Published on March 8, 2014
Mobile Photo Bill Pay: The Next Generation in Bill Pay Andy Schmidt Research Director, Commercial Banking & Payments July 2012 Executive Summary Millions of consumers use electronic bill pay to pay their bills online. This technology is wellestablished for about half the market — creating the opportunity to reach the other half of the market using a different approach. Banks that offer this service have been searching for new ways to create interest in bill pay given the positive effect it has on customer relationships. Banks have also been searching for ways to make bill pay more portable because of the growing interest in mobile banking — an interest driven by consumers’ desire to have greater control over their finances. One way for banks to accomplish this is to combine elements of their existing bill pay offerings with another technology that is gaining adoption — mobile imaging technology — to enable consumers to pay bills using their mobile phones. This new offering, called mobile photo bill pay, automatically converts paper bills into electronic payments and can be used to onboard new payees into the bank’s bill pay portal, all while eliminating paper and increasing customer involvement. The Inevitability of Paying Bills When a service is rendered or an item is acquired and not immediately paid for, a bill is sure to follow. Because of this, nearly three million bills are presented daily, with US households receiving approximately nine bills per month electronically, through the mail, and in-person. These bills must be paid. The methods for paying these bills vary. Bills can be paid in person, through the mail, or they can be paid electronically. However, increasingly electronic bill payment is taking place via mobile devices, reflecting changes in lifestyle. Within the financial services industry, bill pay is often perceived as a mature market whose growth is limited to the overall increase in electronic payment volume of approximately 5% per year. This is not the case though as there is still a great deal of headroom for electronic bill pay. The simplicity of its “set and forget” functionality for recurring bill payments makes it easy for users to set up their payees once, never to return, but a large portion of the market have yet to take advantage of this convenience. Financial institutions seeking new revenue sources and higher retention rates are examining ways to breathe new life into bill pay and increase their market share. CEB TowerGroup Research is available on the Internet at www.towergroup.com 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay One of the ways that banks are reinvigorating bill pay is by expanding the reach of bill pay by making it available via mobile devices — either as an extension of mobile banking solutions that consumers use to make balance inquiries and transfers, or as part of a mobile payments solution consumers use to send funds. Part of this strategy to expand bill pay’s reach includes leveraging image capture technology to enable customers to pay paper bills using their mobile devices. Consumer Electronic Bill Pay: Convenient and Growing Consumer adoption of online bill pay has steadily increased ever since bank-led electronic bill pay essentially became free in the early 2000s and more billers and banks developed bill pay capabilities. This trend reflects the ongoing electronification of payments both in the United States and globally, especially within the consumer segment. Part of the reason for this growth stems from the recent recession — a time when consumers became much more conscious of their spending patterns and lacked access to additional credit. A time that made expedited bill pay a necessary offering. This awareness remains despite improvements in the economy, and the addition of mobile functionality to bill pay is reviving interest in an offering that had stagnated despite the ongoing need. One of the drivers for this interest is that offerings like mobile photo bill pay leverage existing bill pay infrastructure, minimizing the cost of implementation and capitalizing on existing investments, while simultaneously driving customers to self-service options, which minimize operational costs. There are two main types of electronic bill pay: biller direct, where the consumer pays the biller through a website or by phone, and online bill pay, which is accessed through portals or websites provided by bill consolidators. Like electronic bill pay, consolidators are split into two groups: financial institutions and third-party aggregators. The adoption rates for both biller direct and online bill pay are depicted in Exhibit 1. Exhibit 1 Biller direct bill payment has been growing in popularity because of the flexibility it provides consumers, and was used by more than half of US households in 2011. Close behind is online bill pay, which was used by just over 40% of households. 