Two midsize financial institutions, Hibernia National Bank and Northwest Savings Bank, have started offering free online bill payment - but, unlike at many of the larger ones that have done so, there are strings attached.
At Hibernia, of New Orleans, retail customers can pay an unlimited number of bills without incurring what had been a $4.95 monthly fee, but small-business customers are limited to 15 bills a month. They will be charged 50 cents for each additional bill they pay.
Customers of Northwest Savings, of Warren, Pa., must use the service at least once a month. If they skip a month, they incur a fee of $5.95, which had been the monthly charge.
Executives at the two banks said Thursday that their decisions to drop the fees last week were influenced both by the profitability and retention rates among their online banking customers and by the success stories of larger institutions that have made similar moves, including Bank of America Corp., Bank One Corp., and Fifth Third Bancorp.
The Hibernia Corp. unit has $17 billion of assets, and the Northwest Bancorp Inc. subsidiary has $6 billion. The executives said they put the limitations on the services in order to influence customer behavior.
Bob Kottler, a senior executive vice president at Hibernia and its chief sales support officer, said the limit on free payments for small businesses is there to "truly differentiate" between large and small corporate customers. Large ones use Hibernia's treasury management products rather than online bill payment, he said.
A quarter of Hibernia's checking account customers use online banking, and 11% of those use the bill payment service, Mr. Kottler said. "We're seeing the same [trends] in retention and customer profitability as everyone else."
David Westerburg, the vice president of direct banking at Northwest Savings, said that even though it will charge fees for sporadic use of the online bill payment service, it would not charge a customer for more than a few months in a row without contacting that customer. "We're not here to charge our customers $70 a year."
The fee is meant to pass along charges assessed by the bank's vendor, CheckFree Corp. of Atlanta, if a certain threshold of customer usage is not met, Mr. Westerburg said.
Northwest Savings introduced online banking last year, and now 14% of its checking account customers use it, Mr. Westerburg said. Of those, 10% use the bill payment service. It expects the percentages of customers using both services to increase by 25% within a year, he said.
"We've found that we're very typical," Mr. Westerburg said. "People who use online banking will use other online services, and our Internet customers are of a higher profile - you know, the customer every one wants."
The evidence that free bill payment helps banks attract and retain customers continues to mount. InsightExpress, a Stamford, Conn., research firm, released a survey of 500 people last week in which 62% of those who said they do not pay bills online cited the fees involved. Of the 57% of respondents who said they did pay bills online, 54% said the service made them less likely to switch banks.
