Pricing

Author Jim Bruene Published Aug. 25, 2004; OBR 109 Pages 20 Format Printed, PDF, and Word Size 2.4MB Table of Contents Click the following icon to download the Table of Contents:

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Abstract: In the report we look at the widespread practice of offering of online bill payment free of charge (see p. 4 for prices at top 50 U.S. banks). You can read the report for our detailed conclusions, but suffice it to say, we are not wild about this trend. Online banking and bill payment provides significant value. And without a tangible revenue stream, it's difficult to make the appropriate investments in the channel. We think bank customers will actually be better off in the long run if they shoulder at least a portion of the extra costs of a robust online banking service.

Free bill payment is particularly vexing. Here's a service that runs circles around the paper equivalent. Users can save time, save money (postage, late fees, and check printing fees), can improve bill tracking and budgeting, and make their financial life easier. And, if the electronic payment doesn't post at the biller on time, the bank and/or processor will go to bat for them to resolve the problem. Try doing that with a paper check that's "lost in the mail."

So why do banks insist on providing this beneficial and costly service free of charge? They are doing it for the "relationship" value. No doubt users love getting something for nothing. And we won't dispute the correlation between bill pay users and higher household profitability. But so what. You can correlate higher profits with any service designed for a well-heeled audience.

The bigger question is this: Is free bill payment, costing $50 to $100 per customer per year, the best way to gain more loans and deposits from your best customers? It may be, but there may also be less expensive ways to achieve similar results, such as lifetime transaction archives or more account security options (see p. 13 for more ideas).
It's a tough call.

Other Subjects

• Recent reports of online fraud losses are highly inflated

Companies mentioned: ABN Amro (LaSalle Bank), AmSouth Bank, Astoria Financial, Banco Popular, Bank of America, Bank of New York, Bank of the West, Bank One, BankNorth Group, BB&T, City National Bank, Charter One Bank, Chase, Citibank, Comerica, Commerce Bancorp, Compass Bank, Compete Inc., E*TradeBank, Fifth Third, First Tennessee Bank, Fleet, Gartner, Google, Greenpoint Bank, Harris Bank, Hibernia, HSBC, Huntington Bank, ING Direct, Key Bank, LA Schools Federal Credit Union, LowerMyBills.com, M&T Bank, Marshall & Ilsley, MBNA, MSNBC, National City, National Commerce Financial, Navy Federal Credit Union, NetBank, North Fork Bank, Northern Trust, Online Resources, Peninsula Community Federal Credit Union, Peoples Bank (IL), PNC Bank, Polam Federal Credit Union, Regions Bank, Royal Bank of Scotland, , SouthTrust, Sovereign Bank, SunTrust, Synovus, Union Bank, Union Planters, Union Square Federal Credit Union, US Bank, , Wachovia, Washington Mutual, Webster Bank, Wells Fargo, World Savings, Zions Bank