2 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay Financial institutions typically provide bill pay as a free extension of their online — and increasingly mobile — banking services. Online bill pay is widely available and is funded by the consumer’s checking account held at the bank. Using online bill pay, consumers can pay bills received via mail or electronically. Consumers must first manually enter the biller’s payment details into the bill pay system in order to make a payment. Once entered into the system, the consumer can easily pay a biller on a one-time, episodic, or recurring basis by selecting them from their roster of billers. Third-party aggregators consolidate a consumer’s paper and electronic bills and present them for payment through a single website or the mobile device. Aggregators are convenient for consumers because they can track due dates, as well as draw funds from multiple bank accounts. However, unlike financial institutions, third-party aggregators charge a monthly fee for their services. The addition of mobile to bill pay makes expedited bill pay more relevant than ever because of the convenience of making a payment via the mobile device, which enables consumers to pay their bills at the absolute last possible minute. Prices for expedited bill pay vary from a few dollars for an electronic payment to $25 to send a check via overnight mail, far less than the cost of a late fee or higher interest rates. This convenience fee is a ready revenue source for banks able to deliver an easy-to-use solution via the mobile device. Paper Remains a Formidable Force in Bill Pay Although electronic bill pay adoption is increasing, paper remains a formidable force in the bill pay market. Many of these paper bills are paid with paper payments, either in the form of a check written to the biller or through the inclusion of the payer’s credit or debit card information on the paper bill that the payer mails back to the biller because the biller does not accept electronic payments. The United States Postal Service's annual Household Diary Study tracks the number of bills mailed to US households. The study for the 2010 fiscal year reported that the number of paper bills sent decreased 13.5% between 2008 and 2010, while the number of bills paid via mail fell nearly 17%. This rate of decline will reduce paper bill payments to 6.4 billion items in 2012, creating a market where approximately two paper bills will be sent for every paper-based payment received. Mobile Is Here: Are You Ready? Mobile Banking: Increasing Consumer Interaction and Profitability According to a 2012 Federal Reserve survey, approximately one in five Americans with both a bank account and a mobile device had used their device to view account balances, receive account alerts, or otherwise interact with their financial institution in the previous 90 days, and 90% had used their mobile device to check their balance within the previous year. Other reported uses included remote deposit capture (RDC), which was used by 11% of respondents and is projected to increase rapidly. This finding indicates that consumers are comfortable expanding into other mobile services once they become accustomed with the base offering — an opportunity that banks must capitalize on to improve customer profitability. This type of widespread use within the mobile channel reinforces the value the bank provides to consumers and reduces attrition accordingly. In the case study published by CEB TowerGroup SunTrust Consumer Mobile Banking Value Analysis: Finally, Quantitative Results!, SunTrust Bank demonstrated that its mobile banking customers were 32% more profitable on average than online customers, generated 19% more revenue, and were 53% less likely to attrite. These 3 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay customers were also much more engaged—logging in 20 times a month instead of only 2 times per month for online customers. Customers who used both mobile banking and bill pay yielded even better results: profitability was 53% greater than for online users, while attrition was 82% less, as seen in Exhibit 2. Exhibit 2 Mobile Bill Pay: Useful but Limited for Now Mobile bill pay is being pursued by mobile banking and mobile payments providers alike as busy consumers look for new ways to conveniently pay their bills. Despite this, many mobile bill pay implementations have limited functionality, with consumers only being able to release payments rather than initiate new ones. In addition to wanting the ability to initiate new bill payments, consumers also want the ability to conveniently add new payees via mobile. The addition of this capability increases the functionality and usability of mobile bill pay. Banks that find a way to address these issues can drive adoption and usage of the mobile channel for all services while heightening the perceived value and increasing the stickiness that offerings like mobile and bill pay already provide. According to the Federal Reserve study, 47% of all people who used their mobile phone to make a payment did so to pay a bill. This is nearly double the percentage of mobile banking users who paid a bill through their phone, indicating that the biller direct sites accounted for the difference. This finding is supported by the fact that 62% of unbanked respondents indicated that they had used their mobile phones to pay a bill, as shown in Exhibit 3. 4 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay Exhibit 3 Given the perceived maturity of the bill pay market and the limitations of existing mobile bill pay deployments, it would be easy to conclude that no further advancements are being considered. However, this conclusion would ignore developments that turn the smartphone camera into a document imaging device. This approach is already being used for mobile remote deposit capture, and this same technology can be used to facilitate the mobile bill payment process. Mobile RDC: Turning Smartphones into Deposit Gateways Mobile RDC gives consumers the ability to deposit checks on an anytime, anywhere basis while reducing bank costs because it is less expensive to process a digital image than a paper instrument. Since its introduction in 2009, mobile remote deposit capture has had consistent success, with the vast majority of implementations exceeding adoption forecasts, quickly turning mobile RDC into table stakes for institutions of all sizes. Mobile RDC volumes are growing quickly, increasing 143% from June to December 2011. This growth rate