Showing the Way

By Elizabeth Judd

Stymied in their efforts to promote e-billing, banks are turning to more creative marketing programs that target specific customer segments.

When it comes to e-billing, banks face a classic marketing problem: how do you create demand for a product that people don't really view as essential to their lives?

While Coca Cola Co. was able to create that demand for a certain kind of carbonated sugar water, that accomplishment required a decades-long marketing campaign.

E-billing obviously will never attain the mass appeal of soda pop, but banks and technology vendors believe a sizable population of personal computer-equipped households will embrace the service if they can be convinced to give it a try. The challenge is to entice potential customers to make that leap, which is why financial institutions are putting more thought and effort into their marketing programs.

On the surface, the concept sounds simple. Instead of opening paper bills, writing checks, stamping envelopes and then mailing out payments, customers can receive and pay bills electronically via their personal computers.

Believing this is the future of payments, vendors, billers and financial institutions have spent years building the infrastructure to support electronic billing and payment. Yet the concept seemingly refuses to take off.

Most major banks have made e-billing services available since the mid-1990s, yet customer adoption rates seriously lag expectations. Needham, Mass.-based TowerGroup estimates that less than 1% of all bills were both presented and paid electronically last year. Only 3.6 million households were believed to be paying bills online at the end of last year, according to Jupiter Media Metrix.

Such apathy appears rooted in a perception that e-billing doesn't offer enough obvious advantages over using paper to warrant the hassles of setting up one's billing relationships online. In such circumstances, providers are "basically providing consumers with a solution to something they don't consider a problem," says Cathleen Conforti, vice president at MasterCard International in Purchase, N.Y.

So rather than relying on mass-market advertising that simply promotes awareness, many banks are now working with customers individually, often at the branch level, to convince them that the service can provide real value.

This typically involves guiding customers through an on-site demonstration. Minneapolis-based U.S. Bancorp, for example, has stationed a specially trained "e-expert" in each of its 2,200 offices to walk customers through the process of receiving and paying bills online. "They help customers get comfortable with this idea," says Linda Garner, senior vice president, e-business. In another approach, Bank of America Corp. is testing Internet-enabled, self-service kiosks where customers can test-drive the service for themselves.

Such initiatives are part of a broader industry trend of experimentation in marketing e-billing services. In place of traditional mass-market advertising, financial institutions are targeting the key customer groups thought most receptive to changing their bill-paying habits. This type of behavioral change — where a great deal of inertia must be overcome — is best accomplished using a combination of branch-centered educational outreach and incentives, such as cash awards or gift certificates, contests and free trial periods.

Even more substantial incentives sometimes are required. U.S. Bancorp saw a 40% surge in enrollments in 2001 after it offered customers a chance to win a Chrysler PT Cruiser. E-billing is "a behavioral change for people who haven't tried it," Garner says. "You need to give them a reason to try." CheckFree Corp., the Atlanta-based pioneer in e-billing, has found in its research that a three-month free trial period is a good place to start. Bank of America offers the service to its customers entirely for free.

These approaches require significant resources, both in terms of money and employee time. But they may be essential to get a return on the investment banks have already made in their electronic billing capabilities.

Selling the Benefits

The starting point in e-billing for most people is to learn to pay bills via their PCs. The next step is to add electronic bill presentment, which delivers bills to customers electronically and eliminates the paper altogether.

Going through the process of configuring an online banking account to electronically pay bills is thought to bind customers more closely to their institutions. The presentment component is especially appealing to banks, since it is thought that customers who go to all the trouble of arranging to receive bills electronically via a bank consolidator site (essentially a central distribution point for a variety of electronic bills) will be far less likely to switch accounts away from that institution.

Market awareness doesn't seem to be the basic issue in winning over customers to these services. Earlier this year, CheckFree conducted a joint survey of 2,201 online consumers with Harris Interactive. Among the key findings: 99% of respondents had some awareness of online billing, according to Mark Moore, vice president of channel marketing for the online payments company.

