It’s an exciting time for those involved in the online payments business. After a decade of talk, epayments are finally going mainstream. But for many traditional players, the victory is bittersweet. The most popular programs are not the DDA-based, pay-anyone systems that had a 10-year head start on the market. The market leaders are coming from outside retail banking. Here are the three biggest drivers of consumer adoption:

•          Auction Payments: PayPal has taken some lumps of late, especially after baring its soul in an IPO prospectus. But with 15 million users and ever-growing expertise in Internet delivery, customer service, and fraud prevention, the company has the potential to do for payments what eBay did for swapping collectibles. If anyone remained doubtful of PayPal’s competitive threat, its entry into traditional electronic bill payment serves as notice that the company has its sights set on the entire epayments market. 
•          Account Management (a.k.a. EBPP): The widely cited Gartner estimate that 32 million U.S. adults are managing credit cards and other bills online was an eye-opener for many.  Although only a minority of the 32 million settle their bills online, we expect that within a few years the vast majority will pay their outstanding balance while logged in to their account. Look at Capital One’s experience. Last year it came from nowhere to become one of the country’s 50 largest ACH originators, with its 5 million registered users paying 16.3 million Capital One bills online in 2001, up 10-fold from the previous year and now accounting for 18% of the company’s entire repayment volume.
•          Extreme Simplicity: The major roadblock to electronic bill payment adoption has been the “getting started” problem. Wary consumers are reluctant to invest time in learning a new system that might not work so well. The way to develop new users is to get them to sample epayments with little effort or risk. That’s why bill payment during account management sessions is proving so popular. And look for the credit card issuers to leverage that activity into broad-based bill payment programs built into their cardholder interfaces

The question remains how to translate all this end-user activity at PayPal, Capital One, and Citibank into profitable programs at YourBank.com. Last month, we laid out several dozen epayment products and services. This month, we prioritize and arrange them into product bundles to fit various strategies common to community banks, credit unions, and larger regional players