reflects the convenience mobile RDC provides consumers who no longer need to travel to ATMs and branches or find envelopes and stamps to make deposits. It also indicates the simplicity of the user experience. Extending these image capture capabilities into the bill pay market combines the convenience and cost savings of mobile remote deposit capture to the bank’s existing bill pay capabilities. This combination has the potential to shorten the adoption curve for mobile photo bill pay given the positive reception that bill pay and mobile remote deposit capture already enjoy. Mobile Photo Bill Pay: Portable Bill Pay Convenience Mobile photo bill pay leverages the image capture technology found in mobile RDC to convert paper bills into digital images. To use mobile photo bill pay, a consumer must first launch his or her bank’s mobile banking application. Within the application, the consumer then uses the camera within the mobile device to take a photo of the bill. The key data from the bill (including payee, payee’s address, and amount) is extracted from the image and the relevant data automatically populates the appropriate fields in the mobile bill pay application. Once populated, the user reviews the payee information and amount for correctness, and then schedules the payment to be made either immediately or at some time in the future. 5 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay Increasing the Reach of Bill Pay Because mobile photo bill pay adds image capture functionality similar to that used for mobile check deposit, it will naturally add an incremental cost to existing online bill pay offerings. However, CEB TowerGroup believes that banks offering mobile photo bill pay will be able to offset this cost through greater customer involvement and retention, reductions in paper handling, and increases in expedited bill pay revenue. The ability to self-serve is a leading driver of retention and profitability among retail banks, and deploying offerings like mobile photo bill pay on top of existing bill payment rails can greatly shorten payback periods while increasing ROI. The ability to enroll new payees and pay a bill on a mobile device extends the utility and stickiness of mobile banking while streamlining the bill pay process by capturing the biller’s identifying information and address and the consumer’s account number with the biller, while prompting the consumer to verify the amount they wish to pay. This creates the opportunity to remove paper bills from circulation while boosting mobile bill pay usage. This shift will reduce processing costs for financial institutions and accelerate collection for billers enrolled in the bank’s bill pay product. Decreasing Attrition and Increasing Bank Revenue Mobile photo bill pay creates new revenue opportunities for banks by establishing a new venue for expedited bill payment. These opportunities can provide needed income at a time when there are curbs on bank fees in other parts of the payments business (e.g., debit). Building upon the SunTrust example, deploying mobile photo bill pay would amplify the revenue increases seen when consumers combine mobile banking and bill pay. Also, the availability of mobile photo bill pay should decrease the likelihood a consumer would attrite because of the convenience and peace of mind that mobile photo bill pay provides, and could serve as an onboarding feature for the unbanked and under-banked as they transition toward using more bank services. Taking Advantage of Mobile Photo Bill Pay There are three elements that banks must consider and develop to successfully deploy mobile photo bill pay for their clients: A comprehensive mobile banking and payments strategy A clearly defined target market Use-based incentives to drive adoption Hallmarks of a Comprehensive Mobile Banking and Payments Strategy Mobile banking and payments give financial institutions the ability to provide greater access to financial products and services as well as increase the ability to self-serve. A comprehensive strategy must take into account which markets the bank wishes to provide these services to, what products it will make available through the mobile channel and the decision criteria for adding new functionality. CEB TowerGroup recommends that financial services institutions make their mobile banking and payments offering available to all clients rather than to a subset of their clients (e.g., online banking users only). A limited rollout, or a rollout based on perceived usage patterns could potentially miss key markets altogether. Mobile photo bill pay will provide the greatest value to financial institutions as an extension of or enhancement to their bill pay capabilities. The most logical deployment approach would add 6 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay mobile photo bill pay capabilities to an existing mobile banking or bill pay offering. Financial institutions could also use mobile photo bill pay to augment their online bill pay capabilities, regardless of whether mobile banking and payments capabilities are present or planned in the future. This is because banks without mobile banking or payments capabilities can still use this technology to onboard new payees into the bank’s online bill pay offering, reducing the amount of paper that needs to be handled and increasing electronic bill pay adoption. Target Markets: Gen Y, Gen X, and the Unbanked Relying on current usage patterns for related products like mobile RDC could lead banks to conclude that Gen Y is the primary market for mobile photo bill pay given that they are the primary users of related technologies like mobile RDC, and show the highest propensity for selecting a bank based on whether an institution provides mobile services. Although the influential Gen Y market is certainly a key segment to pursue when marketing mobile photo bill pay, Gen X has also shown a considerable appetite for mobile financial services, using mobile banking 80% as frequently as Gen Y. This figure increases to 98% when mobile payments1 are taken into consideration, indicating that while Gen X is less likely to use mobile to check their balances or make account transfers (possibly because they feel more financially secure because they have been in the workforce for a longer period of time), they are just as likely to make mobile payments. Exhibit 4 shows the usage of mobile RDC, banking, and payments by age group. 