Are banks missing opportunities to offer more useful bill payment services? A new report issued today by Javelin Strategy & Research suggests creative newcomers, such as Pageonce, Mint, Bill.com, Billeo, Doxo, Manilla, Volly and Zumbox, are gaining traction while banks idle.
"The threat of disintermediation is wide and varied in financial services," says Mark Schwanhausser, senior analyst, multi-channel financial services at Javelin. "Financial institutions have benefited greatly from bill pay; it's an integral reason why more consumers didn't switch during Bank Transfer Day last year."
Banks have reported in the past that when customers sign up for online bill payment, customer retention skyrockets. In Javelin's survey of 4,728 consumers conducted last December, 83% of those who pay all their bills through their financial institution are satisfied with their current banking relationship. Among those who pay their bills through their billers' websites, 73% said they were satisfied with the current financial institution.
The upstart innovators in Javelin's report are trying to offer a better alternative to banks' traditional bill payment offerings. Although they are not quite there yet, Schwanhausser says they are building the right pieces. "A financial institution that's blinding itself to the threat that other companies can't steal a piece of their business is vulnerable," he says.
"If somebody else can convince the consumer that he would get a better way to pay bills, that's a significant threat to a financial institution," he says. For instance, non-bank bill payment providers could let consumers pay all their bills in one place, for all bank accounts and all billers, providing a big-picture view of the consumer's finances.
The non-banks could also potentially provide more flexibility. While a financial institution will typically let people pay bills with their checking account, an outside provider could let people use a credit card or other payment method.
"We have reams of evidence that consumers have complex financial lives, frequently are dealing with a lot of products and financial institutions, and have bills all over the place," Schwanhausser says. "The more they move to a digital lifestyle, the more they'll say they need help to tame the mess and bring order to it. What they really want is some way to consolidate the chore, make it easier, all in one place with control."
Although this should be a wake-up call to the financial industry, Schwanhausser says that banks are still in the best position to provide bill payment services directly tied to finances because they can offer control, convenience, practicality and security, a package that's tough to beat.
What many banks have today, he says, is an "entanglement strategy," in which they're good at keeping customers in bill payment relationships simply because it's very hard to unwind these accounts. "One could take the view that the thing that's great about bill pay is it entangles consumers and they'll be too tied up in a spider web to get away," Schwanhausser says. "That kind of business plan has value and logic, but that's not the way I'd want to build my business plan."
A better focus for banks would be to find a way to make their bill payment services so good that consumers wouldn't even consider trying to unravel them.
A weakness of the non-bank innovators is their lack of mobile offerings. Other than Pageonce, which built a mobile component to its service from the start, the bill payment newcomers have focused on the online experience, he says.
Banks have been offering mobile alerts to let people know about bill payments, potential fraud and potential overdrafts for several years, though not always perfectly, Schwanhausser notes. Getting alerts right could give the consumer the sense that he's got always-on control and access to his money and help the bank provide a personal relationship through electronic means. "The personal part is it's about your account, what just happened, what you need to do," he says. "That's going to be another reason why financial institutions are in a better spot to build on their bill payment relationships and not let them erode."
Bill payment innovators will build their products in four phases, Schwanhausser believes. First they will work on money management; second, tying bill payment to financial management; third, offering mobile access to these services; and fourth, archival of bills.
Doxo, Manilla, Volly and Zumbox are all in that bill archival space. "They will have to be patient, because consumers aren't clamoring for an archiving solution right now," Schwanhausser notes. "They've got reams of digital stuff, but they're going to have to see proof that it can be done in a way that's simple and safe."
Wells Fargo began offering an archival service called vSafe in 2008. The bank provided digital document storage for a minimum $4.95 monthly fee. In late March of this year, it announced it was shutting vSafe down. The product may have been ahead of its time.
"We are discontinuing the vSafe service due to low customer interest and adoption," said spokesperson Andrea Mahoney in an email today. "One reason for the lack of adoption is that many documents are not digitized and it’s still work for the customer to get them digitized (even with capability to take pictures with a phone). As always, we focus on developing solutions that help simplify our customers’ money management and achieve their financial goals." Existing vSafe customers will still be able to access their files through the last week in September, by contacting customer service.
"That's the challenge of being one of the first adopters, if you're too early it's just as costly as being too late," Schwanhausser says.