The typical American household receives about 15 bills each month. Water, electric, gas, cell phone, cable, landline phone, credit card, car insurance, home insurance, student loan, the list seems never ending. According to my highly acclaimed (translation: my mother liked it) 2010 report, US consumers pay nearly 15 billion bills each year. Many (though not all) of those bills are monthly bills.
My take: Monthly bills are so 20th century. There’s no need for them. The death of monthly bills won’t come in the next two years, it’s unlikely to come within even five or 10 years. But at some point in the not-too-distant future, monthly bills will be a thing of the past.
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Have you ever thought about why we receive monthly bills?
The answer is simple: Because it’s not economical for billers to send us a bill every day. Not that they wouldn’t want to.
If billers mailed a paper bill — through the US Postal Service — to each of its customers every day, the cost of billing operations and collections would be astronomical. The cost of billing would likely exceed the amount of money actually collected.
Many billers don’t send bills annually because they don’t want to provide a service for a whole year without collecting the payment for those services. Completely understandable. Some do, of course, but the ones that do are those that provide a fixed amount of services over the course of the year. And they collect their money up front.
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Daily bills aren’t just uneconomical for billers. They would be a nightmare for consumers. Every day they would get a new bill, from G*d knows how many providers. The postage costs and paper management challenge is unthinkable. Keeping track of what got paid to whom would be a challenge for even the CFO of the Shevlin household, and you better damn believe she knows where every penny goes.
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The monthly bill concept is rooted in the mindset that a biller needs to send a “bill” — a paper document, or an electronic document that looks like a paper document — to its customers to inform them of what they owe the biller. In order to reduce their costs of billing, billers have been trying like hell to get consumers to give up paper bills, get electronic notifications of the amount owed, and pay those “bills” online.
There are plenty of reasons why their strategies have fallen short of their goals, but there’s one strategy they haven’t even considered.
If you don’t want your enemy to cross a bridge, the best thing you can do is to blow up the bridge.
If billers want to stop sending paper bills, they need to end the practice of the monthly bill.
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There’s no reason why billers can’t provide continuous information about what a customer owes, in real time, online or through mobile apps.
Every day I use electricity in my house. The utility knows how much I use at any point in time. Providing me with that information, and what the resulting cost is, isn’t rocket science. Many utilities already provide mobile apps that give customers the ability to monitor (and just as importantly, to model) their usage.
If utilities want their money more frequently than every month, all they need to do is provide discounts or incentives to consumers to pay what they owe more frequently (note that I didn’t say “pay their bill”).
If I use $10 of electricity today, my electricity utility may opt to give me a 10% discount if I pay daily, 5% if I pay weekly, and no discount for paying monthly.
All I have to do is push the button to make the payment. Done.
Or maybe the utility will agree that I can pay them when the amount owed hits $100. That $100 might take a week to get to, four weeks to get to, or three months to get to. Billers don’t like to wait too long to get their money, but it’s a lot more important to get their payment from a customer whose monthly usage runs to $10k than one whose total runs to $10.
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The opportunity for banks and credit unions — as well as firms like Check (formerly PageOnce) and Finovera — is not just to help consumers manage their bills, but to manage the information and the cash flow.