A Different Mousetrap Needed for later Online Bill Pay Adopters
BY LAURI GIESEN
Security, usability, credit card options are included in the often in-branch marketing offers.
Security and usability concerns keep the "mainstream" PC user from signing up for online bill pay. Two-factor authentication should help, and an all-out effort is underway to streamline payment setup, market in branches and recruit more local billers as a means of eliminating the need to send paper checks. To capture the attention of reward point collectors, some institutions pursue offering credit as well as debit card payment options.
Although financial institutions succeeded in recent years in getting customers to adopt online bill pay - as nearly half of U.S. online households are now paying their bills online, researchers say - the hard work may still lie ahead. A consensus is growing in the industry that a change of tactics will be required to spur wider participation.
Early adopters - typically younger, more PC-savvy users - were won over by online bill pay's convenience. But PC users who have not yet signed up harbor more concerns about the safety of their data, particularly in the wake of recent well-publicized security breaches at financial institutions. They are also put off by what can be tedious mechanics of setting up payees on a bank's bill pay site.
"Mainstream consumers are more concerned about usability and security than the early adopters. So that's what you need to sell them on," says Catherine Graeber, principal analyst for Forrester Research.
Security Concerns
Banks that have aggressively promoted online bill payment services have been successful. Both Bank of America Corp. and Wachovia Corp. have doubled their number of active users in the past year. BofA now says 60% of its online customers pay their bills via the Internet.
Yet experts say this is the exception to the rule. In a March 2005 survey of online financial transactions, the Elk Rapids, Mich.-based Ponemon Institute found that only 32% of Internet users paid bills online; by comparison, 77% used their PCs to view account information. And while some studies may show the percentage of households paying bills online to be more than 50%, those studies typically include consumers who go directly to the billers' Web sites to pay bills, as well as those who use bank-sponsored services.
Financial institutions have a keen interest in driving adoption. Countless studies, both internal and external, show that retail customers who use bank-sponsored electronic bill payment services have higher retention rates and keep larger balances in their accounts (and hence are more profitable to the institution) than non-bill pay users. One example: A client of Milwaukee-based Metavante Corp. found the average combined deposit balances of bill pay customers to be $4,800 vs. $2,400 for other customers. This is according to David Fortney, senior vice president of the payments solutions group for Metavante.
In the last two years, many banks have tried to boost online bill pay usage by removing fees as a hurdle. BofA, for example, used this tactic to great effect. Experts say free bill pay may have run its course - customers who could be swayed by price are probably already onboard.
100% Guarantees
Security is clearly top of the list. A September 2005 survey conducted by Electronic Data Systems Corp., Plano, Tex., and Canadian-based Ipsos Reid found that 60% of U.S. consumers identified risk of a security breach as a drawback for all online banking services while 48% were concerned about the risk of misuse of personal information. Some well-publicized security breaches involving customer data last year have exacerbated those concerns.
While none of those high-profile breaches involved online bill pay programs, they underscore the need for banks to market the safety of their programs. Forrester's Graeber notes that BofA and JPMorgan Chase & Co. have done this aggressively but most have not. "One of the most important things banks can do is offer 100% guarantees that if something does go wrong, the bank will stand behind them. Consumers need to hear that," Graeber says.
Additionally, a study released in January 2006 by Pleasanton, Calif.-based Javelin Strategy & Research reported that banks could do more to offer consumer protection on online transactions. For example, Javelin found that none of the banks it studied offers consumers the ability to limit or stop international online transactions and none routinely sends e-mail alerts as indications of potential identity theft or fraud.
Last October, the Financial Institutions Examination Board recommended that banks add a second-factor authentication to their existing bill payment security solutions and that this be completed by year end. Second-factor means that banks need to verify a customer's identity by two methods, rather than the one - typically a password - used today. (For more on Authentication, see "What Lengths Will Customers Go to Protect Their Online Accounts?" in the November/December 2005 Banking Strategies)
Two-factor authentication, however, is a two-edged sword for banks, according to experts. Although institutions can cite it as an opportunity to address consumers' security fears and show how they are adding extra protection, requiring another form of identification works at cross-purposes, complicating online bill payment even more. Banks are finding that they need to walk a fine line between improved security and operational complexity.
"We'll look at the new security systems, but we'll tread lightly because we don't want to impact the user experience," says Paul Graning, senior vice president and manager of virtual distribution channels for Cleveland-based KeyCorp.
Some bankers say the benefits of second-factor authentication will outweigh the usability concerns in terms of gaining additional customer acceptance. "If there is a perception of greater security, I believe that benefit will override the risk that the process will add a couple of seconds to the transaction," says Steve SaLoutos, senior vice president of consumer products and services at Minneapolis-based U.S. Bancorp.
Keep It Simple
The importance of simplicity for online bill payment can be seen in a Forrester Research 2004 survey, where 46% of non-users of the service said it was easier to write checks than use electronic bill payment services.
Online bill pay involves multiple steps, of which the most taxing is setting up the initial payee list. Customers are required to type in each payee by name, address and phone number and then type in their own account number. The time that takes is a sufficient deterrent for customers with a dozen or more regular billers.
