Matt Lewis
evp and general manager
CheckFree Corp.
About 11.4 million U.S. households are now using banks' online bill pay sites, according to Forrester Research. Thanks to the enthusiasm of the Generation X/Y users and bill-pay's predominantly free availability, bill-pay adoption efforts by banks are thriving.
But they will really pay off once banks apply a common retail strategy to their acquisition efforts: segmenting customers. Forrester Research notes younger adults will comprise nearly seven in 10 bill-pay users in five years, but knowing only that a customer is 25 years old is hardly mature market data. Banks need to better understand the types of on-line customers they will be serving, according to Matt Lewis, evp and general manager of CheckFree's electronic commerce division.
Why is bill-pay segmentation now starting to draw interest from banks?
Banks are obviously interested in bill-pay. It improves retention of their retail customer base, it improves the cross sale of their additional retail products, it improves the average deposit balance of every active bill pay customer and it lowers their cost to service that consumer. Those four metrics are sort of the life blood of improving the profitability of your retail banking franchise.
It's not "net" new, and banks have been segmenting their customers for a while. I think what's a little unique is our segmentation is aimed particularly at understanding financial behaviors in light of the online channel, which is relatively new. If you look at segmentation of how I price a checking account, that's sort of a different approach. We're looking at how consumers behave with their financial data, and the role the Web plays in that.
Why is it that bill-pay is driving this on-line banking segmentation, and not simply adoption?
I think it's relevant in both cases. But bill pay is a very significant consumer behavior change. People have...a checkbook, a kitchen table and a stack of paper bills, and if you're trying to get them to do that online, you better understand exactly why they behave the way they do.
Describe how CheckFree developed its six-tiered segmentation model.
We took the customer base [survey], and arrayed answers into these behavioral characteristics and they fell very neatly into six categories. Those six segments are grouped into categories like [Quick and Easy] convenience seekers, people whose primary motivation is "I want my life to be easier." Another segment is Maximum Returners-these people make decisions based on what they get for them. Self Improvers' primary motivation is to get more control over their financial life and managing their finances and e-Savvy Planners' motivation is around new technology. They like gadgets, and they like to use those gadgets to help them plan.
We've categorized Paranoid Paper Pushers [as] people who are very set in ways; they don't have any desire to change. The last segment is Desperate Avoiders...we coined that term because they haven't figured anything out yet. Their only motivating factor is they want it all to go away.
We obviously can take that kind of segmentation data and deliver the behavioral characteristics of the American consumer base. As you think about your on-line banking products and your bill-pay products, you might match this up with people and targets and address marketing messages and product design issues accordingly.
Is there an example of a bank that adopted a new bill-pay service or product based on customer segmentation?
Wachovia was a good example. They were trying to make fundamental business decisions about the platforms on which they delivered online services. [At the RDS conference], we showed two different pieces of marketing collateral where, having made their decision to change their platform, they were explaining the new services in language specifically designed to be responsive to a couple of consumer segments that were important to them.
What's unique for banks in customer segmentation vs. some of the direct billers?
Consumer financial behavior represents a larger opportunity for banks, so understanding it is more important to them. You hear banks often talk about share of wallet. They would like to provide as much financial service to any given consumer as they can, so understanding that consumer financial behavior via this kind of segmentation analysis will give them a better opportunity to craft products or packages of products and services that give them a larger share of that. If you're a biller, you can really only be responsive to your stuff.
Are direct billers, aggregators and other bill-pay competitors to institutions adopting these types of customer segmentations as well?
We do have a large number of customers that are billers that operate biller direct sites that we operate for them. We make segmentation information available to them as well, primarily in marketing messaging.
What results, if any, have you seen that segmenting bill payers would necessarily result in more revenue or cost savings?
We have evidence that this segmentation has contributed to improved response rates to marketing campaigns. Those response rates are defined in most cases as utilization of a service. So yes we do have evidence that it has created improvement in the sales and activation of services.