1 The Federal Reserve survey defined mobile payments as “purchases, bill payments, charitable donations, payments to another person, or any other payments made using a mobile phone. Mobile payments can be used by accessing a web page through the web browser on your mobile device, by sending a text message (SMS), or by using a downloadable application on your mobile device.” 7 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay The underbanked segment — which is spread across the segments in the exhibit — is a third key market for mobile photo bill pay given their relatively low incomes and limited access to financial resources. As noted earlier, the underbanked customers use mobile bill pay more often than any other market segment, indicating that mobile devices like smartphones are their primary access channels for Internet-based services. Banks looking to better serve this segment can create targeted offerings and accounts geared at driving bill pay usage. Over time, the payment and account histories created from this offering would help underserved customers qualify for higher value bank products like credit cards, car loans, and home mortgages. Create Use-Based Incentives to Drive Bill Pay Adoption In order for mobile photo bill pay to move beyond being an enrollment device, banks must identify how they can use tools like mobile photo bill pay to transform their bill pay portals into frequently visited sites that add value to the customer relationship. The following are all actions banks could take to drive more widespread use and adoption: Mobile photo bill pay as a migration tool. Moving accounts and bill pay arrangements from one bank to another can be a tedious chore. Banks looking to acquire new customers or increase bill pay usage among existing customers could use mobile photo bill pay to facilitate the migration of new biller arrangements to the bank’s bill pay portal. Opportunities for additional services stem from notifying the customer’s existing bank that the bill pay arrangement will be transitioning and that the account should no longer be debited, which helps to avoid duplicate payments and potential overdrafts during the transition period. Recruiting more billers for inclusion in bill pay. Increasing the number of bill pay users creates value for the bank because it increases stickiness. It also increases value for prospective billers because it provides these companies streamlined access to their customers, which improves cash flow by shortening collection times. Banks looking to grow their portfolio of business customers can also use this opportunity to enable businesses of all sizes to accept electronic payments, which, in addition to creating a new source of revenue for the bank, will decrease the number of paper checks that need to be generated for bill payment activities. Create other offers or products that can be accessed through bill pay. Banks and billers can collaborate to create special offers or coupons that can be printed on the paper bill (if not already enrolled as a payee by the consumer) or can only be accessed via the bill pay site. Other potential opportunities include the ability to buy and send gift cards via the bill pay site. Gift cards could be sent electronically directly to the recipient’s mobile phone for use online or instore. Conclusion The bill pay market has been growing consistently for more than a decade as consumers look for more efficient ways to pay for goods and services. The electronification of these payments and the proliferation of mobile devices create a golden opportunity to leverage mobile as a channel for these types of payments. Banks whose customers use both bill pay and mobile banking have seen increases in profitability and retention rates that stem from consumers accessing the bank more frequently through the true 24x7 channel from the mobile platform. Adding features like mobile photo bill pay to this product mix can expedite customer acquisition and improve selfservice capabilities for a slight incremental cost over traditional bill pay technology, while providing additional fee revenue from expedited bill payments and reducing per-item processing costs by enrolling billers in electronic bill pay portals. 8 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.
Mobile Photo Bill Pay: The Next Generation in Bill Pay Mitek Systems commissioned CEB TowerGroup to conduct independent research and analysis of data management practices and trends in financial services. The content of this report is the product of CEB TowerGroup and is based on independent, unbiased research not tied to any vendor product or solution. Although every effort has been taken to verify the accuracy of this information, neither CEB TowerGroup nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this research or any of the information, opinions, or conclusions set out in the report. 9 2012 The Corporate Executive Board Company May not be reproduced by any means without express permission. All rights reserved.