Embracing Flexibility: Payment Automation from a Consumer Perspective
Driven by their thirst for greater convenience and control, consumers are aggressively exploring new payment options even as they continue to rely heavily on paper checks. Credit cards, debit cards, and Automated Clearing House (ACH) transactions are rapidly gaining acceptance at the expense of checks. At the same time, consumers are increasingly comfortable transacting over the telephone and Internet.
To keep pace with these developments and satisfy their customers, billers must re-think their payment strategies. Their challenge lies in balancing their customers’ preferences against the cost and complexity of adding and integrating additional payment options. It is critical that billers find this equilibrium point because their choice of a strategy will directly affect a range of factors, from customer satisfaction and retention to marketing effectiveness, collection times, and processing costs.
Consumers accounted for just over half of the 42.5 billion checks written in the U.S. in 2000. One fifth of these – 8.9 billion checks – represented consumer remittance payments to businesses (i.e. they were not made at the point of sale). Viewed from a different perspective, 71.0 percent of all consumer-to-business (C2B) remittance payments in 2000 were made by check (see Figure 1). Clearly, the humble paper check continues to play a dominant role as a consumer payment vehicle.
However, consumers are rapidly increasing their use of alternate payment methods and channels (see Figure 2). As a group, credit card, debit card, and WEB and TEL ACH transactions will grow from 35.2 percent of C2B remittance payments in 2003 to 60.0 percent by 2008. Consumers’ adoption of these new payment options is already having a negative effect on check volume, which will decline at a compound annual rate of 6.6 percent during the same period.
Consumers’ growing familiarity and comfort with these and other payment options has far-reaching implications for your organization. In the worst case, your customers’ fast-evolving preferences may outstrip your ability to adapt, fracturing your payment strategy and creating a gap between their expectations and the payment options you provide.
To avoid getting caught unprepared, you should understand how the following factors will shape consumer payment behavior in the coming years.
Consumers’ desire for greater convenience and control over the payment process is the leading driver of change in the payments landscape. Consumers want the option to alter their payment behavior between methods and channels, adjust the frequency and timing of their payments, and utilize third-party payers on a payment-by-payment basis.
Checks’ inability to provide this level of functionality has motivated consumers to seek out payment options that will deliver the security, flexibility, and control they desire. Their swift adoption of credit cards, debit cards, and ACH transactions for remittance payments is an early indication of their preference for these payment methods. At the same time, the Internet, email, and telephone (both customer agent and voice response unit) are emerging as channels to supplement the mail. Consumers will continue migrating to these payment options to maximize their convenience and control over the payment process.
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When and how consumers pay bills is linked to their frequency and complexity. As new payment options become available, this relationship will increasingly determine consumers’ choice of payment method and channel (see Figure 3). For example, complex, cyclical bills (e.g. credit card bill) require close inspection for accuracy and/or comprehension. To avoid potentially costly errors, consumers maintain tight control over their payment. This makes them ideal for one-time WEB and TEL payments, whereby consumers establish their payment profiles once, then review and pay each bill individually. At the other end of the spectrum, simple, occasional bills that require little scrutiny (e.g. newspaper subscription) are well-suited to check, credit card, debit card, and TEL payments.
Billers have had high hopes that electronic bill presentment and payment (EBPP) solutions will enable them to reduce costs by eliminating the delivery of paper bills, improve customer service by providing bill information over the Internet, and deepen customer relationships by exploiting the Internet’s potential as a cross-marketing tool. In reality, customer uptake has been extremely disappointing, with most billers reporting lackluster 5-6 percent adoption rates.
EBPP growth has been constrained by Consumer Service Providers’ (CSPs) failure to simplify the process by consolidating and presenting bills from multiple organizations to individuals. Instead, consumers continue to show an overwhelming bias toward visiting individual billers’ Web sites to view and pay their bills. In essence, their desire for control over the payment process outweights the convenience benefit of EBPP.
In addition, many consumers express little interest in the first “P” in EBPP, although they do want to make payments through the methods and channels that meet their personal preferences. On top of all this, EBPP solutions have proven costly and complex for billers to implement. For all of these reasons, we believe that biller-direct payment-without-presentment options will continue to flourish.
