Why do banks want the customers to set up auto-pay for bills? How do banks benefit by this?*

There are several benefits to banks if their customer pays a bill using one of their payment methods like credit card. Chief among them are:

If customer pays the bill with the credit card issued by that bank, the bank earns a certain fees from the Biller / Merchant. This is called Merchant Discount Rate (MDR) / Merchant Fees.

Depending on the nature of the bill payment product offered by the bank, the bank can also access the details of the bill such as merchant category (food, apparel, hospitality, etc.), date of spend, and so on. This is valuable data that can be monetized by running targeted ads from brands off of it. Such ads are highly relevant and have extremely high conversion rate compared to spam. Brands are willing to pay top dollar for them.

Here’s a topical example.

Suppose I set up my electricity bill payment on my bank’s website. Suppose my typical monthly bill is in the region of $80–$100. Now, suddenly, on one month, the bill shoots up to $170. The bank can display a targeted ad for a power-sniffer product like the one I saw on my bill recently.

In the past, I might have seen several ads of this vendor but ignored them. But, on the month that my electric bill has shot up, I’m in the perfect state of mind to think of buying this product because it gives me a way to keep my future bills in check. (While this product does not offer to do that, there are other competing products that will even offer to intercede with the energy utility to work out a discount on the present bill itself, if there is a metering or billing problem.)

Therefore, bill pay is a decent source of revenues for banks, which is why banks are interested in customers paying their bills via them.

Now, let’s come to auto bill pay.

Many customers have credit cards from different banks. Left to themselves, they may use any credit card at random to pay a bill on a given month. As a result, the bank which earned MDR in one month from a given customer’s bill payment may lose the MDR to its competitor in another month. Obviously that’s not to the advantage of any given bank. Ergo, each bank tries to enroll its customers for auto bill pay, so that *its* credit card is used every month and *it* gets to earn the merchant fees every month.

Of course, that’s a benefit for the bank. In marketing, you always focus on benefit to the customer. That’s why you’ll find banks pitching auto-pay with a different message like “Never forget to pay a bill on time”, “Enjoy peace of mind”, “Don’t waste your time on mundane matters like bill payments”, etc.

*: This is the original question I answered. I’m repeating it to help me make sense of my answer in case it’s moved to / merged with some other question that I didn’t answer.