It comes as no surprise to anyone that online banking and bill pay customers are more profitable than non-adopters. This correlation, driven by the favorable demographics and lower attrition of online adopters, has clearly been established since the early days of the Web.

What's far more difficult to prove is causation. Does online banking/bill pay actually lead to more profits? The main hypothesis: by locking customers into an electronic service, they are not only less likely to move their accounts, they will also consolidate deposits and other financial activity at the provider of the online services. We'll get back to that.

It's not surprise that ebill users are more profitable
But first, here's some new correlation data from SunTrust that can help you benchmark your own performance or serve as a proxy for your business case. The study was released in late 2007 and was underwritten by ebill provider, CheckFree. The research company, Aspen Analytics, published a short white paper on the project here. And Forrester's Cathy Graeber published a research note three weeks ago here.  The two companies presented their findings in a webinar this week (replay here).

One interesting aspect of this study is that ebill customers were segmented into casual users that viewed one or two ebills per month and heavy users that looked at 3 or more ebills each month. The heavy users owned 5% more SunTrust products and were 20% more profitable to the bank (see chart 1 below).

Source: Aspen Analytics/CheckFree, Nov. 2007
Projections based on 13 months of SunTrust data captured between Feb. 2006 and Feb. 2007

Even more dramatic was the correlation between online product usage and attrition, defined as the closure of the primary SunTrust checking account. Offline customers were six times more likely to close their accounts in the six-month observation period
than heavy ebill users (see note 1). Source: Aspen Analytics/CheckFree, Nov. 2007

The bottom line: 5-year NPV for heavy ebill users was 36% higher than those that used bill-pay only and nearly double the online-banking-only population (no use of bill pay
or ebilling). 

 
Source: Aspen Analytics/CheckFree, Nov. 2007

But does ebill use CAUSE profits to increase?
The correlation data above illustrates the importance of taking good care of bill pay/ebill customers. However, to justify incremental investment, you need to know the expected payback, i.e., how much more revenue/profits can you expect by moving customers into ebilling.

This study made a concerted effort to determine if the use of free ebilling services can leads to more profits. The researchers normalized the population across hundreds of product, tenure and demographic variables drawn from SunTrust's own CRM files and from appended Equifax info. But absent full before-and-after interviews with the subjects, it's still just a model it hard to fully test. There could be important factors outside the SunTrust/Experian datasets that account for lower attrition. For example, perhaps the well-heeled online banking customers who closed their primary SunTrust checking account in late 2006 stayed away from ebills because they had a sense they would be moving in the near future, so why bother setting up ebills.

But with these caveats in place, it does appear this study demonstrates that moving customers into the heavy ebill category causes them to be more loyal, at least in the short term. Cathy Graeber, the Forrester VP participating in the webinar, certainly thinks so.

The following chart shows that about half the decline in customer churn (36 points) has nothing to do with ebill usage but should be attributed to the favorable customer profile of ebill users. However, the remainder of the decline (32 points), is attributable to being heavily involved in ebills (viewing 3 or more per month). Put another way, ebilling decreases the expected attrition of this type of customer household by almost 50%. 

 
Source: Aspen Analytics, The E-Bill Effect:  The Impact on Customer Attrition from Banks that Offer E-Bill, Nov. 2007
Note: Ebill customers in this example are heavy users looking at 3 or more ebills per month.

Bottom line
If those results hold true for other banks' customer bases, it could justify significant investment in ebilling activation programs. For example, if you value an active checking account at $200 per year and it costs $100 to convert them to ebilling, and you achieve a 33% reduction in attrition, the net gain is $230 per new ebill account over five years. Convert 10,000 users and the NPV would be more than $1.5 million (see note 2).

Even if you discount the results due to research bias (it was after all underwritten by the leading ebill provider) or you take issue with the methodology, it does appear that the companies have proven a material reduction in attrition by frequent ebill usage.

And to give it the final "common sense" test. It does seem logical that someone who's taken the trouble to set up online banking, online bill pay, and register three or more bills for delivery, would tend to be less likely to ditch their checking account for that sexy deal across town.  

Notes:

Definition of customer segments:

• Overall = Entire SunTrust customer base
• Offline = SunTrust customers that do not use its online banking or bill pay/ebills
• Online = SunTrust customers who use online banking but NOT bill pay/ebills
• Bill pay only = SunTrust customers who use its online bill pay system, but NOT ebills
• E-bill = SunTrust customers who use its ebill service and view 1 or 2 bills per month on average
• 3+ E-bills = SunTrust customers who use its ebill service and view 3 or more bills per month

1. Attrition was defined as anyone who closed their primary SunTrust checking account between Sep 2006 and Feb 2007 and did not open a new one during that period. It's a pretty short window, so that's one limitation of the findings that you should be aware of. Over a two or three year period, their could be much different results.

