Want to Increase Bill Pay Penetration? Take a Hard Look at Eliminating Service Fees

Credit unions today are faced with a number of obstacles in trying to increase usage of their bill pay service. What was once considered a promising source of fee income is rapidly becoming a standard service that many consumers are expecting for free. Many large banks have started offering the service for free, while the number of vendors allowing customers to pay at their Website have increased drastically.

 
 

Credit unions today are faced with a number of obstacles in trying to increase usage of their bill pay service. What was once considered a promising source of fee income is rapidly becoming a standard service that many consumers are expecting for free. Many large banks have started offering the service for free, while the number of vendors allowing customers to pay at their Website have increased drastically.

The main argument for eliminating bill pay service fees is that bill pay users are a highly profitable customer segment, who have significant loyalty to their primary financial institution. Some banks have already signed on to this theory - witness the recent fee elimination by Bank of America, and others. Credit unions who are still charging monthly fees should re-evaluate their strategy, and consider eliminating or at least lowering their fees. Wescom Credit Union recently dropped their $4.95 fee after their analysis revealed that their bill pay users had an average profitability $400 higher than non-users.

A recent online Survey Consortium survey of bill pay users and non-users provides further insight into this area. Of the 19 Survey Consortium credit unions, the credit unions with free bill pay services had penetration rates twice as high - averaging 18% - than the fee and relationship based services, which averaged 9%. While these figures are based on a small group, the numbers are in line with what the experiences of other financial institutions, who have typically doubled their enrollment.

Member comments obtained through the online survey show that cost is a major barrier to signing up for credit union's bill pay service. When members discuss aspects related to price, the issues they raise are:

Cost of service compared to stamps: The majority of online members reported paying 8 or fewer bills per month. Members didn't want to spend more than what they were currently paying for postage. Clearly, they didn't see the convenience aspects as something to pay more for.
''Currently I pay approx $7 per month for the USPS service. You would need to find an incentive that would motivate me to rebuild my account lists, assure me that the money would be removed on the payment date not prior to it, and beat the monthly rate I currently pay.''
''If the service was reasonably priced, I would sign up. It would be nice to have a central location to pay ALL the bills online. $83 a year is too much. To make that rate feasible I would need to mail 15 bills a month to begin considering it..''

In comparison to other financial institutions who offer it for free: In part due to Bank of America's aggressive marketing, these online members were well aware that some financial institutions offer it for free.
''Make it free like Bank of America and other banks who offer it as a courtesy to their customers!!!''

They can use other automatic payment options for free: On average, members were using more than two methods to pay their bills currently, including mail (76%), automatic account withdrawals (44%), biller's website (34%) or automatic credit card payments (17%). Additionally, some banks and credit unions offer incentives for customers to use electronic methods of making loan payments.
''When I can pay my bill on my creditor's site, why do I need this service? It's redundant for me.''

Some credit unions claim they don't want to subsidize the usage of a special service targeted at a small member segment. Yet, aren't these members already subsidizing other credit union members? It's well documented that online members tend to have higher balances and use more credit union services than other customer segments. And members feel that they should be rewarded for this loyalty, as shown by these comments.
''Why should I have to pay you to pay my bills? It should be a free service provided in my membership with the credit union - should be a benefit of the credit union.''
''I think this should be a free service; we have all of our accounts with you.''
''Make it free or at least free for Partner accounts.''

Many credit unions have added free bill pay as a benefit under their relationship pricing plan. The benefit of this strategy is that loyal members feel they are getting an advantage, while the least profitable segments are required to pay for it. At some credit unions, the majority of the membership ends up getting the service for free but it is marketed to them as a relationship benefit. Other potential strategies include lowering the fees to make it more comparable to postage costs, or charging by the bill instead of a flat monthly rate.

Credit unions interested in increasing their bill pay usage should carefully consider the benefits of eliminating or lowering their fees. We'll be discussing more ideas related to increasing bill pay penetration in the coming weeks.

 

 

 

Aug. 25, 2003


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