After several years of growing investment in online banking, banks are now faced with an important decision: what to do about electronic bill payment and presentment (EBPP)—and when. EBPP enables consumers and businesses to receive, review, and pay their bills electronically, offering advantages of both cost and speed over the way most bills are paid today. By taking paper out of the billing process, EBPP could save billers, customers, and other constituents in the United States over $2 billion annually by 2002.

For banks, EBPP represents something of a threat, in that it could lead to customer attrition and erode several revenue streams: the float associated with paper check processing, cash management fees, and other revenues associated with traditional payment processing. These revenues could be partly protected if banks were to provide—and shape—EBPP.

But EBPP also has an important strategic dimension as it promises to become an integral part of a bank’s overall online banking service. EBPP can add value to the core checking account by making transactions more efficient and enabling customers to consolidate their financial information more easily. Moreover, online interactions can be used to create a more intimate relationship with the customer and promote and deliver...