2. $200 saved x 5 years x 33% attributed to the ebill program = $330 gain less the $100 cost to convert to ebilling = $230. Across 10,000 customers the total net gain would be $2.3 million. Discounted at 12%, the NPV is more than $1.5 million.

Once Citibank and Bank of America started making mobile banking noises, we didn't expect it to be long before others jumped into the market (note 1). So it came as no surprise today that SunTrust, Regions, and Wachovia announced full-service downloadable mobile banking apps (see press release here). No firm dates were released, but according to the Washington Post (here), AT&T will include the Firethorn software in handsets beginning in mid-year and support the launch with a multi-million dollar ad campaign.

It's a huge win for the Atlanta-based startup Firethorn Mobile, who in a single day picked up contracts with the fourth, eighth, and fifteenth largest U.S. consumer banks (see chart below). Just four months after its coming out party at BAI's Retail Delivery Conference, Firethorn boasts a partnership with one of the biggest consumer spenders on the planet and three of the largest banks the U.S. Not a bad quarter.    

In addition, Firethorn's beta partner, BancorpSouth officially launched the production version today (press release here). The free service works only at AT&T/Cingular and only with the following five phone models: Motorola V3 Razr, V551, V557, L7 SLVR, or the LG CU500. See previous coverage here.

The BancorpSouth website today had a promotional link for mobile banking in its online banking area (see banner above) and a brief webpage and signup form (click on screenshot right for closeup).

Update: American Banker's Steve Bills reported that Wachovia is planning an October rollout and SunTrust is looking at a "test" of up to 100,000 customers later this year, with full rollout in 2008 (full article here).

Note:

1. See our full forecast in Online Banking Report 138/139.

One day after SunTrust announced free credit monitoring for checking customers (see NetBanker May 8), PayPal launched a similar service for its 50+ million U.S. account holders (see landing page below for details). Both services use Equifax to power alerts based on credit bureau info.

However, SunTrust includes one free look at the customer's credit report. PayPal users would have to pay for that, or sign up separately at <annualcreditreport.com> to see their report free of charge.

While SunTrust bends over backwards trying to upsell users into a more comprehensive fee-based option, PayPal takes the high road, at least initially, simply redirecting users to an Equifax sign-up form devoid of sales pitches (click on screenshot below for closeup).

However, we expect the upsell offers will be along shortly. We'll keep you posted. As a previous Equifax credit-monitoring customer, we've witnessed the company's aggressive email marketing schedule.

--JB

SunTrust launched a new checking account acquisition strategy built around free credit-report monitoring (see personal homepage right). And this is not a low-budget identity-theft "insurance" policy (see PNC Bank, NetBanker Feb. 3 and Washington Mutual, NetBanker, Nov. 7, 2005), but full-blown Equifax Credit Watch Silver costing $6.95/mo or $50/year at the Equifax website.

Credit Watch Silver includes:

• Weekly credit-report inquiry and balance-change alerts
• One initial Equifax credit report.
• $2500 in identity fraud insurance with $250 deductible

How it works
SunTrust is offering the free monitoring on most of its checking accounts, including its standard $9/mo account that is fee-free with a $1500 minimum balance. The free offer is not available to "free checking" or "senior checking" customers. However, they can buy it for a discounted rate of $3.45/mo or $35/year, a substantial discount from the regular price of $6.95/mo.

Of course, customers will have to wade through relatively gentle up-sell pitches for Equifax Credit Watch Gold, which will cost customers $6.95/mo or $70/yr, about one-third less than the list price of $11.95/mo or $100/yr; or Gold with 3-in-1 Monitoring for another $30/yr. Also, customers that want to extend the Equifax Silver coverage to both members of a joint account will have to pony up an additional $35/yr.

Credit Watch Gold includes:

• Daily credit-report inquiry and balance-change alerts
• Unlimited Equifax credit reports
• $20,000 in identity-fraud coverage with zero deductible

Checking account customers must enroll for the free service at a co-branded Equifax website. It's a jury-rigged sign-up process that requires the use of an offer code that includes the customer's 13-digit SunTrust checking account number.

New customers must first open a checking account, then enroll at Equifax at least two days later. SunTrust offers online account opening, but there is no link to an online option from the credit monitoring landing page (click on inset for a closeup).

Analysis
This is an excellent value for SunTrust checking customers and could potentially have little out-of-pocket cost for the bank. The bank's costs depend on four factors:

1. 1. How many checking customers take time to enroll for the free service
2. How many of the enrollees elect to accept credit-monitoring upgrades
3. How many enrollees opt to buy additional credit-report viewing during the course of the year
4. How often a fraud situation involving a SunTrust account is thwarted due to the service

The only real problem with the program is that it is not integrated with online banking. The separate enrollment and sign-on make it a hassle to use (of course, this holds down the bank's costs). We expect other banks to offer similar programs during the next 12 to 18 months.

--JB