The check's in the Net

Internet consumers can get instant messaging, watch on-demand video and trade stocks as the market moves, but most still can't pay their bills in real time.

Although a growing number of customers are using online banking for basic services, far fewer are turning to the Net for bill payment. Part of the problem is that banks can take days to process electronic payments, offering little advantage over sending checks by regular mail, while often charging fees for the service.

Wells Fargo, for instance, recommends that customers pay bills online three to six days before they are due and charges $6.95 per month for the service unless a minimum balance of $5,000 is maintained at all times. Bank of America warns customers that most online payments will take two days to be processed and that some will take up to five days.

"The problem you are seeing--and it's a broader problem in financial services, not just limited to banking--is that the true connectivity beneath the hood isn't all that connected," said John Patterson, chief executive of Business Logic, a financial software company. "You've got a high-tech coating over a legacy environment."

Customers may be even more frustrated to learn that the technology to make instantaneous transfers has been available for years. Such payments have long been made over ATM networks and through electronic fund transfers.

But instead of transferring money instantaneously, banks send online payments to large clearinghouses that process transactions in batches. This system is far less expensive for banks than real-time transfers, costing only a few cents per batch.

Industry analysts describe the situation as a classic supply-and-demand stalemate: Consumers are waiting for better bill-payment services before signing up, and banks are waiting for clear market demand before building them.

"Until people demand real-time payments, banks will use the cheapest system around," said Avivah Litan, an analyst at Gartner who covers online banking.

Some 34.2 million U.S. adults banked online last year, according to a recent Gartner study. Although the percentages vary at each institution, about 30 percent of checking-account customers at large banks such as Wells Fargo are using the Internet to check balances and transfer funds among their accounts.

About 17.6 million customers--roughly half the number of those using basic Internet banking services--paid their bills online last year. In addition to higher fees and concerns over lag times, many consumers resist paying bills online because they still don't trust the Internet to provide sufficient security for those transactions.

"Early predictions of electronic bill presentment and payment as a killer application have faded," Forrester Research said in a recent report. "Firms now believe the industry is years away from a critical mass of billers and consumers."

Gartner analyst Avivah Litan says while bank payment sites seem the logical place to pay your bills, so far, it isn't working out that way. The reason: Banks just aren't trying hard enough. see commentary