Corralling the Customer

By Bill Stoneman

Having built robust online functionality, bankers must now market aggressively to encourage more people to use home banking services.

In a bid to galvanize the heretofore sluggish growth in its online customer base, AmSouth Bancorp in late February decided to get serious with some old-fashioned marketing hustle. The Birmingham, Ala.-based banking company launched a radio and print advertising campaign that contained a zinger of a come-on: "Free Internet banking with bill payment for life."

The catchy offer wasn't exactly a consumer windfall, since most banks already offer their basic online program for free and only charge about $5 a month for bill-payment services. But the message clearly clicked with customers. As of June 30, 25% of AmSouth's base of 1.3 million customers had signed up for the service, up from 13% at March 31. "We had a goal of tripling the number of online customers in two years, but made huge strides in just months," says Rod Woodford, the AmSouth executive who headed up the campaign.

Such aggressive efforts to lure customers online have been rare in the industry, but this style of marketing campaign is likely to become more common. After years of taking an "If we build it, they will come" attitude toward online banking, financial institutions are realizing the service doesn't sell itself, except among the technologically-savvy early adopters. The mass market requires more persuasion.

Several major institutions have already demonstrated what can be accomplished through sustained outreach efforts. FleetBoston Financial Corp., Fifth Third Bancorp, and Wells Fargo & Co. have managed to post online signup rates of 35%, 32% and 30% respectively, compared with the large bank median of 25%, according to a second-quarter ranking by Credit Suisse First Boston. AmSouth, ranked eleventh in CSFB's first quarter list, zoomed up to seventh place in the second quarter.

Behind such efforts lies a serious business purpose. Building a critical mass of customers, generally defined as 25% or higher of the total base, is deemed essential if banks are ever to earn a return on investments in online functionality. CSFB analyst Susan L. Roth estimates that Wells Fargo, an early pioneer in this area, is likely to achieve online profitability next year.

Those institutions still lagging in the customer-signup race face the prospect of serious marketing expenditures. Bankers and outside consultants generally agree that a saturation campaign, employing multiple media channels, works best. Wells Fargo, for example, uses print and radio advertising, direct mail, statement stuffers, e-mail messages and Web site banner ads. It even has an Internet-enabled bus that cruises around giving demonstrations at bank branches and community events. Consumer education is a critical feature of FleetBoston's marketing campaign as well.

Enrollment is not the whole story, however. Attrition rates are high among online banking customers, who may be persuaded to try out the service but then lose interest and drop it. For that reason, a follow-up campaign is often required to prompt customers to stay active with the service. AmSouth, for example, was planning to run a contest promotion this fall to encourage enrollees to use its online bill-pay service, a feature which all experts agree is an important key to customer retention.

The lesson is clear: the marketing element in online banking can no longer be ignored.

Product or Channel?

The need to promote online banking capabilities wasn't obvious at first, perhaps because consumer interest in general Internet services was so strong. The percentage of U.S. households with Internet capability reached its current level of 63% in just six years, according to Forrester Research Inc. By contrast, it took television 15 years to reach the same level of consumer usage.

Since the pipeline of potential new customers seemed so full, bankers focused on building a robust online functionality that included electronic bill pay, loans, investment products and account aggregation. Behind the scenes, however, there was confusion about what online banking was actually supposed to accomplish. Was it a revenue-producing product like, say, a credit card, or simply an additional channel for delivering service?

To the extent that bankers viewed online banking as a product, they expected a direct financial benefit, either in the form of generating revenue or cutting the cost of doing business. When that didn't work out in practice, they had to reexamine their business models. "It was very hard for bankers to justify spending a lot of money just to grow the business," says Tony Hayes, director of financial services for Dove Consulting in Boston. "The more you grew it, the more money you lost."

Purse strings are loosening now that the product-vs.-channel debate has mostly been resolved in favor of calling online banking a new channel for delivering existing products. To promote online bill pay, for example, Charlotte-based Bank of America Corp. in May launched a $45 million media campaign that touts the capabilities provided by partner CheckFree Corp.

Banks such as BofA are justifying these investments on the basis that online banking improves retention of an institution's best customers. BofA, Wells Fargo and others increasingly assert that online customers generate more revenue than off-line customers by opening more accounts and maintaining higher balances. Viewed this way, there's less pressure to make the service pay for itself. Most institutions charge only enough to cover the cost of their bill payment vendors.

Researchers variously estimate that between 15% and 25% of American households have at least dabbled in online banking. Banks, meanwhile, say their regular users appear quite satisfied with the service. Still, it remains to be seen how high penetration rates can climb. Experts look to automated teller machine usage — about two-thirds of all consumers — as a rough proxy for what can be expected at the top end.

The problem banks are now facing is that the low-hanging fruit has already been picked. Early adopters are already aboard. What's left is the great mass market — people who often can't or won't learn how to program their VCRs, much less learn to do banking on their home PCs. "The next group is a tougher sell," says Jaime Punishill, an analyst with Forrester Research in Cambridge, Mass. "They don't grasp the benefits of online banking immediately the way the early adopters did."

