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Bill Pay Keeps Your Financial Institution Top of Wallet

Bill Pay Keeps Your Financial Institution Top of Wallet

Bill Pay Keeps Your Credit Union Top of Wallet and Top of Mind with Millennial and Gen Z Consumers

Making up 55% of the U.S. population, millennial and Gen Z individuals make almost every transaction with a credit card for the rewards or through digital channels for ease of use. They prefer to pay bills directly on their credit card’s website or – if really feeling flush with cash – set up auto-pay!

Get this: according to Deloitte, millennials and Gen Z account for nearly half (46%) of individuals currently employed in today’s labor force. What does this mean for you and your financial institution?

First, it means you must determine how to compete with the merchant apps and big banks by determining which bill pay model works best for your institution and your community. Then, you must effectively market your solution so you’re reaching your target demographic, which definitely includes millennials and Gen Z.

Bill pay is the prime opportunity to keep your financial institution top of wallet. If a consumer has bill pay set up, there’s a pretty good chance you’re their primary financial institution.

In the industry, we used to only see two settlement models. However, the ever-changing payments landscape has given rise to a third model.

Good Funds

This model guarantees the consumer has the funds necessary to make the payment before you, their financial institution, pay the merchant on their behalf.


  • The financial institution doesn’t have to deal with fees or the headache of making a payment on behalf of the consumer without the funds already existing.
  • The financial institution can notify a customer if their bill wasn’t paid due to insufficient funds. The customer then can then empty out their Venmo (millennials are the Venmo generation) account (or set up their Zelle – looking at you, Gen Z) into their bank account and resubmit the payment before it’s due to cover that payment.
  • The customer also doesn’t incur a penalty for not being able to make that payment the first time if they are able to find the funds before the payment is due.


  • The payment is pulled out of the customer’s account the day it is initiated, not the day it’s due. So, if your member has a cable bill due on the 31st, and they expect to have those funds in their account until that day, they may find a lower bank balance than they were expecting to see earlier in the month.


This model means you’re taking a risk on customers by trusting they have the funds in their accounts to pay the bills they set up.


  • The money isn’t pulled out of the account until the actual payment is due. The customer’s money is in the account just as they expect it to be, so they’re not calling their financial institution and asking where their money is on the 5th of the month.
  • Something else to consider as a pro for the institution (but not so much the customer) is the potential for fee income.
  • Additionally, risk-based models can process many transactions very quickly since they’re using the ACH rails to move money. This model is scalable and good for institutions that see a lot of transactions being completed through bill pay.
  • Finally, the data here lies with the bill pay company making it easier to decouple or convert between bill pay providers and cuts down on data redundancy.


  • If the customer doesn’t have adequate funds to make the payment, the institution doesn’t have time to go back to them and get access to additional funds to complete the request. This means a late fee for the customer, and we all know consumers don’t like fees! Avoiding them is one of the reasons they joined your financial institution in the first place.

Third Model

This bill payment model came about recently thanks to some new players in the market. With this model, a bill pay provider establishes a holding account at your institution with a connection to the core. At the end of each day, or through a real-time payments API, the bill pay provider submits a file for all the payments scheduled the following day. The settlement account acts as a middleman for payments made to a merchant while handling reversals and returns.


  • The bill pay provider guarantees the funds are there in the settlement account, so the customer isn’t incurring non-sufficient funds (NSF) fees or other overdraft charges.
  • This method also piggybacks off the pros of the risk-based model above without the risk of not having adequate funds in the account.


  • The institution isn’t getting the revenue from those additional fees.

I know that all the individual elements of the payments landscape are confusing on their own. It gets even crazier when we start talking APIs, real-time payments, and any other buzzword you can find on your vendor presentation bingo card. Our goal is to make things easy for you to understand so you can make the best possible decision for your institution and more importantly, your customers.

I’ll leave you with these final thoughts:

  • Use the data you have in front of you right now.
  • Encourage your account holders to use bill pay.
  • Use a holistic loyalty program (not just a rewards program) that encourages your customers to try all your products and services.
  • Employ user journey mapping to determine what a customer sees, does, and how he/she could be doing it more effectively and efficiently.
  • Push your new customers to sign up for online/mobile banking.
  • And most importantly, track if your customers use your card on Amazon, Netflix, and Uber. If they do not, you can bet the big banks and their mobile apps are earning your interchange income.

For more information about bill pay, reach out to the experts at Engage fi today!

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