Online bill payment needs a boost.
Like a well-trained marathon runner, the service has had a long and steady run over a more than decade-long course, but it's beginning to hit a wall. Online banking's early-adopter set, eager to jump on the electronic bandwagon, have long ago embraced the concept of paying bills from their bank's site (or that of a bill payment consolidators like Fiserv's MyCheckFree.com).
But despite the benefits and the fact that most online bill payment services are free, there's still a healthy contingent of bank customers (even online banking customers) opting to pick up their pen and checkbook when it comes time to pay their monthly expenses. Although an August online banking survey from Javelin Strategy & Research says seven in 10 households now pay bills online on a monthly basis, recent research indictes only half of households that bank online also pay bills regularly through their bank's site.
According to Forrester Research released in June, that number is growing at 5.4 percent a year, and within five years, 63 million U.S. households will be paying bills online, either through the banks and bill consolidators or directly to billers, such as utility and credit-card companies.
Within three years, a majority of payments, for the first time, will be made through banks and consolidators like Yodlee who are supplying more of the bill payment services to bank Web sites. For banks and credit unions, their share of the pie is expected to be around 45 million households, per figures last fall from Javelin.
But today most users are still using biller sites, much to banks' frustration. And 54 million users are still expected to be regular patrons of direct billers by 2013, said Javelin. Jim Bruene, president and founder of Online Financial Innovations, says that "it's definitely true that bank bill pay has hit a plateau. Consumers are using direct bill pay at merchants for quicker turn time on payment."
Why should banks be concerned? In this market, where retail deposits are king and retention is paramount, online bill payment represents one of the best ways to keep customers from switching banks. "It's a lot harder to unwind the [online bill payment] product. If you're just banking online and not paying bills online, it's a lot easier to move to another bank," says Marie O'Neill, senior vice president for marketing and electronic banking at Union Savings Bank of Danbury, Conn.
Indeed, many banks are trying to win over those unconvinced consumers to start paying bills electronically and through their sites. Bruene points out that some banks are tweaking their systems so they are easier to use in hopes of engaging those techno-laggards, who will only adopt online bill payment when they see it as not only faster and cheaper than conventional check payment, but also simpler.
He also says that he's seen several banks working on increasing the speed of payments, so that users can be assured that their payments are going through by the next business day. That's crucial in this economy, as more and more consumers postpone paying their regular bills until the last minute.
Here are a few strategies that banks are using to capture a larger share of the online bill pay market:
Integrating e-Billing Into the Online Bill Payment Engine
According to Javelin analyst Mark Schwanhausser, one major factor working in the banking industry's favor is that more consumers say they would prefer to view and pay their bills centrally at their bank's site than a biller's or a consolidator's site. But traditionally, banks have been fighting a problem of perception as well as competition.
"One of the issues in presentment is that [banks] are competing with, but also co-operating with, billers," he says. Case in point: In August 2008, AT&T announced it was working with Fiserv's CheckFree service to launch an e-bill service for its wireless customers - of whom more than 92 million pay their monthly bill online - that will work through more than 3,000 financial institutions.
Underscoring The Availability Of Expedited Payment
Consumers are often happy to pay a moderate one-time fee for the privilege of paying a bill just before it's due. Javelin forecasts that over the next five years revenue opportunities for expedited payments would top $5 billion. But the Pleasanton, Calif., firm found that even though more than 30 percent of consumers use expedited payment at least once a year, just one-quarter of these payments are made through a bank.
It's not for a lack of available tools - many banks work with either Yodlee or Fiserv to integrate expedited payment into their online service, and Jack Henry & Associates debuted an enhanced version of its own bill pay service in October that adds an expedited payment feature set. In July, Wells Fargo struck a deal with Western Union Co. under which it will offer Western Union's same-day bill-payment services on its Web site.
Still, many consumers simply don't know that their banks offer expedited bill pay, according to Bruce Cundiff, director of payments research for Javelin. "It's more of a marketing and perception issue," he says. "I don't think financial institutions are doing a good job at [promoting] expedited payment... and they're losing out to billers on this opportunity."
Tying Bill Paying Into Personal Financial Management
With the recent rise of online personal financial management - hosted by nonbanks like Mint and Wesabe, as well as the growing availability of these more advanced tools at the sites of such banks as PNC Financial Services Group, Citigroup, and Wells Fargo & Co.-bill payment is being wrapped more naturally into the over-arching financial picture. A good example is how PNC is incorporating bill payment into its Virtual Wallet application, according to Schwanhausser.
Among other things, he says that including bill payment within the bank's financial management service provides users with a calendar that points up "danger days" letting payees know when a bill may be coming due or their account may fall short. "The bank often makes you think of your money as a subset of banking, when it should be turned inside out," Schwanhausser says. "This helps them see it all and take care of it all."
Just as they did to attract new checking account customers, several banks are sweetening the pot by offering sweepstakes, prizes, and even cash to consumers willing to commit to online bill payment.
Synovus Financial Corp.'s Bank of North Georgia last year ran a marketing campaign in which it gave iPod Nanos to anyone who opened a free checking account and sent at least three online bill payments.
Ed Kountz, senior analyst for e-business at Forrester Research, says that other banks, including JPMorgan Chase & Co., have also hosted contests as a means of winning new bill pay users.
Royal Bank of Scotland's Citizens Financial Group recently put its money where its mouth is by offering to pay customers 20 cents per electronic transaction (including automatic payment and debit card use as well as online bill payments) for 12 months, up to $20 per month. "You want to show these customers that they're worthy of the investment, not treat them like any other customer," says Schwanhausser.
Playing the "Green" Card
Environmental awareness is certainly the cause célèbre of the moment - and luckily its aims, particularly limiting the use of paper, overlap neatly with online bill payment. The Citizens Bank campaign, for example, is actually part of its broader "Green$ense" program. Banco Santander's Sovereign Bank launched a similar campaign in April. Sovereign's landing page features an applet for consumers to calculate the environmental impact of going paperless. The bank offers to plant a tree for every e-bill paid through its site.
Several large banks - including Bank of America Corp., U.S. Bancorp, and SunTrust Banks Inc. - and vendors have banded together to form the PayItGreen Alliance, in order to promote electronic payments.
In June, Harleysville National Bank in Pennsylvania launched its own GenGreen product suite - aimed at making electronic bill payment more palatable by underscoring its eco-friendly side effects, as well as its convenience. Between June 8, 2009 and April 22, 2010 (Earth Day), the bank will pay customers 10 cents for each online bill payment and check card purchase, up to a total of $50, and will make a matching donation to local environmental initiatives.
Noel Devine, the bank's senior vice president of marketing, says the campaign's goal is to have between 15 percent and 17 percent of its total customer base paying bills online. "With the introduction of this campaign, our objective is to educate, activate and reward customers for choosing paperless banking," Devine says. "Primarily, we educate them on the many positive benefits of electronic banking." So far, so good: In the first few weeks, Harleysville has seen 5 percent of its existing checking customers that were not banking online activate their electronic services.