Non-existent just three years ago, ACH payments initiated by consumers over the Internet or telephone are growing rapidly. WEB transaction volume has grown at a blistering compound rate of 76.4 percent in the ten quarters since its introduction in March 2001. TEL transaction volume has increased at a compound quarterly rate of 69.9 percent since September 2001.
Consumers are adopting these new ACH payment options because they provide the convenience and control that paper checks lack. WEB payments are an ideal way to pay simple, cyclical bills that neither change significantly from period-to-period nor require significant review before payment. WEB and TEL are both effective tools for making one-time, last-minute bill payments. Overall, they are rapidly emerging as next-generation payment options.
The above-mentioned factors have created a golden opportunity for organizations to redesign payment strategies to match customers’ expectations and achieve tangible benefits internally.
The first step in crafting your organization’s optimal payment strategy is to determine whether you suffer from a payment gap today. Start by examining your billing environment: Do you bill your customers on a frequently recurring basis or seldom? Do your billing practices vary by customer segment? Are your bills easy to comprehend or do they contain many line items? How important are your bills relative to others that your customers receive?
Next consider the payment options that you offer. Do they match the frequency and complexity of your billing operation? Are they in line with the “touch” preferences and technological sophistication of your customers? If not, then you are probably not providing an appropriate mix of payment options. To find out for sure, take a closer look at the information your organization receives through its regular customer feedback process.
Having gained a good sense of where your current process falls short, set clear goals for your new strategy. Among others, your strategy should embody a consumer-centric approach that provides customers control over their payment destinies. Second, your new payment platform should provide a comprehensive, integrated view of your customers, regardless of when or how they choose to interact with you. Third, it is imperative that your project team define specific goals for accelerating collections, reducing processing costs, and increasing revenues through the use of convenience fees.
At the same time that you define the overarching goals for your payment strategy, you should establish measures for evaluating its success at least three areas: customer satisfaction and retention rates, customer adoption of lower cost and/or preferred payment methods and channels, and reductions in days sales outstanding (DSO), remittance processing costs, and payments past due.
A balanced payment strategy will address your customers’ needs and fulfill your organization’s desire for greater innovation and operational efficiency. To guarantee that your new strategy succeeds on both counts, ensure that it is capable of capturing, integrating, and disseminating data from your billing, collections, accounting, e-commerce, marketing, and customer service systems. Leverage the benefits of an integrated payment solution by giving your customer service agents real-time access to the customer account information they need to improve service and support and increase revenues.
Providing consistent messaging and a universal look-and-feel across all channels and customer touch points is another key design consideration. This is essential for your solution to serve as a platform for marketing products and services that will broaden and deepen your customer relationships. Finally, take care that you design your new program so that the payment options you offer match your customers’ contact preferences and technical sophistication.
Countless well-designed biller initiatives have failed due to mistakes in the implementation and roll-out phase. To ensure that your program does not succumb to any of the most common pitfalls, understand the benefits and trade-offs of software and hosted solutions, including their development, integration, maintenance/service, and operating costs. You should also consider whether your organization would be best suited by best-of-breed solutions or a single full-feature solution that includes adoption support.
Success will require meticulous planning of the channels, media, messaging, and incentives that you will use with each of your customer segments. Keep in mind that you may need to devote considerable effort to building customers’ awareness of your new payment options. Internally, you should plan well ahead of time for the substantial training and education that will be necessary to support your new program. Finally, institute a system for continuous feedback, improvement, and, if necessary, re-design.
Organizations must keep pace with their customers’ rapidly evolving payment preferences or face the consequences – lower customer satisfaction and retention rates, impaired marketing effectiveness, slower collection times, and higher processing costs. EBPP solutions have not lived up to their promise, but this should not stop your organization from re-thinking its payment strategy. In fact, it is increasingly clear that integrated, payment-without-presentment solutions are an effective alternative. Whatever your choice of strategy and solution, there is no time like the present to investigate how you can leverage your payment strategy to create a win-win situation with your customers.