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Bank of America's Free Online Bill Payment Offer Fuels Increased Adoption By Appealing to a New Segment of Customers, Compete, Inc. Finds

BofA's move to make online bill payment free shows challenges and opportunities for banks

Boston, MA - January 28, 2003 -- Bank of America's (BofA) aggressive move to offer customers free online bill payment fueled a significant increase in adoption of its online bill pay (OBP) service, but raises important issues for banks considering revisions to their OBP pricing, according to new analysis from Compete, Inc. Compete analyzed consumers' online behavior across a spectrum of financial services sites during 2002 to assess the impact of the bank's decision to drop the fees for its OBP service.

BofA took a bold step last May when it dropped its $5.95 per month OBP fee – a move that went unmatched by other banking players in the industry. In addition to generating a significant spike in bill pay penetration within its online banking customer base, BofA attracted a new customer group to the service with its free service, according to Compete's findings.

The new Compete analysis of BofA's free online bill payment program showed that:

	The free service stimulated online bill pay penetration, but not overall online banking customer growth: BofA averaged just 6 percent monthly online banking customer growth from April to December (following the elimination of fees) versus 8 percent growth from January to April;
	The new pricing had the greatest appeal to a new demographic segment: customers who signed up since free service began tended to be younger (7 percent higher composition of 18-to-34 year-olds), and had a lower income (5 percent higher concentration in the under $60,000 annual income category) than prior OBP customers; and,
	The free service also attracted consumers with a markedly different banking profile: new BofA online bill pay customers were more interested in credit card products and less interested in investing and lending products than existing OBP customers. They also showed a higher propensity to research service offerings on competitive bank sites compared to existing OBP customers.

"BofA's success at driving customer penetration of online bill pay to more than 35 percent, after it had hit a plateau of 25 percent in the first quarter of 2002, is particularly impressive," said Stephen DiMarco, Compete's Vice President of Marketing and Client Services. "However, banks that are considering following BofA's lead must balance their ability to increase revenues from new bill pay customers via improved cross-selling, cost reduction and customer loyalty against the monthly fee revenues they would be giving up."

Compete also examined online banking customer characteristics at BankOne, Chase, Washington Mutual, and Bank of America. Compete's additional analysis also reinforced the beneficial impact of offering online bill pay on banking customer behavior, showing that:

	Online bill payers visit their bank and manage their account more frequently than non-bill paying online bank customers (ranging from 40 to 60 percent more visits and banking sessions);
	Online bill payers represent a more loyal customer base than non-payers and visitors. For example, non-bill paying online customers across the four banks were 50 percent more likely to research offerings on the competitive Wells Fargo site, compared to online bill payers from these same banks during the same period; and,
	Online bill payers are more likely than non-payers to show interest in investing and lending products. For example, on average in Q4, 4.6 percent of online bill payers at Washington Mutual visited the bank's lending product section, while only 3.4 percent of non-payers did.

"Banks readily understand the case for extending the penetration of their online bill pay offerings into their larger customer base," added DiMarco. "The determination as to whether other banks should emulate BofA's free OBP service hinges on where they are in their online bill pay adoption curve. Trading short-term fee revenue for the long-term promise of a greater share of customer wallets requires careful analysis, reliable metrics and flawless execution."