Adopting a strategy that has served Citigroup Inc. well, Bank of America Corp. said Thursday it will stop charging new subscribers for online bill payment and let current subscribers drop the fee by calling the company and supplying their e-mail address.
Most banks offer some online banking services for free, but charge for bill payment. The $5.95 fee charged by Bank of America - which has more Internet banking customers than any other U.S. bank - is fairly standard, though the company said that as many as 75% of its online customers had already qualified for free EBPP by keeping high balances in their accounts. The service will be free for all subscribers starting Monday.
Citibank has never charged for EBPP, but most other banks have been experimenting with prices. Bank of America's service might not stay free forever, but the Charlotte, N.C., company does view free EBPP as "a key differentiator for our checking accounts," according to Sanjay Gupta, a Bank of America marketing e-commerce executive. "I think it will be very positively received."
The company says it has 3.3 million active online banking customers, and 1.1 million of them use EBPP - the most in the industry.
Mark Rodgers, a Citibank spokesman, also said that online customers "are more loyal and have deeper relationships with us."
In an interview last month with American Banker, John Rosenfeld, a Bank of America senior vice president and consumer e-commerce executive, said EBPP users are some of the company's most attractive customers. They have 80% lower attrition rates, maintain 30% higher balances, and make 30% fewer calls to the call center than other customers.
James Van Dyke, the research director in charge of financial services practice at the New York Internet consulting firm Jupiter Media Metrix, said the impact of Bank of America's free EBPP offer could be significant. "I don't know if any bank yet has measured the value of viewing bills online, because it's so new, but that could be even stronger."
Bank of America provides its online bill payment service through CheckFree Corp. of Atlanta. At the end of last quarter about 20% of CheckFree's subscribers were Bank of America customers, who accounted for 30% of CheckFree's transaction volume.
Terrie O'Hanlon, CheckFree's executive vice president of marketing, would not discuss its financial arrangements with Bank of America, except to say, "The impact to CheckFree will be only positive."
Other institutions already offer free online bill payment, but "Bank of America will be the first with a nationwide footprint with the power to influence a wide variety of consumers by offering the service for free," he said. "We haven't seen anything like this before."
Still, Richard K. Crone, a vice president at Dove Consulting, said Bank of America will be playing catch-up with the biller-direct sites, which usually employ automated clearing house debits to complete transactions. Consumers know "they can wait till the last minute to pay at the billers' Web site," he said. "You can't do that at most bank Web sites."
Mr. Van Dyke of Jupiter Media Metrix said Bank of America's move could prompt other banking companies to eliminate online fees. "I don't think there will be an overnight rush, the equivalent of a gas-price war, but institutions will look and see this is an opportunity they might be missing."
Avivah Litan, a vice president and the research director for financial services of GartnerGroup Inc., called Bank of America's move a response to the success of biller-direct Web sites, primarily those of credit card issuers, which enable customers to view and pay their statements without an intermediary such as a bank.
Banks have focused instead on a "consolidator" approach, in which customers could view a variety of bills from the bank's Web site, she said "The heat is on B of A to make the consolidator model work. If B of A can't make it work, nobody can."
David M. Scharf, an analyst at Jolson Merchant Partners of San Francisco, expressed concern that the move could hurt CheckFree. "Price concessions by banks to their end-users [represent] primary warning signs of impending pricing pressures, and the news that the market leader is giving it away may accelerate this trend," Mr. Scharf wrote.
