The research house estimates that nearly 24 million Americans currently use electronic bill payment and presentment services (EBPP). Usage is increasing at a compound annual growth rate (CAGR) of 18% and is set to rise from 2.11 billion transactions in 2008 to 3.87 billion in 2012.

But TowerGroup warns it is becoming increasingly expensive for credit crunch-hit banks to deliver and support bill payments for customers.

Providing online bill payments to retail customers will cost the industry around $903 million in 2008 as banks outsource the provision of user interfaces, processing and customer service to third parties.

Traditionally banks have accepted the costs associated with offering the service because of the "soft" revenue benefits like improved customer retention, cross-sell opportunities, reduced call centre activity and the higher profitability of online bill payment users.

But with the cost of providing the service rapidly increasing, TowerGroup says these "soft" benefits are no longer adequate compensation for the amount of money spent.

Bank of America began offering free online bill payment to customers in 2002 and the practice had become the norm within two years. TowerGroup says banks expected the cost of offering the service to customers to reduce because of higher volumes as adoption increased.

But "the anticipated cost savings never materialised, and there is little relief in sight", says TowerGroup.

One way in which banks can offset some of the costs is by charging for expedited bill payments. TowerGroup says many customers are willing to pay to ensure that payments are made within 24 hours to avoid being charged for late payments.

The report forecasts expedited payments growing at a CAGR of 38% through 2012, reaching 19.35 million transactions and revenue of $101.6 million.

This will offset approximately eight per cent of the expected online bill payment costs across all US banks, says TowerGroup.

Separate research released by Fiserv-subsidiary CheckFree has found that more Americans than ever, an estimated 63.1 million households - are now paying bills online rather than writing paper cheques.

Based on a survey of 3031 US consumers who use the Internet conducted by Harris Interactive, the research found that three-quarters of online households now use EBPP services.

Online bill payments at bank and biller Web sites comprised 42% of total monthly payments, followed by 31% of bills paid by cheque, says CheckFree.

Approximately 63.1 million of Internet-using households pay at least one bill online in an average month, up from 61 million in a 2007 survey.

CheckFree says the survey indicates that consumers are more confident about online security as more people are gaining experience in using Internet services. This is making security concerns less of a barrier to online bill payment adoption than in the past.

In the latest survey, 13% of respondents cited online security as the top reason for not using the e-bill services, down from 17% in the 2007 survey. Overall, online security ranked third among barriers to online bill payment adoption this year, compared to its number-one ranking in 2007. The primary barrier (15%) in the new study was: "I don't know enough about how it works."

"As more consumers gain experience and become more comfortable using the Internet, their confidence in online security grows and we see an increase in the adoption of online banking and bill payment services," says Todd Lesher, division president, CheckFree electronic banking services.

The majority of survey respondents - 51% - cited the environment as a reason why they use EBPP services. Of these, 72% identified paper and clutter reduction as chief benefits, followed by tree conservation (19%) and reduction in gas consumption (16%).

Saving time and gaining control over their finances were major benefits cited by 44% of respondents.