Research Study on the Impact of Bill Presentment and Payment on Retention and Profitability for Qwest Communications

Transcription

1 Research Study on the Impact of Bill Presentment and Payment on Retention and Profitability for Qwest Communications by Kirk Gripenstraw Aspen Marketing Services Overview: Many consumer-facing companies that provide monthly customer bills also frequently offer an e-bill option, which is an electronic copy of the paper bill delivered to the biller s website or a consolidated bill payment site. While the vast majority of major billers offer such e-billing solutions to their customers, many have wondered whether there is a quantifiable ROI of offering paperless bill presentment, over and above postage savings and the qualitative gains that have been observed in customer satisfaction surveys and research. Similarly, consumers are typically offered multiple ways of paying their bill (paper check, credit card, ACH, etc.) and it is historically unclear whether any of these options has an effect on the consumer s behavior. This White Paper describes a comprehensive analytic study to explore the isolated impact that bill presentment and bill payment have on customer loyalty and profitability from the Biller s perspective. The study was performed by Aspen Analytics, a division of Aspen Marketing Services, in partnership with Fiserv. The key conclusions of this paper are that 1) bill presentment and bill payment are both very important factors that have a significant impact on customer loyalty, beyond merely the cost to serve that they represent; and 2) Customers can and should be strategically guided towards the optimal bill presentment and bill payment option based on a comprehensive marketing and operations strategy.

2 EXECUTIVE SUMMARY This Whi hite Pap aper des escr crib ibes an Anal alyt ytic Stu tudy tha t demo mons nstr trat es tha hat bill pre rese sent ntme ment and bil ill py payment are actually highly important strategic decisions that should be fully understood and then optimized, rather than viewed as merely a cost center to be managed. Aspen Marketing Services, working in conjunction with Fiserv and Qwest Communications, analyzed millions of longitudinal data records from Qwest and found that: FINDING 1 The Manner in which Customers View and Pay Their Bill Has an Important Impact on Their Loyalty and Profitability. for all contributing factors (age, tenure, product mix, etc.), optimal bill presentment and bill payment combinations can result in lower customer churn rates of between 15 and 25% as well as significantly lower costs. FINDING 2 From Qwest s Perspective, there are Three Optimal Options that Result in Improved Customer Loyalty and Profitability. After correcting for all contributing factors, the study found that the optimal bill payment bill presentment options were: This analytic study resulted in two key conclusions that have an impact on all billers overall strategy: 1) Bill Presentment and Bill Payment are both very important and highly strategic factors, outside of just the cost to serve that they represent ; and 2) Customers can and should be strategically guided towards the optimal bill presentment and bill payment option based on a comprehensive marketing and operations strategy. WHAT IS AN E-BILL? The most significant innovation in the last several years in the area of online billing and payment has been that of e-bill. E-bills, not to be confused with auto pay, are electronic representations of paper bills that are securely delivered to a business or financial institution website. Consumers are able, if they choose, to print the bill, to view archived copies of previous bills, and to pay the bill electronically. 1. Paper Suppression (moving from paper bills to e-bills) 2.Moving from one-time to recurring payments, and 3.Moving from higher-cost payments to lower-cost online bill pay payments. 2

3 Figure CUSTOMER PERFORMANCE METRICS BILL PRESENTMENT CHANNELS Paper USPS PAYMENT CHANNELS Paper Check USPS Walk-In PAYMENT SOURCES Cash Check BILL PRESENTMENT CHANNELS Paper USPS WEB Biller Direct Banks and Credit Unions Portal (MyCheckFree) PAYMENT CHANNELS Paper Check USPS Walk-In IVR WEB Biller Direct Banks and Credit Unions Portal Mobile Devices PAYMENT SOURCES Cash Check Card-Debit and Credit ACH EFT Payment Delinquency Retention Cost to Serve Profitability Product Bundling Over a relatively short period of time, consumers have come to not only expect various paperless online billing and payment options but to demand it. BACKGROUND Major billers (e.g., companies that are typically paid by their customers on a regular basis, such as companies in the credit card, telecommunications, insurance, and energy utility industries) typically enable their customers to both view, and pay, their bills through multiple methodologies. Whereas 15 years ago the predominant means was a mailed paper bill followed by a mailed paper check, there is now a proliferation of various bill presentment and bill payment options. For example, with many billers, customers can now view paperless electronic copies of their bill through their biller s website or via their bank s online banking website. Similarly, the consumer also typically has several options to pay their bill paper check, debit or credit card (recurring or one-time), online bill pay, recurring ACH, telephone, mobile banking, etc. While all of these technologies create customer value, the key question is to what extent this value translates into improved customer performance metrics. 3