Marketing is needed to attract this group. And the appeal must be based on specific benefits such as saving time and money by paying bills online. Security concerns must also be addressed.

Many fence-sitters are aware that online banking exists and even that their bank offers it. General awareness of online banking, however, is not enough to motivate most consumers to change their banking habits. Paul Jamieson, director of banking and payment services at Gomez Inc. in Waltham, Mass., says people will try something new only if they see benefits in specific features their bank offers. And consumer awareness of specific online advantages is low.

In a recent survey, for example, Gomez found that even among consumers already using online banking, 50% did not know if they could stop check payments online, and 30% did not know whether they could order new checks electronically.

Marketing Pizzazz

Mindful of these discouraging statistics, some institutions are employing a full-court press of marketing through every available channel. "We feel like we're plastering our message everywhere," says Martha Smolen, senior vice president for Internet services marketing with Wells Fargo.

Among the San Francisco-based bank's tools are print and radio advertising, direct mail, notices inside statements and on the outside of statement envelopes, e-mail, and banner ads on third-party Web sites and the bank's own Web site. The company has also equipped a 42 foot-long bus with 16 workstations and satellite Internet connections to visit bank branches and community events in cities and towns served by Wells Fargo. Visitors who climb on board are treated to a demonstration of online banking. Painted fire engine red and utilizing the name "wellsfargo.com," the bus attracts attention wherever it parks, according to Smolen.

FleetBoston also combines blanket coverage with marketing flair to pitch its services. "You can't drive on the highways around Boston without seeing a FleetBoston billboard touting online banking," says Forrester's Punishill. And to really grab the spotlight, the bank features in its television commercials star ballplayers from its two biggest markets: New York Yankees shortstop Derek Jeter and Boston Red Sox shortstop Nomar Garciaparra.

The Boston-based company gives its branches a big role in this campaign. "Every time customers interact with the bank, we talk about the online service and encourage them to try it," says Neal G. Wolfson, director of interactive banking. He notes that people are particularly amenable to signing up for online banking when they're opening a new account.

Many FleetBoston branches already are equipped to demonstrate how the online offering works, and most others are being wired for such purposes. Branch staff and call center operators will also talk up online services when customers make routine inquiries, such as whether a check has cleared. Even ATM screens display information about online banking during transactions.

Such persistence is necessary because "repetition creates recognition," says Joseph R. Sullivan, president of Market Insights Inc. in Chicago and consultant to smaller banks on promoting online banking services. In addition to media advertising, statement stuffers and electronic communications, Sullivan says it's critical for banks to get their own employees onboard. "If I'm a staff person at a bank and I use the product, then I can more clearly understand what the customer is going through."

If AmSouth, Wells Fargo and FleetBoston have demonstrated that marketing is required to build customer interest in online banking, then National City Corp. in Cleveland perhaps illustrates the same point, but from an opposite perspective. While the company says signing up customers for online banking is important, it apparently hasn't made the commitment that adoption leaders have. And it trails the pack of large banks in online penetration, according to CSFB, with 8% of its customer base signed up.

National's City's e-marketing has been limited to direct mail, cross-selling at the platform officer's desk and mentions within advertising and collateral material for other products, according to Jan M. Tyler, vice president and group manager for online banking and billing. With a base of 21 million depositors, the company has mailed fewer than a million pieces in the last two years, she says.

Beyond Signups

Customer signups, though critical, carry only part of the load for institutions trying to get a return on their online investments. Ultimately, the level of usage determines the value of the online customer relationship. And therein lies a problem, since many customers who sign up for online banking later drop the service.

"The choice to bank online, for many folks, represents only a choice to receive information in that medium," says Kenneth Clemmer, a Forrester analyst based in San Francisco. And the bank doesn't really benefit if customers use the online channel only to check balances or maybe determine whether a check has cleared, Clemmer says. Such dabblers aren't likely to stay with a bank any longer, open more accounts or maintain greater balances than customers who don't use the online offering at all.

Even transferring money between accounts is a long step away from the activity that really seems to tie customers more closely to their bank — paying bills. When customers go to the trouble of entering account information for their regular bills into the system, they create a big disincentive to leaving the bank. "Bill payment is the really sticky piece," says Woodford, senior vice president and director of e-commerce for AmSouth.

As with the basic online banking service, there's a wide range in how many customers of various banks use the bill-pay feature. Half of FleetBoston's online customers pay bills electronically, according to CSFB, compared with 24% at KeyCorp and 7% at U.S. Bancorp. AmSouth, for one, has embraced the idea that driving usage through bill pay is as important as boosting enrollment.

The bank was planning a contest promotion this fall in which online banking customers are eligible to win one of two $1,000 prizes over a six-week period. To qualify for these prizes, the customers must use the online service to either transfer funds between their accounts or pay bills.

"Sometimes you need to spell out to customers what they can do if they go to amsouth.com," Woodford says. Given the growing importance of migrating customers online, many bankers will be singing similar tunes about their own Web sites in the months ahead.

Mr. Stoneman is a freelance writer based in Albany, N.Y.

Copyright © 2003 by Banking Strategies, published by BAI.

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