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Study Finds More Consumers Turn to 'Expedited' Payments

A study finds that about half of consumers who pay monthly bills such as their mortgage through expedited, electronic payments do so because they "forgot" to pay earlier and are rushing to avoid late payment charges or other penalties.

Of those consumers utilizing expedited payment methods, 71% do so within three days of the bill's due date, 21% waited until the day the bill was due and 19% pay after the due date but before a late fee is imposed.

The method of expedited payment also varies, but more than half (52%) of consumers are still making expedited payments by telephone to a call center.

Almost one-third (31%) do so via Web-based payment systems. Only 8% make expedited payments by rush delivery or overnight mail. And only 6% use walkup money transfers or wire services.

Moreover, consumers participating in the survey reported that their mortgage bill was the second most commonly paid bill via expedited payments, falling only behind credit cards. Other bills often paid through expedited means included car loans, cell phones, electric utility, insurance, and cable television.

Paul Flanigan, chief marketing officer of Fort Knox National Co., said that understanding payer behaviors can help clients of e-pay services discover greater value in their remittance process.

Noting that one in four consumers have made an expedited payment within the last year, he said billers should offer all payment channels and types and make them easy for consumers to use. At FKNC, that means not requiring enrollment or registration to make electronic payments, he added.

By adopting an integrated strategy for offering expedited payments, mortgage lenders can enhance the profitability of this payment channel.

Mr. Flanigan said the choice between scheduling regular monthly payments through a debit program or making expedited electronic payments comes down to a matter of consumer preference. Some find it convenient to schedule a regular payment on a fixed date.

"Other folks really want to maintain more control. They want to go in there every month and initiate or manage the payment," he said.

The most popular payment methods are interactive voice response systems, Web payments and call centers, with call centers handling most of the expedited payment volume to date. Internet payments have increased dramatically in recent years, he said.

"Over the last three to five years, we have seen a 75% growth rate in convenience payments," Mr. Flanigan said. He said FKNC expects that fast growth rate to continue, with a minimum 35% increase over the next three to five years.

He said the average household now pays 15 bills a month, all of them on different payment cycles. As a result, many consumers end up making expedited payments just because they forgot bills or neglected them earlier.

"I think the mortgage industry, like any other, should take advantage of this wave of consumer adoption," Mr. Flanigan said. "The greater the number of payment methods you allow, the greater likelihood that you will get paid on time."

In addition, lenders benefit because processing electronic payments is much cheaper and results in fewer exceptions than processing paper checks through a lockbox. In addition, electronic funds are transferred more quickly to a lender, opening up the potential to enhance interest rate float.

Many lenders also charge consumers for using a convenience payment method. And Mr. Flanigan said the amount that can be charged varies depending upon the size of the late fee and other factors that might affect a consumer's willingness to pay.

In addition, he said many companies are looking for self-service channels, such as automated speech recognition and the Web, to deflect billing and payment inquiries that put a strain on a call center.

The survey also found that many of those who practice expedited payments do so regularly: 73% use it at least once every six months, 13% once every three months, while 9% make at least one expedited payment monthly.

And 12% of users said they use expedited payment methods to pay their mortgage bill.

A total of 64% of respondents said they use expedited payments because they are concerned about the late fee, while 52% cite a black mark on their credit rating.

Richard Crone, a director at Edgar, Dunn & Co., said that companies trying to seize business opportunities through expedited payment should offer all three electronic channels: the Internet, automated speech recognition and customer service representative-based payment.

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