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Online bill paying: boon or bane?

A paperless future is coming for the world of bills, and some companies are trying to hasten that future by charging customers for the privilege of receiving their bills the old-fashioned way: by mail.

Executives readily admit that getting customers to give up paper statements is a challenge, but the savings to their companies will keep them pushing toward that goal.

The incentive for companies to herd customers toward online billing is huge.

"Our cost base is reduced by more than two-thirds when we present a customer's billing statement electronically rather than through a paper statement," American Express CEO and Chairman Ken Chenault told an executive strategy forum presented by Forrester Research last fall.

"Electronic payments produce a 50 percent cost savings vs. payments by mail. Our relative cost of providing customer service online is 90 percent cheaper than providing the same service through a telephone service representative."

The average cost of mailing bills fluctuates anywhere from about 50 cents to $1.50 per statement, estimates Robert Leathern, a senior analyst who tracks online billing for Jupiter Research.

Does that savings justify sticking customers who aren't wired with these charges?

"That's definitely an issue," Leathern says, but he points out that the customer base for most of the companies that have resorted to charging for mailed statements consists almost totally of people who are online. "It's really only online banks, long-distance carriers [and the like] -- companies that have full-featured account manager tools online and the nature of the business is online-centric."

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Take NetBank. Since July 2001, it has charged $3 for each mailed monthly statement.

"Fewer than 10 percent of our customers, about 9.8 percent, take a paper statement," says Rich Jeffers, assistant vice president of corporate communications. "Most of our customers were using the online option, taking an online statement. [Adding the charge for paper bills] is an effort to encourage that behavior. We'd love to see that at 100 percent."

An online tradition
In fact, automatic electronic payment without a mailed bill has been an online tradition. Internet service providers such as America Online rarely mail statements because they generally bill their customers' credit cards directly. The only hard copy of the transaction the customer would have was the credit card statement.

Unlike ISPs though, banks and telecommunications companies are among the many businesses that have traditionally snail-mailed paper bills, which makes customers who prefer paper bridle at these new charges.

"A lot of companies tell us that consumers are not ready in many cases to turn the paper statements off," Leathern says.

The people who prefer paper statements are not necessarily Luddites. Take David Kohn of Deerfield Beach, Fla., who has been using the Web for years. He used to have a good deal with his ISP: receiving an invoice by e-mail and paying by mailed check each month.

Then, the ISP was "gobbled up" by the much larger Earthlink, which changed the payment options last May. Under the new plan, those who paid by check would receive a monthly paper statement and would be charged $2 for it. To continue receiving an online invoice and avoid the $2 monthly charge, check customers would have to switch to electronic payments, either through a credit card or electronic funds transfer from a bank account.

"Basically, I'm insulted," he says. "They're forcing me to pay more because I choose not to let them have access to my checking account, and I don't have a credit card in my name, and I wouldn't let them have access to it even if I did."

He is looking for another ISP.

That illustrates one of Leathern's points, that it's risky to impose such charges on existing customers.

"If it's a new relationship, [companies] can use it as a selling point and say something like, 'We manage to keep costs down by sending you an electronic statement rather than mailing it to you.'"

The risk of losing customers over such charges prompts a good deal of caution in most businesses that aren't "online-centric."

Carrot-and-stick tactics
"If there's a long-standing and established expectation of being able to receive and pay bills by mail, the customers are more likely to rebel at having a charge added," Leathern says. "You see a lot more of the carrot approach: 'Turn off the paper statements and we'll give you a $5 statement credit or an Amazon.com gift certificate.'"

There are a number of instances from the consumer's end in which a paper statement is preferable to an online statement, he adds.

"For example, if you needed a printout of your bank statement to get a mortgage, the online statement might not be acceptable. Not only might it look differently from a paper statement, but it might include different information."

Just like consumers, not all companies are ready for this brave new billing either. Some folks who readily went to online billing say the promised convenience just wasn't there.

Bridget Testa of Houston tried using the online statements offered by her long-distance carrier, "but it got to the point where it was taking so long to access the server that I changed back to getting it on paper."

It would often take an hour's worth of attempts to access the bill, she says.

"Then, each time I wanted a different view of the details of the calls -- one of the benefits touted for e-bills -- I'd once again have to try it repeatedly. I have no objection to e-billing or e-payment, but if they want people to use it, they have to get their infrastructure up to the task of handling the volume of customers. All I have to do with a paper bill is slit open the envelope and spread the papers out -- no waiting."

In their push to get people online, companies will have to realize that "different strokes for different folks" truly applies, Leathern says.

"Many find [online billing and payment] convenient and will be willing to jump right in. Others will need their hands held to transition from one activity online to another, and others would prefer to sit down with paper bills on a Sunday afternoon and pay them."

-- Posted: Feb. 25, 2003
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