There does, however, seem to be confusion over what such systems actually do. For example, the study found that 36% of non-users think electronic payments are automatically debited from a customer's checking account, with 26% of active users sharing that misconception. In fact, an electronic check has to "clear" the paying bank, although this usually requires less time than would be the case for a paper check. "Moving to the next stage of educational campaigns will be critical," Moore says.

That means banks must explain the service and sell customers on the benefits. The tactical issues involved in meeting this challenge include defining the target audience and determining the best medium for reaching key groups of likely users.

A few years ago, e-billing appealed primarily to early adopters, a young and largely male group of technophiles drawn to gee-whiz gadgets. User demographics are now broadening, but that doesn't mean everyone is a likely prospect. "What doesn't work is the broad-based, branding-type of advertising efforts. It's better to really focus on the needs of the customers you think are likely to accept or test the product," says Jim Smith, senior vice president, consumer Internet services, at Wells Fargo & Co.

Customers who already are at e-billing's first stage of paying bills online are viewed as prime prospects for electronic bill presentment. A recent Forrester Research Inc. survey found that 82% of financial institutions focus their EBPP marketing efforts on this segment, which includes people who pay at biller Web sites. The next target category (cited by 18% of respondents) includes people who bank online but don't use e-billing. Thus, banks are marketing almost exclusively to the active online population.

Bank One Corp., for example, concentrates its marketing initiatives on the bank's 1.1 million online banking users, according to Patrick Scott, chief strategy officer for the consumer Internet group. The Chicago-based bank has used direct mail, e-mail and statement inserts to attract customers to its Web site, which touts the advantages of e-billing. The bank has also piggybacked off its First USA credit card promotions by handing out informational packets at baseball and other local sporting events, Scott says.

Young-Sun Yun, Wachovia Corp.'s vice president and retail online services marketing manager, says customers who maintain higher balances and have multiple relationships with the bank are more likely to try e-billing than the general customer population. Other behavioral traits that seem to lend themselves to e-billing enrollment include making a large number of transactions — specifically, making frequent use of automated clearing house electronic transfers and automated teller machines, Yun says. CheckFree's Moore has also observed a strong correlation between debit card usage and e-billing enrollment.

Practical Instruction

Until recently, the dominant approach for selling e-billing has been traditional, mass-market advertising, such as newspaper and billboard ads, statement stuffers and radio spots. At least one institution, Charlotte, N.C.-based Bank of America, has put some serious dollars behind its campaign.

As part of a joint venture, CheckFree pledged to contribute $25 million for marketing e-billing in 2001 while BofA kicked in another $25 million for 2002. Sanjay Gupta, the bank's e-commerce marketing executive, emphasized that this $25 million is just the start, and that "Bank of America is investing a lot more dollars in the marketing it's doing."

Promotional materials recently published by CheckFree shed some additional light on the campaign. In the spring of 2001, CheckFree and BofA coordinated a pilot marketing program with local billers in San Antonio, Texas. The BofA effort included newspaper ads, direct mail to local customers and press releases targeted at the local media. Participating utilities and other merchants, meanwhile, ran promotions in their billing statements. The result: account activations doubled in 45 days, according to CheckFree.

After stepping up its marketing efforts overall, Bank of America saw its "active" users grow by 65% to 1.1 million from January 2001 to January 2002, according to Gupta. The bank defines active users as anyone who paid a bill electronically within the past three months.

In addition to its traditional advertising, BofA has experimented with more focused marketing approaches. In some Atlanta branches, for example, the bank is testing Internet-enabled, self-service kiosks where customers can experiment with e-billing firsthand. "Enrollments are up significantly in those areas," Gupta says. "Instead of mass advertising, we get better results by reaching out to those customers who have a high propensity to use the service."

So while BofA's TV ads continue to mention the service, Gupta is putting his faith in alternative marketing methods such as having employees educate consumers about e-billing within the banking centers. Such hands-on instruction is needed because of the perception that setting up an e-billing account is a laborious and perplexing undertaking. Worse yet, some of the systems haven't proven all that user-friendly. Of the 8% of customers who dropped the service last year, 33% cited a failure to understand the system, according to Gartner, a research company based in Stamford, Conn.

