CAMBRIDGE, Mass. – Canadian consumers are doing something in far greater numbers than their counterparts in the United States, and it could end up being costly for banks and credit unions south of the border. "Canadian consumers have embraced online bill payment: 52% of online Canadians pay bills at their bank's Web site. In the U.S., on the other hand, just 10% of online consumers pay their bills at a financial site, even after years of availability," writes analyst Catherine Graeber in a new Forrester Research report titled "Want to Get More Online Billpayers?" So, what's the big barrier? It's not demographics, Graeber says. They're the same between the two nations. It's the bill for billpay. "Consumers pay their bills online because it's easy and fast. But online bankers who don't pay bills online bristle at the cost, which is the biggest factor holding them back from paying bills online," Graeber says. Why try to so hard to attract online billpayers? Because they're profitable. (A landmark Bank of America study showed that online bill pay customers were more profitable than identical online customers, even after taking into account the costs of the online channel. BofA responded with a heavily marketed free billpay option.) Another reason is because if you don't get them, someone else might, and it may not even be a bank or credit union. Since 1998, consumers have increasingly opted to go directly to their billers for online billing services. Forrester Research, for instance, found that only 27% of new online billpayers chose to use a financial firm in the first quarter of 2002. That means, of course, that three out of four didn't. "What drives consumers to biller-direct sites? A simple, no-fee service that delivers bills to their e-mail inbox," Graeber says. Interestingly, she said, about 43% of U.S. consumers who pay bills at a biller-direct don't bank online and she said they are predominately women with lower income and education levels. Meanwhile, biller-direct sites "are barely on Canadian consumers' radar screens, with just 1% of online Canadians using them," Graeber says. The interest in receiving bills online, interestingly, outstrips the interest in paying them that way, Graeber says. Forrester research shows that 27% of U.S. consumers who neither pay nor receive bills online say they are at least somewhat interested in receiving bills online, compared with about 12% who say they are at least somewhat interested in paying bills online. Weaning members and customers off checks also is part of the equation for credit unions and banks. Graeber notes that 70% of U.S. online consumers still use paper checks, compared with 16% of their Canadian counterparts, who also make heavier use of bill paying by ATM and VRU. How to get the consumer to use the cost-saving online channel, instead of paper and people (tellers)? "To migrate transactions out of high-cost channels, smart firms will share the cost savings with their customers to speed up channel-behavior change," Graeber says. "Wells Fargo and NetBank already do this today," the Forrester analyst says. "Wells credits $2 per month to a customer who uses direct deposit rather than making a branch deposit. And NetBank rebates $2 per month for customers who agree to receive online statements and notices in lieu of paper." And losing the revenue from billpay fees perhaps should not put a halt to the notion of dropping that revenue stream. "The value of transaction migration and relationship deepening will more than cover payment vendor costs," Graeber says. She also notes the value of bundling electronic payments with new checking accounts. Nearly 11 million U.S. households pay bills online at either a biller's site or through a financial institution. That's a number it would be profitable for U.S. financial institutions to grow, Forrester Research says. But how? Graeber bluntly observes that U.S. financial institutions "are fooling themselves if they think that their customers are willingly paying for online bill payment." "Online bill payers are more profitable than other banking customers. Trouble is, few U.S. consumers pay bills at bank sites," she says. "To boost adoption, financial institutions need to drop the fee, push presentment and sell to non-online bankers." -

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