Bankers acknowledge the challenge but say they don't have full control over the process, which is usually managed by service providers behind the scenes. One of the largest providers, Atlanta-based CheckFree Corp., recently changed the payee listing procedure. Customers using the most recent iteration of CheckFree's service now need enter only their customer account number and biller's phone number. CheckFree can identify most major billers based on that phone number and the company name and correct address will automatically pop up on the screen. Customers still need to enter all required data for small or local billers for which CheckFree has no records, says Jeff Weikert, senior vice president of CheckFree's consumer service provider business unit.
Beth Robertson, an analyst for Needham, Mass-based TowerGroup Inc., urges banks to go beyond simplifying the payee listing process. For example, she says, "There is a lot more that banks can do in terms of improving their help tools and FAQs. If you look at various FAQs today, you'll find a wide disparity in the types of questions for which answers are supplied and in the level of detail. FAQs need to be more extensive and be integrated with the billpay help tools."
Another recommendation is to provide more information to help customers time the scheduling of their payments. Processors estimate that about 75% of online payments today can be made electronically rather than by mailing a check. That means those bills generally can be paid within two days. Yet to avoid customer dissatisfaction when it does take longer and to help customers avoid late fees, many bank sites just tell their clients to plan on five days. That limits the appeal of the service.
"Customers don't want to have to wait five days when they can pay the bills themselves faster than that," says Forrester's Graeber. "I think most consumers are sophisticated enough today to understand the difference if you designate which bills can be paid electronically and which ones require paper checks."
Indeed, some experts believe bill pay users want to know more about what is going on with paying their bills. "Consumers want greater transparency," says Metavante's Fortney. "If a bill is paid electronically, they want to know that. If you are mailing a check on their behalf, let them know that as well."
Institutions are also advised to debit the customer's account only when the bill is paid, says Edward Neumann, managing director with the banking practice of Fairfax, Va.-based CC Pace Systems Inc. Neumann notes that many banks debit accounts a few days before. In cases where paper checks are issued, the debit is often when the check is written rather than when it clears the account.
Offering expedited payment services will demonstrate the speed possible of online bill pay. With expedited payment services, billers receive funds the same or next day. This would require that the service providers have the necessary electronic links to the billers. But the ability to immediately pay a bill is highly desired by consumers who fear they'll be subject to a hefty late fee or service cessation. (For more on expedited payments, see "Same Day or 'Sorry ...'" in the September/October 2005 Banking Strategies)
While the market acceptance numbers have shown that consumers expect traditional bill payment services to be free, many consumers currently pay billers a fee to make an immediate online payment at the biller's Web site. Robertson and others believe consumers will pay their banks $5 or $10 per bill for immediate payment, given the alternatives.
"Expedited payments are seen as a high-growth opportunity and as an entry point for other forms of bill payment services," Robertson says.
Branch Opportunity
Another important step banks can take is promoting bill payment more aggressively from the branches.
Early adopters were often sold on bill payment via the communications they received online - either through e-mails from the bank or messages on the online banking sites. But if banks want to reach more mainstream customers, they have to go where those customers are and that often means the branches. While some banks still wait for customers to ask them about bill pay, there is a more proactive approach.
"We've made bill pay part of the core deposit package. When someone opens up a new account, they are automatically signed up for bill pay," says Tom Noyes, director of online payment services for Charlotte-based Wachovia, an institution with $532 billion in assets. Thanks to aggressive promotions and a switch to a free offering, Wachovia was able to double the number of its signups during the past year from 400,000 to 800,000.
U.S. Bancorp is encouraging its own employees to give online bill pay a try. "We think there is a lot more potential to promote the product in one-on-one discussions in our branches with employees who themselves are satisfied users of the service," SaLoutos says.
U.S. Bancorp and Wachovia aren't the only banks focusing on branch initiatives; Weikert says about half of the new bill payment customers that CheckFree sees are branch referrals.
Tailor the Promotion to the Segment
But wherever banks attempt to reach customers, they need to acknowledge that not all customers will be persuaded by the same message. When most of the signups were Gen X or younger (under 45) and many had a favorable disposition to new technology, a uniform message may have had uniform appeal.
When it comes to communicating with the "mainstream" customer, "Don't blast everyone with the same message and incentives," says Metavante's Fortney. "Someone who has a mortgage will want a different message and be motivated by different factors than someone who is paying off college loans. This is a great opportunity to work on segmented marketing strategies."
Neumann suggests banks use this information to develop campaigns that appeal to specific groups. For example, he says that some banks have tied "paper suppression" programs to free checking accounts so that customers get free check and bill pay if they agree not to receive paper statements. This appeals to convenience seekers and maximizers who value the pricing as well as the ability not to have to handle paper documents. They also can be sold on the security aspects of not worrying about paper statements.
By contrast, programs that increase the amount of information provided on e-bills would appeal to e-savvy customers who seek more features and information.
Questions or comments about this article? Post them at the Banking Strategies blog.
Ms. Giesen is a freelance writer based in Libertyville, Ill.