Twenty million more Americans will pay their bills online over the next five years, according to a new forecast by Forrester Research, Inc. (Nasdaq: FORR). Much of the growth will be fueled by today’s tech-savvy young consumers, who will seek the ease and convenience of online bill payment as they lead more complex financial lives. By 2010, approximately 47 million US households will pay bills online — a 75 percent increase from the end of last year.

Over the past several years, most new online bill payers have gravitated toward their individual billers’ sites — credit card companies and cell phone carriers — to view and pay their bills online. But in a dramatic turnaround, Forrester projects, banks — which were generally late to recognize consumer demand for electronic bill presentation and payment (EBPP) — will surge ahead in growth over the next five years as more firms follow the lead of Bank of America, Wachovia, and Washington Mutual, which have moved to free online bill payment. By 2010, the EBPP market share will be split nearly in half between banks and individual biller sites.

“Smart banks have stepped up their efforts to grow their base of online bill payers by eliminating the monthly fee. They now understand the impact these customers have on the bottom line,” says Catherine Graeber, principal analyst at Forrester Research. “These customers buy more products, do more self-service, and have higher retention rates. The key question now is: How do the banks sustain growth? They have to involve their branches. Most successful firms are getting at least half of their online bill-paying customers from initiating a sales conversation and enrollment in their branches.”

By the end of the decade, 52 percent of online households will pay bills online. But as Forrester first predicted in 2003, annual EBPP growth rates are slowing dramatically and will continue to do so over the next five years. The 26 percent year-over-year growth rate in 2004 will decline to just 7 percent in 2010.

Forrester sees a generation gap in electronic bill payment adoption over the next five years. For consumers under 30, adoption will soar 219 percent as the financial lives of Generation Y begin to mature. Growth among baby boomers, on the other hand, will be just 32 percent over the remainder of the decade. What’s holding back the boomers? Simply put: Old habits die hard. For many of them, writing checks at the kitchen table each month may be time-consuming, but it’s not enough of a pain to persuade them to move online.

“Online bill payment and presentment is becoming a commodity product. What will differentiate providers in the future is ease of use, the speed of payments, and security,” says Graeber. “Banks haven’t done a great job marketing EBPP because they’re using a one-size-fits-all message. They need to emphasize speed and convenience to young consumers and highlight simplicity and security to boomers and seniors.”

The five-year EBPP market forecast is based on a survey of more than 68,000 households, Forrester’s largest annual consumer survey.

“EBPP Forecast: 2005 To 2010” is available to WholeView 2™ clients and can be found at Forrester clients selected this topic for Client Choice research.