Growing with Online Banking; Growing More with Expedited Payments
The current financial crisis presents opportunities to attract and retain consumers by providing greater online banking convenience. Consumers are searching for more efficient ways to manage their money and optimize payment schedules, online. A robust online banking suite – especially one that incorporates expedited pay options –can add to a bank’s bottom line by helping reduce costs, increase fee revenue, attract and retain consumers, and improving the consumer experience.
Online Banking Consumers: More Affluent, Younger and Loyal
It is no surprise that the nation's largest banks have poured resources into online banking. According to Javelin Strategy and Research*, Bank of America, Wells Fargo and JPMorgan Chase now control an estimated 39% of the online banking market after recent industry consolidation. Online banking users are valuable to banks. Studies have found that they are generally wealthier, younger and more loyal than average. And online banking is a "sticky" service that keeps consumers involved directly in the security and management of their finances.
Consumers are looking to simplify and consolidate their banking relationships. This provides mid-sized banks and credit unions the opportunity to position themselves for growth by offering the same services as bigger institutions. Online banking and bill payment are "addictive" services according to the Javelin report, with half of all heads of households saying they had logged in within the previous week to check balances or transact business. Those institutions that provide robust online banking services are more likely to capture the "primary accounts" of these consumers.
Robust Online Services a "Must Have" for Financial Institutions
Online banking and related online solutions continue to be a growth opportunity for financial institutions. The Javelin study indicated:
- More than two out of three households bank online at least once a month.
- By 2013, an estimated 83 million households will bank online.
- Of those households, 45 million will be paying bills online.
- By 2010, an estimated 28% of consumer bill payments will be initiated online, a 62% jump from 2007.
- Market penetration for online bill pay is still only at an estimated 48%, with market penetration among consumers of mid-sized banks and credit unions even lower.
Improving the online banking experience for consumers has become a competitive must. The question becomes which added services will provide the best "bang for the buck" in terms of fee revenues, consumer attraction and retention, and operating cost savings?
Western Union Payment Services has witnessed banking institutions' rising interest in a number of features that should continue to gain acceptance throughout 2009:
- Expedited Payments
- Mobile Banking
- Financial Alerts
- Paperless Push
The return on investment after adoption of these technologies will be measured in increased loyalty, reduced operating costs, increased fee revenue and opportunities to cross-sell additional online and related bank services and products.
Enhancing Online Bill Pay with an Expedited Payment Option
An expedited payment option (payments delivered same- business day or following-business day to the biller) allows consumers to maximize account control, setting "just-in-time" payment schedules for bills. This added efficiency is particularly useful given current economic conditions. According to the Javelin study, expedited payment users are avoiding late charges ranging from $20 to $49 at increasing rates, from 41% in 2007 to 55% in 2008. (Whether this trend will hold given current financial conditions is unclear.) As consumers look for ways to maximize the efficiency of their spending, an expedited bill pay feature may look more attractive.
The expedited payment option can drive increased fee revenue and reduce bill-pay costs while also provide consumers with a highly visible, improved online experience. Data from the Javelin study help confirm this by showing:
- Annual revenue for expedited payments will grow from an estimated $1.4 billion to $2 billion over the next five years, a compound annual growth rate of 7.5%.
- The usage of expedited bill pay is highest for those who have access to mobile banking. Nearly 45% of mobile bankers use expedited bill pay at least one a month, 14 points higher than online-only consumers.
- The growth potential for expedited payment services is high, with 74% of consumers using some form of expedited payment directly with their billers and only 25% using expedited payment through their banks.
Making Online Banking Work for Consumers
For those institutions with online capabilities, the Javelin study identified five simple rules for creating a successful online banking environment:
1. Streamline online bills and statements.
For most bills (utilities, cable TV, etc.), consumers don't need to see underlying charges. But the ability to check charges on items like credit card bills is essential if a bank wants to become their consumers' main financial portal.
2. Leverage the strength of the Internet over paper.
Deliver timely information on transactions. Real-time or near-real-time account data promotes frequent visits and usage. Highlighting new transactions (since last log-in) also alerts consumers to new activity.
3. Be transparent about fees.
Explain fees openly and in clear and simple language, not in jargony, legalese.
4. Promote the "green" nature of online banking.
Consumers are increasingly looking for way to contribute to improving the environment. Opting for online over paper is an easy way to make the case.
At a time when growing the asset base is critical, capturing and retaining "primary accounts" is a must for banks and credit unions. New online banking features can grab consumers and raise retention rates while also boosting revenues and cutting costs.
* SOURCE: Javelin Strategy & Research, 2008 Online Banking and Bill Payment Forecast, Nov 2008