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Interactive Bill Payments -- Profiting from Digital Payments

By Jim Bruene on December 1, 1997 1:59 PM | Comments

Previously we looked at various interactive billing and payments strategies and detailed several dozen potential product features. Now we’ll drill down to the strategies most likely to make a positive impact to your bottom line within the next 36 months. And if you’re curious as to what an Internet bill will look like, there are a half-dozen demos posted on the Web today.

Top Profit-Making Opportunities from Interactive Billing (Roughly in order of priority)

1. Increased outstandings from loans integrated with bill payment.

2. Acquisition of new consumer accounts brought in by cobranded online billing programs used by area billers.

3. Acquisition of new business clients attracted to your money-saving billing and payment services.

4. Improved customer retention from satisfied end-users.

5. Fees paid by billers for immediate availability of the funds presented in online bills (discount fees).

6. Transaction fee income from customers paying bills through your Web.

7. Transaction fee income from non-customer bill payment “surcharges.”

8. Transaction fee income from processing payments for the biller.

 

5000creditline.jpg
Imagine seeing this message when you’re paying that monster January
heating bill. This particular message is on Edify’s bill pay demo.

Bill Payment as a Loan Acquisition Tool

We believe the best path to online profits in 1998 and 1999 is through incremental loan generation. And bill presentment/bill pay will be one of the biggest draws for Web-based financial services during the next three years. Why not integrate the two programs together? With verifiable incremental loan volume, you’ll be able to demonstrate that online banking is a money-maker, leading to more resources, which can be invested back into the Web to generate even more business.


The early adopter users of online banking programs have high incomes, assets tied up in 401(k)s, and huge appetites for things financed by loans. But these high rollers are often illiquid, with an average checking account balance so low that it barely covers the cost of your transaction processing expenses, let alone an ATM network, call center, and a 7 x 24 PC banking help line.

Edify’s Electronic Banking System demo at www.edify.com/products/ebs/ebs.htm includes a credit line cross sale in the upper lefthand corner.

It’s every credit card marketer’s dream to have their solicitation show up in the mail box at precisely the time the recipient is thinking they might need some extra cash. By offering electronic bill pay, you know exactly when your users are thinking about their finances; at bill-paying time. It’s the perfect time to reach them with a message saying they are preapproved for a credit line. Edify recognized this opportunity when it added a loan cross sale to its bill pay demo (see screen shot above).

creditlineClickNOw.jpg

You’ll want to do more than just send online solicitations. Credit options should be tightly integrated into online bill payment. For example, a “click here to pay from your credit line” button on the payment screen.
To make this work, you’ll need to establish an infrastructure to handle real-time “emergency” credit line increases. Because users aren’t going to wait eight days (or even eight hours) to find out if you’ll cover their bill payment. They’ll just type www.quicken.com and apply for a two-minute loan courtesy of Beneficial.

Back-of-the-Envelope ROI

Thinking of your online channel as a powerful loan generation engine makes the whole financial picture look much better. Assume each bill pay customer carries an incremental $5,000 in “bill pay overdraft” balances. Since many users will be relatively price insensitive to this type of credit, you could expect net interest margins of 5-10%. At a 6% spread, the loan would generate $300/yr in profit contribution.

$5,000 balance x 0.06 = $300/yr

Satisfied bill pay customers are likely to stay with you for a long time, especially as the switching costs to unwind their electronic connections grow with each new service you provide. Assume the bill pay loans stay on your books an average of 10 years. This gives each new bill pay account a lifetime value of $3,000, just from the value of the overdraft loan alone.

$300/yr x 10 years = $3,000

How much would pay to acquire new loans worth $3,000 a piece? $300? $500? $1,000? Whatever the figure, you can use it to establish a realistic budget for your online channel. And it can be substantial. Assume you want to attract 250 new accounts each month, 3,000 in a year, and are comfortable spending $500 to acquire each one. That’s a potential $1.5 million budget for your Web, which according to the above assumptions, would be paid back in less than two years.

Next comes the easy part, spending it. One area that deserves a good portion of the budget is the bill pay service itself. You will need a state-of-the-art program to attract and retain these profitable loans. Turn the page for our recommended features.

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