Online Bill Payment Gains Popularity While Customers Eschew Aggregation
Quittner, Jeremy, American Banker
Banks made big gains in online bill payment last year, but consumer interest in account aggregation went nowhere.
Nearly 15% of the respondents to this year's American Banker/Gallup Consumer Survey are paying bills online through their primary financial institution, up from 10% last year. The percentage who knew it offered the service rose by the same 5 percentage points, to 83%.
"We have seen online usage grow dramatically, and there was strong demand from customers to adopt bill payment," said Sanjay Gupta, the senior vice president of e-commerce marketing for Bank of America Corp. in Charlotte, N.C.
Wells Fargo & Co. said about a million customers use its bill payment service - 40% more than a year ago and a third of its online banking total. Further gains are expected from the online presentment service it has offered on a limited basis since January, the San Francisco company said.
"Most of the banking trends of the last 25 years have been about convenience, and I think that convenience will drive this adoption as well," said Jim Smith, Wells' senior vice president of consumer Internet services.
FleetBoston Financial Corp. officials said the number of customers using its online bill payment service has increased by a quarter in the past year. They would not give a total but said that as a percentage of its 2.6 million online banking customers the bill payment contingent is well into the double digits.
"I don't think the growth in online bill payment will plateau anytime soon," said Neal Wolfson, Fleet's director of interactive banking. "We will continue to see strong growth. We aggressively promote the service."
He and Wells' Mr. Smith said online bill payment is becoming a mass-market service. Subscribers used to be mostly tech-savvy, younger, and wealthier than the average customer. Now they range "from 18 years old to seniors," Mr. Wolfson said.
Nevertheless the service is most popular among the young. Twenty-six percent of the American Banker/Gallup respondents 18 to 34 use it, but only 11% of those 55 to 64. (Nineteen percent of the men and 16% of the women said they use such services.)
James Van Dyke, the research director for Jupiter Communications in Pleasanton, Calif., said customers will not start signing up in droves for bill payment until they can see their bills online.
Of the 20 million people who now pay bills online through the Web sites of depository institutions, fewer than eight million can view any of their bills that way, Mr. Van Dyke said. By 2006, though, 45 million will do both, he said; only two million will be paying bills online without viewing them online.
Credit unions are the big success story in online bill payment, the American Banker/Gallup survey suggests. Twenty- four percent of the respondents whose primary financial institution is a credit union use its online bill paying service, versus 15% in last year's survey. The percentage also jumped at thrifts, from 8% to 20%, but crept up to only 11% at banks, from 9%.
"A lot of the success that credit unions have in particular is that their members trust them more than typical bank customers," said Jeanne Capachin, research director of Meridian Research in Newton, Mass. "It is the personal attention they can provide."
Douglas Benzine, the senior vice president of business development for CUNA Network Services LLC, said credit unions are very interested in bill payment. "They are pushing it more," said Mr. Benzine, whose company is an affiliate of the Credit Union National Association. "Members have more of a comfort level with the credit union . more of a personal relationship."
In its 2002 member survey CUNA found that 84% of credit unions with more than $200 million of assets offer online bill payment services. Seventeen percent of credit union members use online bill payment at least once a month, the survey found.
One of the nation's largest credit unions, $16 billion- asset Navy Federal Credit Union of Vienna, Va., says it has been extremely successful in signing up members for online bill payment.
Its customers, 2.2 million active-duty and retired Marines and Navy personnel, often access their accounts from ships and foreign countries, said Franklin Myers, its senior vice president of research and development. Thirty-five percent bank online.
Mr. Myers declined to say how many members pay bills online, but the number grew 64% last year, he said, and is already "in the solid double digits" as a percentage of membership.
Some analysts say that fees averaging $6.75 a month are discouraging a lot of potential bill payment users. Fees "will limit the demand, particularly where the consumers don't see the value immediately," said Ms. Capachin of Meridian Research.
Bank of America removed that obstacle in May, eliminating its $5.95 monthly charge for the 25% of bill payment customers who were paying it. (The rest had the $5,000 of deposits that exempted them.)
Bill payment was already growing fast as a B of A service. By January, the bank says, it had 1.1 million active users, a third of its online banking total. Both groups had grown 60% last year.
But "when we did our research, price came up as a barrier to individuals who wanted to use it but did not want to pay the monthly fee," Mr. Gupta said. And B of A wanted those people as bill payment customers, who are 80% less likely than others to defect, he said.
As for aggregation, once again more than half of the respondents to the American Banker/Gallup survey said they were simply not interested - 52%, compared with 51% in 2001. Twenty-two percent said they were "very interested," up from 19% last year; 25% said they were "somewhat interested," down from 29%.
Though online bill payment has been offered for about five years, account aggregation is scarcely two years old, and many consumers are still unfamiliar with it.
"It is still a relatively new concept from a consumer's perspective," said Matt Cone, the senior vice president of marketing for Corillian Corp., an aggregation provider in Portland, Ore. "It is still a service that most have to conceptualize."
Mr. Gupta said that enrollment in the account aggregation service Bank of America launched a year ago is "healthy" but "still in its early stages."
Yodlee Inc. of Redwood Shores, Calif., is the dominant provider in the aggregation market. It serves three million people through the 135 financial services companies among its clients.
Jim Taschetta, Yodlee's chief marketing officer, questioned the survey finding that consumer interest in aggregation has not risen. Aggregation has been integrated into many Web sites, he said, and "I am not sure that consumers know that they are benefiting from aggregation technology" when they use it.
If Yodlee asked consumers if they are seeing more value from financial Web sites, Mr. Taschetta said, "the answer will be yes - and one reason is the aggregated data in the background."
Among financial services companies, banks have the inside track on aggregation, the American Banker/Gallup survey shows. This year like last, 43% of respondents said they would be more interested in account aggregation from their bank than some other provider. Fifty-five percent said it would make no difference, versus 53% in 2001. Only 3% said they would prefer someone else, down from 4%.
Chris Musto, vice president of research at Gomez Inc. in Waltham, Mass., said account aggregation appeals mostly to people who bank online." Gomez research also shows a preference for banks as aggregation providers, he said, "so our advice to banks is to integrate account aggregation into the current online banking interface."
The American Banker/Gallup survey also shows that people with brokerage accounts are prime aggregation prospects. Fifty-four percent of respondents with multiple accounts, including one at a brokerage, said they would be "very" or "somewhat" interested in aggregation services.
That seems to put such companies as E-Trade Bank, the recent spinoff of the online brokerage E-Trade Group, in an enviable position. Most of the bank's customers come from the Menlo Park, Calif., brokerage.
Aggregation is an important part of a service recently launched as a joint venture with Ernst & Young. The service, called E-Trade Financial Advisor, gives customers an online snapshot of all their financial accounts and consultation with an Ernst & Young financial adviser.
"It is all about how you differentiate yourselves in what is becoming a more commoditized marketplace," said Mitchell Caplan, president and chief operating officer of E- Trade Group.
Mr. Quittner, a former American Banker reporter, is a freelance writer in New York.
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Publication information: Article title: Online Bill Payment Gains Popularity While Customers Eschew Aggregation. Contributors: Quittner, Jeremy - Author. Magazine title: American Banker. Publication date: July 23, 2002. Page number: Not available. © 2009 SourceMedia, Inc. COPYRIGHT 2002 Gale Group.
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