Consumers who pay their bills online are more profitable and loyal to their financial institution thanks to their use of online bill payment services, according to a study sponsored by financial services technology firm Fiserv.
The study found that customers who began using online bill payment during the course of the study delivered 15% - 20% more profit to their financial institution compared to similar customers who had not adopted the online service. Customers who paid their bills online were also 76% less likely to defect to a competitor.
Fiserv also observed that bill payment data can be used to reliably predict financial services customer behaviour. For example, decelerating online payment activity serves as an early warning that customers may be about to move their accounts to a competitor, providing an opportunity to take preventative action.
The 'Online Bill Pay Longevity and Lifetime Value Study' was conducted by Aspen Analytics and analysed transactional data from nearly 10 million customers at one of the top ten banks in the United States during a 16-month period in 2007 and 2008.
"The study suggests that online bill payments create a much deeper and more profitable relationship between the household and the bank or credit union," said Kirk Gripenstraw, senior director of analytics for Aspen Analytics. "Consumers get hooked on the convenience of these services and then they don't want to go through the time-consuming transition of accounts and bill payment transactions that would be necessary when moving to another bank or credit union."
Among the study's key findings:
- Before adopting online bill payment, the profitability of customers who eventually adopted the service was almost identical to non-adopters. Immediately after adopting the service, these customers delivered 15% - 20% higher profits. This suggests that the use of online bill payment contributes directly to increased customer profitability, possibly due to the consolidation of accounts used to pay bills and increased cross-selling opportunities from more frequent web site visits.
- The most eager users of online bill payment (i.e. those who paid an average of five or more bills online per month) were identified as being four times more valuable to their financial institution than the average customer.
- The segment of customers who use online bill payment services most actively carried 79% higher account balances than the average customer.
- Every additional bill that customers paid online resulted in an incremental increase in customer profitability.
- As customers progressed from paying bills using paper cheques to being online banking users, and eventually to being online bill payment users, each step was associated with a significant decline in customer attrition.
- Eager users of online bill payment services are up to 95% less likely to leave their financial institution than average customers, and 90% less likely to leave than online banking customers who do not pay their bills online.