Banks marketed online bill payment to middle-aged customers by eliminating fees for the service, but a study finds they may have to develop new marketing strategies to reach the growing under-30 market.
Anita White, an advertising product manager with First Horizon National Corp. of Memphis, said it is targeting customers and prospects who are under 30 and make frequent purchases online.
First Horizon began sending direct mail about its online services to its under-30 customers in April; the response rate was 5.5%. She said that figure was quite good, especially for a group her company had never targeted before.
"We don't have all of their business yet," Ms. White said, but under-30 customers are "a segment that we are targeting more, because of their growth potential."
First Horizon is also offering things like Apple Computer Inc.'s iPod music players to people who pay bills online. Citigroup Inc. and other banking companies have introduced similar promotions in the past year.
When First Horizon introduced bill payment several years ago, it initially targeted its checking customers, who are, on average, 45 to 55 years old, she said.
But to reach a younger demographic, Ms. White said, First Horizon needed a new message: "You can party all night long, get home and, at 4 o'clock, remember that you have to pay your Visa bill, and you can do that from our bill pay site."
Free bill payment is now an old message, Ms. White said. "It's a necessity across the board for banking online. It's almost an irritant to be charged for it."
Cathy Graeber, a principal analyst at Forrester Research Inc. of Cambridge, Mass., said Generation Y - which Forrester defines as people born from 1976 to 1990 - shows the most promise for the adoption of online bill payment.
According to a study Forrester released Monday, the number of Gen Y-ers paying bills online will grow 219% from 2005 to 2010, to 18.2 million households, or 39% of all households using online bill payment. The projected growth rate is higher than that for any other age group. (Gen Y will make up just 24% of all U.S. households by 2010.)
Ms. Graeber said that baby boomers - those born from 1946 to 1963 - already had households to manage, and plenty of monthly bills to pay, when banks began offering online bill payment, so many boomers saw it as a way to simplify their lives.
Their "financial lives were more complex" than younger people, Ms. Graeber said. "Many of them saw the value in it, enough to pay the fee" that most banks initially charged for the service.
As a result, "the boomers were really the early adopters," she said.
Online bill payment among boomers will grow 32% by 2010, when they will represent 28% of households using the service, Ms. Graeber said.
Use of the service by Generation X - people born from 1964 to 1975 - will increase 52% by 2010, to 28% of all online bill payment users.
People born from 1900 to 1945 make up 21% of U.S. households but just 5% of online bill payment users. Their use is projected to decrease by 5%.
Though boomers saw online bill payment as a service worth paying for, members of Gen Y have fewer bills to pay, and to them, any fee for the service is too much, Ms. Graeber said. "It's a kind of fee-aversion issue to the younger consumers."
Many studies have found that people find using biller Web sites inconvenient for paying several bills, but many members of Gen Y pay their bills at those sites, in part because the service is free and perceived to be faster than those available at bank sites. By 2010, Ms. Graeber expects 73% of them to pay some of their bills at biller sites and 61% to pay some of their bills at bank sites.
She also said that banks have more potential to attract young people to their bill payment sites than billers, because all the major billers already offer the service. "In my mind, there just aren't enough of those big billers out there to fuel growth" anymore.
Her forecast assumes that banks will retain their current marketing strategies - which focuses on cost - but young consumers already assume such services are free, she said.
Banks "leave the message at free bill pay," but billers have a more effective message, Ms. Graeber said. "If you look at their marketing message, it's very much a way to manage your account." By making bill presentment the focus, instead of bill payment, billers have convinced many consumers that they get more at biller sites than at bank sites. Many banks offer bill presentment, and those that advertise it attract more young consumers to their Web sites, she said. "There is an upside potential" for banks to improve adoption "if they do all these things right."