4 By offering consumers the freedom to choose from so many options, many billers have long believed that a) how consumers view and pay their bill has an important impact on consumer loyalty and profitability; and b) consumer bill presentment and payment behavior can be influenced and then guided towards more optimal options. Recent studies from the likes of J.D. Power 1 have supported this hypothesis and have shown, from a qualitative standpoint, that offering multiple bill presentment and payment options generates a direct impact on customer satisfaction and loyalty. 2 However, up to now there has never been a comprehensive, economic study that isolated the value of each option, or one that quantified any difference in terms of its overall financial impact and/or ROI. In recent years, Qwest has emphasized the e-bill option to customers, and e-bill has been primarily adopted by younger customers. While the benefits to Qwest of e-bill were thought to be clear: lower monthly costs for bill delivery, increased customer satisfaction, etc., these benefits were generally qualitative and it was difficult for Qwest to assign a precise ROI towards e-bill conversion efforts. Additionally, Qwest had actively encouraged its customers to use recurring payment, with the objective of lowering delinquency rates but the benefits of this effort were also considered to be qualitative in nature. To address this, a more analytic, quantitative study was commissioned. The objective was to isolate the stand-alone impact of bill presentment (e-bill, etc.) and bill payment (credit card, paper check, etc.) on customer churn and customer profitability. This White Paper describes the result of this 2009 analytic study that explores the impact of bill presentment and bill payment options to Qwest Communications, a major provider of telecommunications services. Like many billers, Qwest enables its consumers to view and pay their bill through many different methodologies. The objective of the study is to understand, after correcting for all other factors, the corrected or stand-alone impact that bill presentment and bill payment has on customer metrics such as loyalty, profitability and cost to serve. Bill Presentment and Bill Payment are both very important and highly strategic factors, outside of just the cost to serve that they represent 1. J.D. Power and Associates 2008 Residential Television Service Satisfaction Study and J.D. Power and Associates 2008 Internet Service Provider (ISP) Residential Customer Satisfaction Study 2. Consumer Lifecycle Survey ; Consumer Insights, Fiserv with Harris Interactive 4

5 ANALYTIC METHODOLOGY This study itself requires an analytic approach because whenever one analyzes key customer metrics such as loyalty and profitability, it is important to run a deep analysis to correct for all mitigating factors so that the variable of interest can be isolated. For example, in Qwest s case one cannot merely examine the relative churn rates for a subpopulation that averages 30 years of tenure with solely local phone line service, and one that averages 2-3 years of tenure with DSL and bundled service, and make any sort of valid conclusion without also taking into account and adjusting for key contributing factors such as tenure and product mix. In particular, at Qwest, e-bill subscribers are younger and possess more products and higher margins. To analyze the stand-alone impact of bill presentment and bill payment, one must use analytic techniques to convert mere correlated summations into corrected findings that adjust for all other contributing factors. The intent of this is to essentially create two populations that are essentially identical in all variables, except for the differences between their bill presentment and bill pay behaviors. ANALYTIC DATA AND RESULTS The study population consisted of a 50% representative sample of nearly 8 million customer households over a sixteen-month time period from February 2007 to May Examination of the bill presentment and payment characteristics of each account revealed that how customers receive their monthly bill has a significant effect on how it will be paid. For example, over 70% of customers that receive a paper bill will pay with a paper check. However, for customers that receive e-bills at qwest.com, more than 40% will complete this payment with a debit or credit card. For customers that receive e-bills at their bank, roughly 75% of these will pay this bill electronically with an ACH payment. High level data analysis also indicated that customer profiles vary substantially by bill presentment channels. Qwest customers that receive e-bills, either via qwest.com or through their bank bill pay site, possessed more products with Qwest and were almost 20% more profitable. More striking, however, were the differences in tenure and age. Customers who receive paper bills were on average more than 10 years older and had tenures with Qwest that were up to 8 years longer on average. These two variables are key drivers of predicting voluntary customer churn, and unless they are statistically corrected for in an analysis, they can lead to an erroneous conclusion regarding overall retention. 5

