E-Billing Battle

By Kenneth Cline

It's become a truism of online banking that electronic bill pay promotes customer retention. Studies have shown that after customers go to all the trouble of setting up their online billing accounts with their bank, they are more likely to stay with that institution than customers who only check their balances online or don't use online banking at all.

What's the implication for customer retention, then, if banks lose control over the e-billing process?

That threat is not entirely theoretical. Evidence is accumulating that the "consolidator" model of e-billing, where customers pay bills from several vendors at one (bank) Web site, is losing ground to the competing "biller-direct" model, in which customers pay bills individually at each vendor's Web site.

TowerGroup Inc. of Needham, Mass. recently estimated that biller-direct controls 56% of the e-billing and presentment market, compared with 43% for bank consolidators, and that this lead will widen by 2005 (61% to 40%). These conclusions are underscored by a July 2003 consumer survey from Atlanta-based Synergistics Research Corp. in which 70% of online bill payers stated their preference for paying bills at vendor sites.

There are at least two reasons commonly cited for this. One is price: despite the recent trend of banks dropping their fees for online bill pay, many institutions still charge about $5 a month. Billers, on the other hand, allow customers to make their online payments free of charge. Fully three-fourths of the respondents in the Synergistics study who favored biller-direct said their preference was dictated primarily by the absence of fees.

The second reason is related to bill "presentment," the process by which a bill is presented to customers with all the specific charges listed. Biller-direct sites typically present the entire bill, but many banks still do not. In the case of credit card and long-distance telephone bills, for example, this can be a real turn-off for customers. "Most people want to at least scan the details before paying," says David Hallerman, senior analyst with New York-based eMarketer Inc.

The one thing banks still have going for them is convenience. It's unquestionably easier to view and pay all your bills at one Web site, using one log-in and password, as opposed to going to multiple sites with multiple log-ins.

If banks can do a better job with bill presentment and then actively promote the e-billing service, they stand a better chance of increasing customer adoption rates and — ultimately — improving customer loyalty and retention. "But simultaneously," says Synergistics chief operating officer Genie Driskill, "they're almost certainly going to have to offer the service for free."

Mr. Cline is senior editor of Banking Strategies.