1 It has long been understood that electronic bills (e-bills) deliver benefits to the consumer and to the biller. This paper explores how consumer adoption of e-bill also provides quantifiable benefit to the financial institution as well in terms of lower attrition, higher balances, and additional products. Aspen Analytics, working with data from SunTrust Bank and CheckFree Corporation, performed an in-depth analysis of consumers and found that not only is e-bill usage highly correlated with higher balances, more products, and lower attrition, but also, there is a significant, causal difference between adoption of e-bill and lower bank attrition. In fact, even when normalizing for all other factors that cause attrition, adoption of e-bill on average lowers customer attrition by nearly 50% over and above that of using online bill pay alone. The potential ramifications are substantial: many banks have an immediate opportunity to substantially lower customer attrition for the segment of customers who contribute greater profitability to the bank. November 2007 The E-bill Effect The Impact on Customer Attrition from Banks that Offer E-bill How Aspen Analytics helped measure the impact of e-bill on customer attrition at SunTrust.
Transcript
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It has long been understood that electronic bills (e-bills) deliver benefits to the consumer and to the biller. This paper explores how consumer adoption of e-bill also provides quantifiable benefit to the financial institution as well in terms of lower attrition, higher balances, and additional products. Aspen Analytics, working with data from SunTrust Bank and CheckFree Corporation, performed an in-depth analysis of consumers and found that not only is e-bill usage highly correlated with higher balances, more products, and lower attrition, but also, there is a significant, causal difference between adoption of e-bill and lower bank attrition. In fact, even when normalizing for all other factors that cause attrition, adoption of e-bill on average lowers customer attrition by nearly 50% over and above that of using online bill pay alone. The potential ramifications are substantial: many banks have an immediate opportunity to substantially lower customer attrition for the segment of customers who contribute greater profitability to the bank.
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The E-bill EffectThe Impact on Customer Attrition from Banks that Offer E-bill
How Aspen Analytics helped measure the impact of e-bill on customer attrition at SunTrust.
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In the increasingly commoditized world of consumer banking, it is imperative that banks become more aggressive and proactive in finding ways of differentiating their offerings in an effort to stem customer attrition. Traditionally, financial institutions have increased customer loyalty by growing branch and ATM networks (via either acquisition or internal growth), by focusing on customer service, by growing online banking options, and of course by offering the best banking products and rate schedule. Yet even with most banks deploying a combination of some or all of these strategies, household attrition continues to remain steady at most major financial services at approximately a 15% annual rate (household-level attrition). This attrition creates a high level of drag and friction to the bank’s overall profitability, and forces the bank to find a base of new customers that is nearly 20% of its existing customer base, every single year, just to maintain market share.
One of the most successful strategies that many banks have deployed in recent years to stem customer attrition and thus increase profits has been to enable their customers to use online bill pay. A landmark time series study conducted by Bank of America in 2002 showed that using online bill pay caused consumers to dramatically lower their risk of attrition while also increasing their average balances with the bank and their share of wallet.
In 1997, a new innovation in the electronic billing and payment world emerged: the e-bill. While online bill pay enables the consumer to pay nearly anyone, anywhere, via the consumer’s online account, e-bill takes this a step further and enables the consumer to actually receive the electronic bill via their bank’s secure website. This innovation was expected to lead to many more benefits for each of the key participants: billers would experience savings generated from paper suppression and bill processing reduction, and consumers would experience an increase in customer satisfaction by further simplifying their financial lives and reducing the risk of identity theft.
However, for many banks, providing and promoting the e-bill solution to its customers has not been historically viewed as a potential revenue driver or loyalty creator. This white paper will explore the extent to which the bank itself materially benefits from their consumers’ migrating to using e-bill. The hypothesis is that the bank’s most profitable customers will become more “sticky” – that is, less likely to attrite from the bank, if they adopt the e-bill solution over and above using online bill pay. The lowered attrition rate along with other effects of e-bill usage ultimately leads to an increase in profitability. Potential explanations for this hypothesis are multi-fold:
• E-bill provides an additional opportunity to drive incremental visits to the bank’s secure website that could lead to new cross-selling opportunities for additional products.
