments they receive. Many billers are again asking themselves: “how can we eliminate reliance on paper bills and payment processing that requires human resources and physical touch?” Naturally, the goal is increasing electronification.
The pandemic highlights the risk for both billers and consumers due to reliance on mail-based bill delivery and payments. Billers of all sizes that rely on post office bill delivery may not have had sufficient staff available to prepare bills for mailing. Their outsourced print and mail provider may have had disrupted service due to virus-driven staff reductions. This will further motivate billers to transition toward electronic bill delivery. Consumers have demonstrated caution with packages and incoming mail during the crisis and that concern is likely to persuade some of those that have been stubbornly resistant to electronic bills to (finally!) transition.
For large, sophisticated billers, the payment function that most requires physical hands-on is in-house or outsourced lockbox processing. Operations centers may close or have limited capacity as they attempt to reduce employee exposure and maintain safe-distance guidelines during the covid crisis. This disruption may reoccur in waves depending on how the pandemic plays out geography by geography. We expect billers will seek alternative solutions to ensure business continuity and predictable cash flow. For example, we expect billers will heavily promote electronic payment (cards, ACH, new real time payments) and that this trend will continue once the crisis subsides.
Smaller billers that do not utilize lockbox services currently receive paper checks in the mail at their offices. Processing these payments requires staff on-site. Many smaller, or less technologically sophisticated, billers still lack a website configured to host electronic bills and allow customers to make one-time payments, or manage recurring electronic payment. The virus may finally be the push they needed to start sending electronic bills and accepting electronic forms of payment.
Finally, some individuals still pay their bills in person using cash at a range of agent locations, such as biller retail sites, customer service centers, money transfer agents, money order services, convenience stores, etc. Since consumers have been under lockdown or remain reluctant to return to public spaces, those that rely on in-person payment services are left without an option for paying their bills.
Lockbox providers have consolidated in recent years and both banks and billers have fewer choices. Deluxe is now the largest provider, serving both banks and their corporate customers. As volumes decrease, consolidation is likely to intensify. Because Deluxe provides payment execution solutions for businesses directly and for banks and their accounts payable customers as well as lockbox solutions for banks and their accounts receivable customers, they have started to integrate these two solutions eliminating processing delays and hand offs. Their ability to do so will only increase if their market share increases.
Perhaps native electronic “eChecks” such as those offered by Deluxe will gain popularity as a way of replacing physical check processing and help transition consumers who are stubbornly reliant on checks.
Smaller billers will seek support from their accounting package or ERP (e.g. Intuit, Netsuite), a payment provider (e.g. Stripe), or a billing provider (e.g. Transactis, Billtrust, Bill.com) to enable electronic billing and payment. We expect SMB and mid-market focused billing and payment enablers to gain new customers and increased payment volumes as a result.
The difficulties associated with processing paper payments may also cause banks and billers of all sizes to adopt new Request to Pay (RtP) solutions offered by TCH RTP and Mastercard Bill Pay Exchange. These solutions address both bill delivery and electronic payment. They have the added benefit of easier payment posting since the payment is logically tied to the RfP ebill.
Finally, as it becomes increasingly difficult to staff physical payment acceptance locations there may be a consolidation of in-person payment at convenience stores and other essential retail locations. PayNearMe would benefit and potentially the beleaguered USPS could offer enhanced bill pay solutions.
Banks should explore redundancy of their lockbox services, potentially utilizing operations in different geographic locations, even from the same vendor, to ensure continuity. They should simultaneously enhance their offerings for biller customers to help them transition consumers to electronic payment via ACH or card, or new real time RfP. This will likely require partnerships with biller-centric solution providers.
Billers of all sizes will be motivated to adapt electronic billing rather than rely on printing and mailing bills to consumers. Large billers with in-house and outsourced lockbox operations will seek redundancy and simultaneously encourage electronic payments. They should seek vendors with strong bill presentment and payment expertise. Small and mid-sized billers that have historically relied disproportionately on checks will look to their ERP and accounting system, or specialist billing and payment providers for solutions.
Providers Serving Billers
Demand will intensify, and many new customers will be late-adopters without digital experience. This will stress provider implementation resources and may result in delayed revenue. Pre-integration with popular billing platforms, ERP/accounting software, and other biller-centric solutions will help.
This series examines these impacts, and others, in more detail through Glenbrook’s Domains of Payments framework.