Building services your customers and shareholders both like

Last month we suggested you look at electronic payments from the perspective of a non-financial company, specifically Federal Express. That’s how PayPal built its billion-dollar business.¹ But you don’t have to be a venture-funded Silicon Valley company to improve on the current state of the art in online payments.

Consider the experience of new customers using a typical bank online bill payment system:

• Slower payment time than with paper checks – typically 5 days online vs. 1 to 3 days in the mail.
• Lack of trust – through experience consumers have grown to trust the U.S. mail system; but online it still requires a leap of faith every time you press the submit button.
• Little integration with other systems – bill pay is often isolated, lacking integration with other bank systems, email communications, or merchant accounts receivable systems.
• Antiquated customer service – instead of being able to track payments and troubleshoot problems online, users are often required to telephone customer service to determine payment status.

¹ market cap, 3/14/02

Internet-Enabled Bills (billions)

Number of U.S. consumer bills, bills delivered online, and bills paid online

Source: Online Banking Report estimates, 3/02, (+/- 33%); (1) Total bills = total number of bills sent to U.S. consumers via postal mail or email; (2) Net-enabled bills = bills that can be viewed online; (3) Payments = All non-POS (bill) payments authorized online, does not matter whether the original bill was Net-enabled or not

Building a better mousetrap

Given existing contracts and the high cost of transitioning your user base, you may feel locked into your current bill payment program. To a great extent that is correct; however, financial institutions of all sizes and circumstances can still make improvements in product delivery without drastic system changes, even if it’s just clarifying service standards to staff and customers. Keep in mind the overriding goal: to make the online payment experience better than the offline equivalent.

Following are the building blocks of a good program:

•          Fast, guaranteed payments
•          Payment tracking and self-service options
•          Automated payment options
•          Understandable service standards and performance guarantees
•          Wired customer service with same-day
           email response
•          Integration with other bank products, especially checking and loan accounts
•          Basic services for newcomers and/or those with simpler financial transactions
•          Premium services for power users and/or those with complicated financial needs such as small business owners
•          Integration with email so messages can be sent along with payments

During the next two months, we’ll provide material to help you build payment services that click with users. This month we concentrate on products
 pricin, and the business model. Next month we’ll bring it all together and suggest ideal programs for various institution sizes, and list vendors that can help
make it happen.
 

FedEx Payments*

Here’s our response to the hypothetical “How would FedEx approach the payments?” We envision a three-pronged approach using a Web front-end in combination with an ACH and package-delivery back-end.

1. FedEx Platinum Pay: Guaranteed next day delivery directly to the office or lockbox of the biller.

Program features:

•    Web, phone, and email tracking
•    Confirmation numbers emailed to the user after each session
•    Confirmation when payment cleared (deposited
     by biller)
•    Payment from any bank/CU deposit account (checking, savings, money market)
•    Payment from any credit card (subject to cash advance fees)
•    Payment from FedEx credit line (cobranded with a major bank) up to $50,000 with prime plus 2% interest rate
•    Payment from PayPal account
•    VIP customer service via email/phone
•    Quarterly credit bureau monitoring
•    10% discount on FedEx shipments
•    Free FedEx supplies with preprinted labels

Cost: $75 annual fee plus transaction fees as follows

•  $0.75 per payment scheduled a week in advance
•  $5 per payment scheduled within 48 hours
•  $10 per payment scheduled within 24 hours
•  $25 for same-day delivery (limited merchant availability)

2. FedEx Gold Pay: Same as above except only 5% discount on FedEx services, credit line up to $25,000 with prime plus 4% rate, and credit bureau monitoring available ala carte.

Cost: $25annual fee plus transaction fees (same fee schedule as Platinum Pay above).

3. FedEx Ala Carte: Simplest version with no annual fee and no extra benefits. Maximum $10,000 credit line at prime plus 7.5%

Cost: No annual fee, but higher transaction fees as follows:

•  $2 per payment scheduled a week in advance
•  $10 per payment scheduled within 48 hours
•  $15 per payment scheduled within 24 hours
•  $35 for same day delivery (limited merchant availability)

*Fictitious example; we have no information on whether FedEx is or isn’t looking at the payments business