A few years ago, Bank of America publicized an internal study they did in which they determined that online bill payers had a higher retention rate, grew account balances, and had a greater increase in number of products owned after they started paying bills online, compared to similar customers who didn’t pay bills online.
This study has become practically legendary in online banking circles as proof for why banks should put effort into “migrating” customers from offline bankers to online bankers through to online bill payers. The underlying premise: Online bill pay drives depth and strength of relationship.
My take: I’ve never been convinced of the causal relationship between online bill pay and relationship depth.
I’m not impugning the BofA study, nor the importance of online bill pay, but proponents of the forementioned premise have never been able to articulate why online bill pay drives relationship strength.
A research report I recently published at Aite Group, has helped me form some new opinions about what’s going on here.
We surveyed 23 of the 80 largest US banks about their online efforts and plans, and asked them if they had seen any impact on retention, number of products owned, and deposit balances among their online bill pay customers. The result: Some did, some didn’t — but larger banks were more likely to have reaped an economic benefit from OL bill pay than smaller banks.
So, wait — if online bill pay is such a driver of relationship strength, why wouldn’t banks see the impact, regardless of their size? Because there’s another factor in play: Online marketing capabilities.
Across our sample, we found another significant between the largest banks and other firms: The set of online marketing capabilities that they have developed.
As shown in the figure below, the larger banks are more likely to have invested in, and developed a range of online marketing capabilities, including using marketing technologies to cross-sell/up-sell, the ability to make special, pre-approved offers to online customers, and targeting banner ads to online customers.
Bottom line: Online bill pay, by itself, is insufficient to drive economic benefits like balance growth and product ownership. Online bill pay creates opportunities for banks to make relevant offers to their customers, but it isn’t the cause of deepened relationships.
Technorati Tags: Marketing, Banking, Aite Group
Good reminder about the cause-effect relationship in research study findings. Spotting a correlation is one thing. Explaining it is another.
I will help you out here, and I will impugn the BofA study. I recall it, and the other one at a similar time from Wells indicating that online banking customers were better / higher value etc.
The facts were true, but the cause /effect was wrong. It was merely a fact that people with more relationships with the Bank, and those with enough money to afford a computer, were the early users.
It drove me crazy that people would think that customers who were online banking customers were good customers. They were already good customers before online banking, and merely were the natural early adopters. In fact they became worse customers after using online, using traditional cost attribution, because they were using more channels!
Its essential to drill down in unexpected areas and suss out where the real cause / effect plays out.
Thank you Ron Shevlin!
After suffering through a relentless hype cycle on mobile banking, it great to see a blog post that hones in on what matters in online financial services – selling more online.
I highly recommend to read this http://www.payus.us before leaving your credit card number online …
Ron –
Just to follow your reasoning, just because “you” can’t articulate a hypothesis as to why something might be occurring, then by definition is must not be occuring?
Don’t you think that’s a little intellectually dishonest?
Why not ask your audience for a few hypotheses as to why on-line banking “could” in fact be causal, rather than dismissing it outright?
Offhand I can think of several — the online bill payer presumably needs to log in 5-10 additional times every month to pay their bills. The online bill payer presumably needs to consolidate their banking with their provider so that they have the liquidity to pay their bills, thus increasing share of that consumer’s wallet. The online bill payer presumably does indeed see cross-sell ads everytime they log in — but you made your own point in your post — they never would have seen these in the first place if they hadn’t been on on-line bill payer. The online bill payer — if satisfied — may begin to see their bank in a new light as a solutions provider… anyway, that’s four … I think that your audience could probably think of 30-40 possible hypotheses if you had asked for the feedback.
Anyway, it seems to me that the question could best be examined in a well-done analytic study, rather than guessed at and then accepted or dismissed with irrelevant data.
@Ken: I thought my reasoning was more along these lines: Because no one has been able to establish a causal connection (i.e., not simply correlative), I remain unconvinced.
I haven’t “dismissed it outright” — just (as I said) remain unconvinced.
I don’t think that’s “intellectually dishonest” at all.
On the flip side, should I believe that something might be possible, just because I couldn’t disprove it beyond a shadow of a doubt? If so, I guess I should hold out hope that Santa Claus will visit me on Christmas Eve.
@Ron @Ken,
I am still unconvinced. My own research shows no correlation. But if I did have the answer, I would not tell. I would just use it to help me slay Goliath ==> http://en.wikipedia.org/wiki/Goliath
@dmgerbino
This article was just passed to me… I have actually written, and co-presented with Forrester, an analytic study and White paper that shows that, from an analytic perspective, there is indeed likely a “causal” link between adopting on-line bill pay and lowering customer churn for a major bank.
If anybody would like a copy of the White Paper or would like to discuss it further, please feel free to contact me.
When we presented the White Paper results at several webinars, one of our key points of emphasis is that the word “causation” appeared to trip some people up because the word itself has a different meaning within various disciplines … we defined it in the Study as a statisician would, in which all other contributory effects to profitability and/or churn are identified and eliminated so that the only remaining explanatory pillar is the bill pay variable itself. We then set up observation and performance windows, so that we are isolating people that begin paying bill pay but otherwise possess identical characteristics to non-bill payers, and then observe their subsequent account performance within a performance window.
In other words — as some of the posts above state, people can “conjecture” that bill payers are likely to be wealthier or more computer-savvy or whatever and this is why they are less likely to churn … but our study eliminated these factors so that only Bill Pay was left as an explanatory variable in terms of its impact on account performance.
By the way, regarding Ron Shevlin’s point above with regard to major or minor banks, our Study was indeed for a Major Bank.
Hope this helps. Thanks.