Last year, the retail banking industry sent paper checking account statements to 69 million households at an average cost of $9 per customer. Two-thirds of this expense can be avoided when banks deliver eligible statements electronically instead of mailing paper.
Bankers know well the savings associated with switching their client base to digital reports. But some might wonder how aggressively to push their digital reform. The industry has made commendable strides toward paperless statements, so accelerating that trend could bring unnecessary risk. Why alienate customers with paper statement fees when electronic statements are on track to exceed paper this year – and when the annual rate of adoption looks to progress comfortably at 3.5%?
Clearly, no single answer works for all banks. However, a three stage decision process can help your team resolve this issue:
Stay the course or push electronic statements more aggressively. The decision tree begins with two options: maintain your current approach to statement conversion or renew efforts to increase e-statement penetration. A bank, for instance, might already offer paperless statements to every customer opening a new account. In that case, the bank could maintain its current strategy or seek to accelerate conversion by introducing fees for paper statements. When making this decision, it helps to benchmark your experience against peer norms. For instance, evidence from GCI’s Consumer Financial Life Survey suggests that, excepting direct banks and credit unions, larger financial institutions (FIs) have higher rates of electronic statement adoption than smaller FIs. By comparing itself to peers, an FI can determine whether its current adoption rate is in-line or underperforming. A bank lagging its peers may decide to push more aggressively while a credit union outperforming its class might decide to stay the course.
Fees or non-punitive incentives. If a bank has agreed to intensify its conversion efforts, it can next decide whether fees or incentives best motivate adoption.
Banks have effectively used both incentives and fees as separate tactics, but successful choices between the two tend to take into account the bank’s overall customer experience goal. Banks seeking to differentiate their customer service with the promise of courtesy and respect, for example, have used more gentle conversion techniques. These banks seek to improve their online experience and incorporate electronic enrollment options at prominent steps in the user experience. Simultaneously, they might launch a conversion campaign that tailors paperless appeals to specific customer segments. One segment might be motivated solely by environmental concerns, for instance, and respond simply to mobile-enabled sign up or conspicuous opt-in alerts.
Other customers more subject to inertia might need persistent messages or splash page logins to enroll. Still others might respond only to financial incentives, in which case the bank can determine which rewards or discounts will convert these customers at the lowest cost. Meanwhile, banks eager to cut the cost of mailing paperless statements might turn explicitly to fees as a way to motivate adoption or offset expense. If a bank determines that paper statement fees will not impact its service appeal to important customer groups, it may choose to charge fees universally (i.e. to all customers) or selectively (i.e. to only new customers) for paper statements.
Universal or selective fee rollouts. A bank looking to charge fees for its paper statements knows the decision can eliminate printing and postage costs overnight. But what are the costs? How many customers will it lose in the process?
Statement fees need not be an all-or-nothing proposition. A bank might take the middle road and make only new customers pay for paper statements, grandfathering free paper statements to those who already receive them. The upside to this conservative approach is surprisingly large. By applying “what-if” modeling to standard rates of account openings and churn, we find that the average FI would achieve an adoption rate of 6.5%, nearly double the 3.5% industry-average adoption rate cited above, by merely charging a paper statement fee only to new customers.
In any case, a bank’s ultimate decision will depend on the choices made while navigating the above decision tree.
Mr. Fiorio is a specialist, Mr. Welander an expert and Mr. Weir an analyst at Atlanta-based GCinsights, a subsidiary of McKinsey & Co. They can be reached at [email protected], [email protected] and [email protected] respectively.