Responding to these problems, institutions such as BofA, U.S. Bancorp and Wachovia have put more effort into instructing their own employees in the intricacies of e-billing. At U.S. Bancorp, where all branches are equipped with Internet access, the "e-experts" usher customers through the process, a practice that reminds Garner of how branch personnel used to escort customers to the early ATM machines two decades ago.

The key role of branch personnel in promoting e-billing surfaced in a recent CheckFree survey, where 48% of active users identified a branch office as the place where they first learned about the service.

Eighty percent of Wachovia's enrollments can now be traced to the initiative of branch or call center employees, while just 20% come from the bank's Web site. To help usher customers through the setup process, the company equips its employees with a paper-based demo and a training guide. It has also encouraged employees to use e-billing themselves, and thereby become advocates for the service. One drawback to this program is the fact that not all Wachovia branches have Internet-enabled PCs, although this problem will be rectified by yearend, according to Yun.

For Wachovia, the importance of employee education hit home when e-billing ranked low on an internal survey of services that call center personnel felt comfortable selling. This April, the bank launched a campaign to promote enrollment among its own employees using inter-office mail, posters in break rooms and an outbound telemarketing campaign within its employee services group.

Bank of America, meanwhile, sponsored an internal sweepstakes this spring, giving away three automobiles to branch employees who enrolled in the service and then paid a few bills electronically.

Incentives

Just as incentives help motivate a bank's own employees to get acquainted with the service, incentives also help with customers.

Wachovia reports a 3.25% response rate on a direct-mail campaign that offered customers a cash incentive in the $10 to $20 range for enrollment and activation (paying at least one bill electronically). This represents a 53% improvement over a control group that didn't get the mailing at all.

Cleveland-based Charter One Financial Inc., recently devised an innovative program wherein customers were asked to send themselves a $1 check via the electronic service. The bank then paid them $10, which had the effect of boosting both enrollment and usage, according to Michael Dobbins, senior vice president in charge of direct banking. He notes that the program provides customers with two benefits: the cash incentive and proof that e-billing works as advertised.

Marketing Cents, a Marietta, Ga.-based marketing company, has developed a program in which incentives are advertised on the envelopes of bills. These offer consumers an "e-coupon," or discount, to lure them online, "while they're paying their paper bills," says president George Duffield. On the same Web page as the incentive, there is a direct link either to the electronic version of the paper bill or the e-statement site of the biller.

Although CheckFree's studies have found that people prefer cash incentives over sweepstakes, some banks have seen encouraging results by offering large prizes to contest winners. A year ago, for example, U.S. Bancorp saw a 40% increase in enrollments when it gave customers a chance to win an automobile, Garner says.

Enrollments, by themselves, will not ensure the future success of e-billing since many customers drop the program over time. For that reason, banks offer incentives for usage as well as signups. Wachovia, for example, requires that customers pay two bills online by a certain date in order to qualify for cash awards. Lou Anne Alexander, senior vice president and director of e-payments, says the company had 202,000 active bill payers at the end of March, all of whom had electronically paid a bill within the past month. This represents 47% of the total enrollee population.

In May, Charter One rolled out the second phase of its e-billing marketing campaign, which is likewise designed to encourage usage. This promotion offers new users one reward point on their debit cards for every dollar paid through e-billing for the first 30 days after they sign on.

At the end of the day, sustained usage is what all e-billing services providers are aiming for, since studies show these customers tend to be among a bank's most loyal and profitable. "Once you've entered all your bills in an electronic program, you're going to be much less likely to leave the bank; e-billing becomes a hook and lock on the customer," says Jeff Tansill, senior vice president, e-commerce, at First Virginia Services Inc., the information technology subsidiary of Falls Church, Va.-based First Virginia Banks Inc.

Such outcomes are far from automatic, however, which is why continued marketing outreaches will be necessary.

Ms. Judd is a freelance writer based in Washington, D.C.

Copyright © 2003 by Banking Strategies, published by BAI.

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