There's something wrong with this picture. The very banks that urge their customers to adopt Web banking and forgo paper checks are plastering their Web sites with messages about the dangers of e-banking.
Similarly, institutions invest millions in paper turn-off (PTO) capabilities and then impede customer adoption by publicizing the (limited) safety benefits of shredders. Meanwhile, planning for the Check 21 law is treated exclusively as a regulatory inevitability.
With the right planning, education, and services, the public will more readily let go of paper checks, bills, and statements, and the industry will profit.
Security, obviously, is part of the problem. To build adoption and confidence, bankers must address people's perception that eliminating paper always compromises safety. Internet banking is now in use by more than 56% of U.S. online households. Yet account holders are implicitly being told that they are putting themselves more at risk by managing their finances online.
According to the Federal Trade Commission's groundbreaking 2003 identity fraud report, about 14% of all known-cause, new-account identity fraud cases stemmed from theft of documents from mailboxes. Had those documents been eliminated by providers and account holders, billions worth of fraud cases might not have come about. Paperless accounts can be used to prevent and detect identity fraud (ironically, many online banks exclusively promote fraud resolution, which means customers aren't told how to prevent fraud).
Financial providers must hasten the availability of electronic-only bills and statements. New research shows that just 46% of leading U.S. banks allow statements for direct deposit accounts to be turned off.
Worse yet, these same banks allow only 33% of their issued credit card accounts' paper to be turned off. Banks' check imaging services are welcomed with open arms (household adoption is up 54% between April 2003 and 2004), but the industry suffers from irrationally low expectations for public acceptance of paperless management of direct deposit accounts. This is to be expected for first-generation planning, education, and services efforts, but we can do better.
Paper elimination is just the starting point. Check 21 will necessitate a host of new services providing increased speed, efficiency, and safety. With statement replacement services, account holders will want, for example, easy-to-use and long-term archiving, and even one-touch printing.
Once customers understand the safety advantages of paper replacement, they will withhold an adoption decision until after determining whether the new services offer true convenience benefits.
Though much has been written about the lack of audit trails for electronic replacement of checks, the fact is that a paper check is little more than an IOU. As the use of checks diminishes, it is possible at the same time to minimize the fraud associated with it. Bankers have to improve information protection if they are to benefit from the inherent safety advantages of electronic currencies.
Marketing, helped by demographic analysis, can play a role in helping consumers prepare for Check 21. Age is the No. 1 determinant of attitudes about paperless payment; older people are three times as likely to prefer checks, and younger people are three times as likely to prefer debit cards for their non-Internet purchases.
Banks seeking to eliminate paper should:
- Allow paper turn-off for multiple lines of business, particularly direct deposit and credit cards.
- Promote the safety benefits of paperless accounts (and subordinate messages related to shredders).
- Make it easier for customers to get by without paper checks, statements, and other paper records. The choices are varied, and usability research is essential here.
- Use market data to understand and segment check-replacement technologies. Where possible, segment features, services, and marketing messages - first by age and then by income.
The financial services industry has achieved the highest levels of adoption for electronic services. It can build on that achievement, and boost safety, customer loyalty, and profits, through paper elimination.