• Customers who desire to use e-bill will not have a need to migrate to a different bank that offers the e-bill solution.
• E-bill might be uniquely attractive to the bank’s most sophisticated, highly desired set of customers: highly wired and successful households (that are also supremely “busy”) that also tend to generate the highest amount of profits to the bank.
• E-bill might make the consumer consider their bank’s website to be more indispensable, as it could change their perception of their bank from a financial service provider to a more integrated financial “portal” where an increasing percentage of their overall financial picture is stored.
• If e-bill drives additional customer satisfaction, then customers will be more likely to remain loyal to their bank.
The objective of this white paper is to explore this dynamic by analyzing customer data from a major bank, and to answer each of the following key questions:
1. Do e-bill customers demonstrate lower attrition rates from the bank and increased balances and profitability compared to other types of customers, including online bill pay customers?2. If we adjust for all other factors, do e-bill customers continue to demonstrate lower attrition rates? In other words, is there a “causal” relationship between using e-bill and being more loyal to the bank?3. Do e-bill customers demonstrate other favorable characteristics to the bank – higher balances, more products, more profitability, etc.?
Executive Summary
Aspen Analytics utilized a combination of the bank’s data for each household and all of their associated relationships with the bank (e.g. mortgages, IRAs, checking and savings accounts, CDs, etc.) to address each of the following questions:
1. Are e-bill customers more profitable?
2. Do e-bill customers demonstrate lower attrition rates?
3. Do e-bill customers carry more bank products?
4. Does adoption of e-bill cause a customer to lower their attrition rate?
The first three questions address whether e-bill is correlated with positive banking metrics, whereas the last question addresses whether e-bill in effect causes lower attrition:
• Customers using e-bill products are substantially more profitable.
• Customers that adopt e-bill are much less likely to attrite.
• E-bill customers possess more bank products.
• Adoption of e-bill results in a lower probability of attrition, over and above other factors that may decrease attrition.
The E-bill Effect
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To test these hypotheses, Aspen Analytics (a division of Aspen Marketing
Services, based in West Chicago, IL), worked with data provided by
CheckFree Corporation, a provider of online bill payment services, and
SunTrust Bank. SunTrust provided an analytic dataset of its customers
over a thirteen month period. Aspen Analytics then segmented
SunTrust’s customer base into each of the following segments:
The E-bill Effect
Do e-bill customers demonstrate lower attrition rates than other segments?
Over recent years, several comprehensive studies have been
published regarding the causal link between various types of
online bill pay and overall profits delivered to the bank. A
landmark time series study conducted by Bank of America in
2002 showed that online bill pay customers were 31% more
profitable after 31 months. Boston Consulting Group then
published a study in April 2004 showing that online bill payment
is a significant driver of bank profitability and that households
that actively use online bill pay will, on average, double their
profit contribution to the bank within three years.
The objective of this study is to explore the dynamic of e-bill,
over and above that of online bill pay. We already know that
online bill pay leads to higher profits and lower attrition rates,
but does migrating a consumer from online bill pay to e-bill
provide further benefits in the form of higher profits and lower
attrition rates?
Despite widespread customer satisfaction with the e-bill product
(Collective Dynamics, 2006), adoption of e-bill by each of the
relevant required participants (billers, banks, and consumers) has
been relatively slow. This may be due somewhat to general
confusion regarding the incremental value of the e-bill product
over and above online bill pay, as well as to some hesitancy by
some billers and banks to invest further in enabling online bill
presentment.
What is an e-bill?
