Bill pay is reportedly one of the most rapidly growing online services, with
adoption the number of users growing 230% over the past three years. But even
the experts don’t agree on the expected adoption of this fast growing
service – with current estimates for 2004 varying widely, ranging from
an estimate of 17% from the Tower Group to a high estimate of 36% of households
by Dove Consulting. However, by the end of 2004, most concur that approximately
25% of households are expected to use electronic bill pay. Yet, other than the
few success stories like Bank of America, many financial institutions are experiencing
difficulties in convincing members to sign up for, and use their bill pay service.
The competitive landscape for this service has changed rapidly since it was
first introduced. Initially financial institutions believed that this service
would be a significant source of fee income, as members would be willing to
pay for the convenience of paying their bills online. Yet few companies found
this to be the case, experiencing low adoption rates and/or significant rates
of consumers signing up and dropping the service.
Now financial institutions are taking a renewed look at their strategies for
bill pay. Analysis of the bill pay customer segment has revealed that bill pay
customers tend to be a highly profitable customer segment, are more loyal and
use a greater number of financial services. A recent Forbes.com/Foresee Results
survey of online banking users reveals that online bill payment has a significant
impact on adoption, revenues and loyalty. Highly satisfied online banking users
were 23% more likely to recommend their financial institution’s site to
others and 27% more likely to purchase further services.
More and more financial institutions, including the Bank of America and Wells
Fargo, have begun offering this service for free in order to attract this desirable
segment. The results so far have been fairly impressive. Credit unions that
have dropped their service fees have experienced significant increases in penetration
as well. City-County Federal Credit Union (MN, $342M) eliminated their $4.95
fee at the end of May 2003 and reported a 40% increase in their bill pay enrollment.
Here are some questions the credit union needs to answer when deciding whether
to offer free bill pay services:
- Do your members expect bill pay to be free?
- Will deeper relationships - greater adoption rates and usage rates - contribute
to the bottom line?
- Is your online membership base more profitable than your general membership
and do you want to increase retention of this segment?
- Do you want to be a leader or follower in technology and is this congruent
with the lifestyle of your membership base?
- What are other financial institutions in your area offering?
It’s clear that the next few years will be critical for credit unions
in terms of establishing a presence among your online members. Credit unions
that do not focus on increasing awareness and usage of this important service
may well be left behind as their online members become used to using other methods
and/or switch to other free bill pay services.
More detailed analysis of the benefits of free online bill pay services can
be found in the 2004 Credit
Union Technology Survey. If you are looking to implement new
technologies, change one of your providers, network with other technology savvy
credit unions and vendors or just want to be on the cutting edge of technology
advances, Callahan’s Technology
Survey is your stepping stone to industry.