Eliminating bill payment fees is the simplest way to make customers happy. However, there may be less expensive alternatives that position you better for the long term.

First, let’s look at how consumers choose a bill payment service provider. It’s not so much about the price. What they want is to have their bills paid in a timely manner with the least amount of effort and maximum amount of control. Other factors play a role as well:

• overall complexity of household finances
• technological sophistication and outlook
• financial experience and behavior
• risk tolerance

Table 9, right, lists 43 attributes related to the consumer’s bill payment purchase decision.

So, rather than offering it fee-free, perhaps you could improve your value-proposition in other ways to provide a similar adoption lift without losing the fee income altogether.  Following are five alternative approaches.

1. Conditional (on another purchase)

·      Free if you do add something that improves revenues, such as adding an account

·      Free if you do something that lowers costs such as switch to estatements*

·      Free with minimum balance levels

·      Free as part of an overall relationship account

2. Crippled (reduced features and benefits)

·      Free with usage limited to electronic merchants only

·      Free with reduced or pay-per-incident customer service

·      Free with reduced functionality

·      Free with reduced usage

*Two top-50 banks are using this approach, First Tennessee and National Commerce Financial

Table 9

Factors Used by Consumers When Selecting a Bill Payment Provider

• security
• customer service availability
• quality of customer service
• timeliness of payments
• turnaround time of the payment
• payment scheduling requirements
• guarantees in the event of late/lost payments
• usability
• tracking of payments in process
• stop-payment capabilities
• merchant list
• process to add a merchant
• ability to review the billing statement
• confirmation numbers
• confirmation messages
• ability to schedule recurring payments
• how long it takes to complete a bill payment session
• how easy is to make a mistake
• session logs
• payment limits
• look and feel
• integration with other online banking activities
• built-in credit to handle shortfalls
• ability to pay from multiple accounts
• archives of payment transactions
• reporting
• automation options
• positive word of mouth
• customer service wait times
• online FAQs
• online instant messaging support
• telephone support
• learning curve
• SMS/IM confirmations
• ability to schedule via telephone
• integrated email to payees
• budgeting/planning tools
• search capabilities for prior transactions
• expedited transactions
• control
• privacy
• trust
• perceived record keeping improvements

Source: Online Banking Report, 8/04

3. Substitute other lower-cost FREE services

·      Free paper check and statement archives

·      Free account aggregation with online bill manager (see www.LowerMyBills.com )

·      Free 24/7 customer service

·      Free interbank transfers

·      Free credit report information

·      Free account alerts

·      Free companion air fare or other non-banking incentive

4. Provide overall relationship incentives

·      Higher rates or lower fees on checking or other deposit accounts

·      Lower rates and/or higher lines of credit

·      Higher service levels and better guarantees

5. FREE as part of plain-vanilla, reduced-benefit online banking package

·      Actively upsell advanced fee-based packages with numerous additional features and benefits (see Table 10 below)

·      Limit the life of the plain-vanilla package; enact forced conversion after several years into fee-based product

Table 10

Bill Payment Product Differentiation

Source: Online Banking Report, 8/04