2010 Online Banking and Bill Payment Forecast: How to Cut $8.3 Billion in Costs Through Channel Conversion

2010 Online Banking and Bill Payment Forecast
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Overview
As regulatory reforms erase banking revenues, online banking and bill pay have taken on heightened importance for their ability to provide around‐the‐clock, customer‐pleasing services that can dramatically cut operational costs for financial institutions (FIs). Javelin estimates that the banking industry can gain nearly $8.3 billion in operational cost savings by wooing customers to act more often through online banking channels. About $6.9 billion in expense cuts can be achieved by converting non‐online customers to online banking and bill pay, enabling FIs to reduce costlier transactions through branches and call centers, decrease the number of paper statements, and reduce check‐ and cash‐processing costs. FIs can cut the remaining $1.4 billion expense if current online‐banking customers satisfy half of their customer‐service questions online rather than at branches and call centers. But here’s the challenge: Important measures of adoption and usage that underpin Javelin’s 2015 forecasts indicate that online banking and bill pay are at a crossroads — and FIs and billers must either upgrade or stagnate in order to entice more customers to bank and pay bills online. The issue is most acute for smaller regional and community banks, which lag far behind giant banks, larger regional banks and credit unions.

Primary Questions:

  • How much can banks and credit unions cut operational costs and boost fee revenues by upgrading their online banking and bill pay capabilities?
  • Have adoption and usage of online banking and bill pay peaked?
  • How can banks, credit unions and vendors reinvigorate online banking and bill pay and help FIs win the battle to become the customer’s primary financial institution?
  • Does the use of online banking increase the frequency with which customers check balances or other transactions — and what is the impact on transaction costs?
  • Is momentum continuing to build for viewing and paying bills at bank sites rather than directly at biller sites?
  • What would motivate consumers to view and pay more bills online?
  • How many consumers pay bills through more than one bank or credit union?
  • How do giant banks, large regional banks, smaller regional and community banks and credit unions compare on key measures of online banking and bill pay?

Methodology

Longitudinal comparisons are based on data collected online from a random sample of:

  • 2,779 households in April 2009, with a margin of error of ±1.86 points
  • 2,350 households in March 2008, with a margin of error of ±2.02 points
  • 2,800 households in March 2007, with a margin of error of ±1.85 points
  • 3,215 households in March 2006, with a margin of error of ±2.44 points
  • 3,000 households in March 2005, with a margin of error of ±2.53 points

Data regarding expedited payments also draws on a national representative online survey of 1,995 households in August 2010. The margin of sampling error is ±2.19% at the 95% confidence level.

Secondary data from public sources such as the U.S. Census Bureau and the Bureau of Labor Statistics was incorporated into the forecasts. The majority of Javelin data for online banking and bill pay is based on “households” rather than on “individual consumers.” This is a typical way of presenting online‐banking and bill‐payment data because bills are normally paid on a per‐household basis. In 2010, the U.S. population is estimated to comprise 309 million people. That includes 235 million adults, 120 million households and 88 million households that are online. On average, there are about 2.6 people per household. Javelin also collects online‐banking data using a base of all consumers for comparison purposes.

The analysis of financial institutions by size was based on where households maintain their primary banking relationship. Institutions were divided into four categories determined by total deposits as of December 31, 2009, according to rankings by American Banker:

  • Giant national banks: Deposits greater than $750 billion (JPMorgan Chase, Bank of America, Wells Fargo and Citigroup)
  • Large regional banks: From $30 billion to $200 billion in deposits
  • Regional or community banks: Less than $30 billion in deposits
  • Credit unions: All credit unions, except Navy Federal Credit Union, which was classified as a large regional based on deposits

At various points, this report refers to a number of market segments based on banking relationships or types of products they use. Those segments include:

  • Alerts recipients, or “moneyhawks”: Received e‐mail or text financial alerts in the previous 90 days
  • Online‐banking customers: Logged on to a bank or credit union website in the past 90 days
  • Customers who do not bank online: Did not log on to a bank or credit union website in the past 90 days
  • Switchers: Switched primary financial institutions in the previous three months
  • Unbanked: Had no financial services products
  • Underbanked: Had no personal or joint checking account

Companies Mentioned

Bank of America PayPal
CashEdge Wells Fargo
Citigroup U.S. Bank
Fidelity Information Services PNC
Fiserv Citizens
JPMorgan Chase







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