Now that many banks are offering online bill-payment services for free, some are looking for ways to sweeten the offer.
What’s better than free? Paying customers to try the service.
That is what some recent promotions offer. And though several analysts say the up-front costs may be excessive, bankers whose companies are offering the cash say the long-term advantages outweigh the cost, because few consumer services generate as much loyalty.
Citigroup Inc.’s promotion is among the most generous. Citi promises $200 for brand-new customers who sign up for bill pay and pay at least two bills a month for a year. (Citi also offers existing customers up to $25 to try bill pay.)
The offer to new customers encourages them “to do business with us and to use online banking and bill payment,” said Mark Rodgers, a Citi spokesman. Customers who use online banking and bill payment tend to be much more loyal and satisfied, do more business with Citi, “and bring a larger share of wallet as a result,” Mr. Rodgers said.
Cash incentives are common for opening direct-deposit accounts, widely considered a way to ensure a steady stream of deposits, but the Citi offer has no such requirement, though accounts must be opened with at least $1,500.
Critics of the cash promotions for new customers include Beth Robertson, a senior analyst at MasterCard International’s TowerGroup Inc. research unit in Needham, Mass.; and Cathy Graeber, a principal analyst at Forrester Research Inc. of Cambridge, Mass.
Ms. Robertson said there are many other ways to encourage online bill payment.
Ms. Graeber said the bonus can backfire if too many customers close their accounts once they have collected. “I’m just not a big fan of trying to bring people in to get started by paying them,” she said. “A lot of people just have time to go after stuff like this and get 50 bucks and close the account.”
Cash incentives are more effective if offered to existing customers, Ms. Graeber said. Twenty percent of customers who have tried online bill pay and stopped would try it again if they were offered a cash incentive, according to her research.
That is what Wachovia Corp. of Charlotte started doing in May. It sent out mail and e-mail to 5,600 customers who were paying one bill online through Wachovia but could pay at least three others that way. (The customized communications, based on information from CheckFree Corp., named each customer’s eligible billers.)
These customers were offered $10 to start paying just one more biller online, said Young-Sun Yun, Wachovia’s online services marketing manager. She said 37.5% responded in May or June by paying at least one more invoice through Wachovia’s Web site. Of a control group who got neither the tailored information nor the cash, only 12.7% added a biller for online payment during the same period.
“We really don’t believe in giving incentives just at enrollment,” Ms. Yun said. “We give incentives at activation,” such as the activation of new electronic bills.
Several other financial companies have tied incentives specifically to online bill payment. E-Trade Financial Corp. of New York, for example, offers a $75 incentive to open and fund an account at its E-Trade Bank, plus $25 to pay two bills online through it in the next 60 days.
EverBank Financial Corp. of Jacksonville, Fla., goes a big step further. It offers no initial cash incentive for bill-payment accounts but is so confident that customers will like the service that it promises $50 if they close an account through which they have made three online payments in three months.
Rob Foregger, the chief operating officer of the branchless division at EverBank, said the bet is working. “Very few people open an account and close it right away,” Mr. Foregger said. EverBank considers online bill payment “a core service,” he added.
Gwenn Bezard, a senior analyst for the Boston market research firm Celent Communications LLC, said daring customers to close their accounts would be a very bad plan for larger banks.
“When you are big, your main concern is how to keep customers on board,” Mr. Bezard said. “When you are small you don’t really worry about attrition, because you don’t have” very many customers. Small institutions’ attrition rate is usually less than 5%, he said.
Mr. Bezard said that the Citi and E-Trade offers can be a good way to attract new customers who do not want the hassle of switching direct deposits from an existing account.
Customers who like a bill-pay service will probably move their direct deposits to its provider on their own, Mr. Bezard said. Most people who use online bill payment want their salaries deposited in those accounts, he said, “because that’s how you pay your bills.”