6 Aspen used a number of analytic techniques to control for all contributing factors that have an effect on churn, with the goal of isolating the stand-alone impact of bill presentment and bill payment on each customer s likelihood to churn voluntarily. The results, after correction, are as follows. First, Aspen found that consumers that use e-bill are 7-15% less likely to churn that those receiving a paper bill. (Fig 3). Second, after controlling for all other factors, Aspen found that consumers that use recurring bill payments are 10-15% less likely to churn than other customers. Third, among non-recurring payments, Aspen found that bank e-bill presentment and payment was the optimal option from Qwest s perspective, followed by EFT, paper check, and then credit card. Finally, we found that bill presentment and bill payment need to also be examined holistically, because the way that people receive their bill has a significant impact on how they will pay their bill. Sometimes, the same payment, paired with a different presentment type, leads to different outcomes. EFFECTS ON CUSTOMER CHURN Increased Churn Increased Retention Biller Direct e-bill Recurring EFT Payment 15% Biller Direct e-bill Recurring CC Payment 14% Recurring EFT Payment 13% Recurring CC Payment 11% Bank e-bill Bank Bill Pay 10% Biller Direct e-bill One-Time EFT Payment 3% Bank Bill Pay 3% Paper Check 2% One-Time Web CC Payment (-7)% IVR CC Payment (-15)% Biller Direct e-bill One-Time Web CC Payment (-18)% Figure 2 6

7 Figure 3. Combinations and Churn with cost BILL PRESENTMENT Payment Type BILL PRESENTMENT COST (est. Third Party Data) PAYMENT PROCESSING COST (est. Third Party Data) TOTAL COST (Third Party Data) Biller Direct e-bill Recurring EFT Payment $0.15 $0.10 LOW Biller Direct e-bill Recurring CC Payment $0.15 $2.50 HIGH Recurring EFT Payment $0.45 $0.10 MEDIUM RETE TENT NTIO ION Recurring CC Payment $0.45 $2.50 HIGH Bank e-bill Bank Bill Pay $0.15 $0.10 LOW Bank e-bill Bank Bill Pay $0.45 $0.10 MEDIUM Paper Check $0.45 $0.25 MEDIUM One-Time Web CC Payment $0.45 $2.50 HIGH Biller Direct e-bill $0.15 $2.50 HIGH One-Time Web CC Payment IVR CC Payment $0.45 $3.00 HIGHEST Sources: NACHA, Presented by Crone Consulting. The TowerGroup, 2009 We see in these results that each bill presentment and payment option results in different levels of benefit to Qwest in terms of customer churn and loyalty. Of course, they also offer differing costs to the biller. Figure 3 summarizes general averages to billers in terms of the overall costs per bill and bill payment that is generated by each combination. Interestingly, some of the combinations that are the most expensive (e.g., credit card payments and paper bills) are also associated with the highest rates of churn. When examining both loyalty and cost in a comprehensive matrix, we see that certain combinations stand out as the most optimal, because they are both low in cost and high in loyalty. The matrix shown on the following page shows that the optimal combinations include an e-bill coupled with either a recurring EFT payment or a Bank Bill Pay. The least desirable combinations (that are both expensive and lead to higher churn) typically include s coupled with one-time credit card payments, processed either online or through an IVR. 7

8 Figure 4 CC Recurring CC Recurring HIGH BENEFIT EFT Recurring Bank e-bill Bank Billpay Bank Billpay EFT Recurring Bank Billpay HIGH COST CC Tel/IVR One-Time Web CC Paper Check CC Web IVR EFT Bank e-bill Paper Check Paper Check EFT Web LOW COST LOW BENEFIT Given that an e-bill is associated with both lower cost and attractive rates of churn, the other dilemma that should be addressed from a biller s perspective is whether to emphasize the e-bill through the biller direct website or via a bank. We found that from a loyalty perspective, both e-bill mechanisms perform roughly the same. However, the mitigating factor is how the payment is actually made after the e-bill is generated. For an e-bill generated through the biller direct website, roughly half of the payments are then processed via the higher-cost credit or debit card channels, resulting in significant interchange fees. But for an e-bill generated through the bank, roughly 75% of these payments are processed through the electronic bank bill pay channel, which is a channel that on average is times less expensive than a credit card. Thus, we found that when looking at the relative value of both types of e-bill, that there is typically a significant advantage in cost from the bank e-bill channel. After correcting for all contributing factors, optimal bill presentment and bill payment can show improved customer loyalty of 15-25%. 8

