SAN FRANCISCO - As banks try to attract a second wave of online bill payment customers, they are discovering that the mass consumer market behaves quite differently than the early adopters, who tended to be well-off and tech-savvy.
Roughly 37% of U.S. households are now paying bills through the Web sites of their banks, bill aggregators, or the billers themselves. The first people to adopt these services were willing to accept a few glitches, but the more recent converts are less comfortable with technology, have less money in their accounts, and - perhaps most importantly - often say they feel less in control of their finances than the early adopters, said Stephen Olsen, an executive vice president at CheckFree Corp.
Mr. Olsen and other executives spoke at Thomson Media's fifth annual Electronic Billing, Payment, Presentment, and Invoicing Conference here Monday. (Thomson Media is the publisher of American Banker.) They said the shifting demographics should prompt banks to adjust their marketing strategies for online bill payment and, in some cases, to reopen the question of whether to drop monthly fees for the service.
Most banks that do charge fees waive them for customers with high account balances, but many of the new adopters do not fall into that category, the bankers say.
Complicating the situation is the fact that more customers are paying their bills directly through the billers' sites, observers say.
"We are seeing the next wave of consumers, and this is a different set of consumers," said Mr. Olsen, who is also the general manager for CheckFree's electronic commerce division in Norcross, Ga.
For example, the new users are often initially drawn to electronic bill payment services because they are about to miss a payment deadline, he said. As such, their first online banking experience is with bill payment, often linked with electronic bill presentment, and many are quick to start paying several of their monthly bills online, he said.
By contrast, the earliest online banking customers got started by viewing account balances and transferring money between accounts, and once they grew comfortable with that they moved on to paying bills over the Internet, Mr. Olsen said.
Since many of the newer customers are skipping the other online banking functions and going directly to bill payment and presentment, it makes little sense to promote the other services first, he said. "That is not the way to attract the mainstream market."
One recent development is the introduction of bill presentment on more banks' sites, a task that has proven thornier than offering bill payment. Consumers are more likely to pay bills online when they receive their invoices online.
Wells Fargo & Co. now offers online presentment from 260 billers. Avid Modjtabai, an executive vice president at Wells and the head of its Internet service group, said that the service is rapidly becoming a basic part of the online experience.
"Online bill pay [and presentment] is absolutely becoming a mainstream application," she said.
The San Francisco company has 1.3 million online bill pay customers, and there has been some significant growth in the past year, she said. Enrollment in the first quarter rose 40% from the same period last year, and Ms. Modjtabai said the second-quarter gain should be in the 50% range.
Those rosy numbers aside, other speakers warned that banks are not doing enough to drive bill payment traffic to their own sites.
Cathy Graeber, a senior analyst with Forrester Research Inc. of Cambridge, Mass., said billers have been faster to figure out how to attract and keep the new electronic payment customers. While the banks continue to push basic online banking first, the billers have invited customers to make payments directly at their Web sites, she said.
"The banks today are losing important and valuable customers to biller direct Web sites," Ms. Graeber warned the roomful of bankers.
According to Mr. Olsen, CheckFree's research backs up her position. After the fear of making a late payment, the second most common reason for a consumer to make a payment online is in response to a promotion or invitation from the biller, he said.
Ms. Graeber said that in 1998, 64% of the new bill pay adopters were using bank sites. However, that figure has dropped steadily since then, and last year it was just 27%, she said. "The lion's share of payments are going to biller direct" sites. "If I was on the banking side, that would be a huge red flag."
One of the key reasons consumers turn to biller sites is because they are free, and some even offer incentives, she said.
"I'm a big believer in the free bill pay model," Ms. Graeber said. "I believe the data shows that, for people who are on the fence, what's keeping them there is the fee."
Not everyone supports free bill payment. Ms. Modjtabai said about 60% of Wells Fargo's customers for the service get it for free, while the rest pay $6.95 a month. Those who maintain a minimum combined account balance of $5,000 have the fee waived, and she said that Wells hopes customers might be willing to consolidate balances from accounts at other institutions in order to qualify for free bill pay.
Wachovia Corp. also charges $6.95 a month for online bill payment, though Lou Anne Alexander, a senior vice president and the director of electronic payments strategy, said about 70% of its electronic banking customers carry a large enough balance to get the fee waived. "We think bill pay has a value to the consumer, and it has a value to us," she said.
The Charlotte banking company has never considered the service a way to generate revenues; instead, like Wells, it sees the fee as a way to entice customers to increase their balances by closing accounts at other banks, Ms. Alexander said.
Ms. Graeber said that this type of fee structure could be alienating the next potential group of users, people who may not have $5,000 in the bank. Though the adoption growth rates for the Wells and Wachovia services have been high, "I wonder how many more users they might have if they weren't charging a fee," she said.
Bank of America Corp. made a huge industry splash in May of last year, when it eliminated all fees for online bill payment. Stephanie Smith, the Charlotte banking company's senior vice president for online services, said the decision was not made lightly, but it has paid off. Between April 2002 and April 2003 the number of customers paying bills online swelled 65%, to 2.1 million.
"The revenue we gave up was more than compensated by the deeper relationships we have with our customers," she said.
Eliminating the fee has had a huge effect on Bank of America's online strategy, Ms. Smith said. "It was a key driver to the kind of growth we've been seeing. The fee is the No. 1 barrier to customers adopting online bill pay."
From American Banker,
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