The most significant innovation in the last several years in the area of online payment has been that of e-bill. E-bill, not to be confused with auto pay, is a product whereby the bill is presented electronically to the consumer via the bank’s secure website. In most cases, consumers no longer receive a paper copy of the bill, and are able, if they choose, to print the bill, to view archived copies of previous bills, and to pay the bill electronically. Typically, e-bills are well-integrated with the consumer’s overall online bill pay menu, and generally it is possible for a consumer to utilize e-bill for many of their monthly bills.
The E-bill Effect
Review of Previous ResearchThe Evolution of E-bill
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At the highest level, analysis of SunTrust’s historical consumer data reveals significant and profound differences between the various populations. It is interesting to note the linear “stair-step” pattern of the results below. Customers that utilize the online channel, regardless of how they utilize it, demonstrate an attrition rate that is over 35% less than offline customers.Moreover, given that a customer is online, those customers that use online bill pay cut their attrition rate further in half.
Interestingly enough, a customer who utilizes e-bill demonstrates lower attrition rates of a further 15%, and a customer who is a “high” e-bill user (3+ per month) lowers their attrition by an additional 40%.
All in all, a high e-bill customer is nearly six
times less likely to attrite than an offline customer and is 78% less likely to attrite than the average
SunTrust customer.”
Correlation ResultsE-bill Customers Attrite Less
Using the attrition rate for the overall SunTrust population as the basis of the index, a clear trend can be seen in the populations as the online channel is optimized up to, and including, high e-bill usage.
Household profit and number of products demonstrate a similar pattern of e-bill customers possessing more favorable characteristics. Each successive customer movement, first from offline to the online banking channel, and then to utilizing bill pay, and then to trying e-bill and then fully adopting multiple e-bills, leads to successively greater averages and more favorable characteristics. In comparison to online bill pay users, e-bill users generate 15.7% more profit. Additionally, e-bill users have 22% more products with the bank than those customers who use online banking but are not using bill pay or e-bill. Within the e-bill segment, those “high” users that receive 3+ e-bills per month grade even higher in profitability. This increase in profitability is likely derived from increasing the consumer’s “share of wallet”; a consumer who utilizes e-bill is likely to consolidate financial assets at the bank where they use e-bill.
Correlation ResultsE-bill Customers are More Profitable
Again, using the overall SunTrust population as the basis of the index, a clear trend for both number of bank products and profit can be seen in the populations as the online channel is optimized up to, and including, high e-bill usage.
Aspen Analytics then isolated the effect of using e-bill over and above all the other factors that differentiate the various sub-populations. The objective was to normalize for all other factors, in order to isolate the incremental and marginal effect that using e-bill has on lowering customer attrition. Aspen found that utilizing e-bill, over and above all other characteristics, had a powerful and significant incremental effect on lowering customer attrition.
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Bill Pay Only E-bill 3+ E-bills per Month
E-bill Effect
Observed Normalized
Some of the differences in attrition between the e-bill population and the online bill pay population are due to possessing more favorable customer characteristics – they are likely to have slightly longer tenure at the bank, more products, higher balances, etc., all factors that are highly correlated with lower attrition. However, even given these factors, the presence of e-bill adds a distinct, large marginal factor in lowering customer attrition.
After normalization, the incremental effect from moving the bill pay population through the life cycle to e-bill or high e-bill results in a significant decrease in attrition at each of these life cycle stages.
What does that mean?
Moving a customer from using bill pay only to receiving at least one e-bill per month results in a 49.3% incremental decrease in attrition. If the bill pay customer receives 3+ e-bills per month, that number jumps to 50.2%.
Aspen Analytics is a division of Aspen Marketing Services. Founded in 1986, Aspen Marketing Services is the fifth largest marketing services firm in the United States. Headquartered in West Chicago, Illinois, with offices in Atlanta, Detroit, Los Angeles, Dallas, New York City, Phoenix, Morristown, San Diego and Tampa, Aspen Marketing has more than 850 employees nationwide.
Aspen offers an extensive array of integrated, best-in-class services, including direct marketing, consumer promotions, event marketing, public relations, digital marketing and database analytics.