9 DISCUSSION The emergence of new technologies has changed the way consumers interact with the organizations they choose to do business with specifically, how, when, and where they view and pay their bills. This preferencedriven landscape gives consumers numerous options for the bill presentment and payment touch point that is the most convenient for them. To win the business, longevity, and increased share of these consumers, it is imperative that Billers invest properly in services that make it as easy as possible for the consumer to do business. Making the payment process as simple and straightforward as possible via solutions such as e-bill and recurring bill pay at both the biller website and consolidated sites is a relatively straightforward solution that this White Paper shows will often lead to improved customer loyalty and profitability. Given the recent and expected future growth of e-bill solutions, it is imperative that Billers stay on the leading edge of emphasizing paperless e-bill adoption and recurring payment to as many interested consumers as possible. We fully expect that growth for online banking, billing, and payment will continue for the foreseeable future, because they are seen as value-added services by many consumers. The consumer saves time, money, reduces clutter and the need to shred sensitive documents, and with online banking increases the visibility of their cash and balances. There is also a real and perceived benefit of online billing as a green enabling technology. However, the enablement of e-bill does require an investment by the Biller. That said, rather than viewing an investment in billing and payments as simply an Expense Item that must be managed, it should be considered as an Investment Area with a corresponding ROI metric that must be maximized. It should be noted that the data described in this White Paper is based on one company s experience. While some components may not necessarily port over to other industries (regulated utilities have a different predictive dynamic when addressing customer churn, for example), others may. However, this study, particularly when viewed in conjunction with recent qualitative research into customer satisfaction, perceptions, and behaviors, demonstrates a definitive relationship between billing and payment and key performance indicators (KPIs). 9

10 IMPLICATIONS AND RECOMMENDATIONS For many billers, actively increasing customer satisfaction and lowering customer attrition rates are one of the most important strategic imperatives. This is because many studies have shown that acquiring new customers can be 5-10 times more expensive than retaining current customers. This study provides an additional pathway to achieving this objective, as it clearly suggests and shows that increasing awareness, stimulating interest, and offering and aggressively courting customers in using e-bill and optimal payment types is a highly productive and effective strategy to drive improved profitability and customer loyalty. Savvy companies should implement strategies and tactics to actively guide more customers to higher-benefit and lower-cost billing and payment combinations. Positive interactions with the billing and payment consumer touch points should be used as strategic pathways to drive consumer KPIs such as churn, cost to serve, payment behavior, and ROI. Firms should consider the following tactics to optimize this critical touch point: Aggressively message recurring EFT customers on the benefits of a total paperless online experience Utilize new Bill notifications to target and promote other value-added services where regulatory restrictions permit Feature recurring payment and e-billing signups on remit coupons Emphasize ACH options in the online channel over and above credit/debit card options and communicate options such as consolidated bill presentment and payment Consider implementing customer convenience fees where permissible to deflect high payment transaction channels and sources Promote paperless billing during the on-boarding process, and perhaps offer special discounts to customers that choose paperless billing Develop a dedicated evergreen website that illustrates the benefits of paperless billing including security, convenience, reduction of paper, and environmental conservation 10

11 About the Author Kirk Gripenstraw, Vice President of Advanced Analytics for Aspen Marketing Services, specializes in providing analytic solutions to financial institutions, with a focus in maximizing the value of marketing communications strategies via the effective development and integration of advanced analytics strategies. Prior to joining Aspen, Mr. Gripenstraw was President of Peak Data Solutions, a San Francisco-based provider of custom analytic solutions to the financial services industry. Mr. Gripenstraw has also held analytics management positions at Fair Isaac and Dun & Bradstreet. Mr. Gripenstraw received a M.S. Degree in Industrial Engineering, a B.S. degree in Industrial Engineering, and a B.A. degree in Political Science, all from Stanford University in Stanford, CA. Mr. Gripenstraw can be reached via at kgripenstraw@aspenms.com About Aspen Analytics and Aspen Marketing Services 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, Toronto, Morristown, and San Diego, Aspen Marketing Services 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. Contact information: analytics@aspenms.com 11