Fiserv Takes on the E-Billing Market How Can We Get Them to Turn Off Paper? Kent Grayson and Eric Leiserson Jon Black looked up from the market research reports on his desk and turned to the window, watching the Chattahoochee River flow by his Atlanta office. It was March 2009, and Black, the senior VP of marketing and product for Fiserv, faced an exciting but potentially difficult challenge. In five days he was supposed to deliver key recommendations to his manager, ¢-commerce division EVP Lori Adams, about how Fiserv could make strides in electronic bill presentment, or “e-illing” In the coming year, Fiserv was planning to make recommendations to its e-billing partners regarding how to increase ¢-billing adoption among its consumers, and Black was in charge of deciding what those recommendations should be. Later that afternoon, Black was meeting with Dr. Michelle Johnston, a Fiserv consumer researc scientist, to discuss potential strategies. Black and Johnston were no strangers to developing marketing strategies for online fi cial services. Under Adams's championship, the pair had recently helped increase consumer adoption of a elated product: electronic bill payment. Using Strong segmentation, targeting, and positioning—plus key product enhance- ments based on consumer needs—Black and Johnston helped drive electronic Dill payment into the mainstream, which in turn helped establish Fiserv's posi tion as a market leader £02009 by the Kellogg Schoo! of Management, Norhwesiem University. This case was prepared by Sachin Watkar under the supervision of Professoe Kent Grayson and Eric Llsersom, and i we Wi {en with asistance from Fiserv Solutions, Inc. To protect company confidently, some Informatie, including employee names and pricing, has been diggulsed or iionalizee. Cases are developed solely as the hasis for class discussion. Cases are not intended to serve a8 endorsements, sources of primary data, or illustrations of effective or ineffective management. To onder copies or request emission to reproduce materials, call 847-491-5400 or emma cases@kellogg northwestern ea No pat of this publication may be reproduced, stored ina vetieval system, used in a sprout ‘ wansoited in any form or by any means—clecronic, mechanical, photocopying, tecording, oF ‘otherwise—without the permission ofthe Kellogg Sciool of Managernens. One-time pesmietiey to reproduce granted by Kellogg School of Management,98 quaprun 4 OPPORTUNITY ANALYSIS MASKET SEGMENTATION, AND MARKET TARGETING jrect Customers __ eas Relationships Between Fiserv and Its Direct and Int market-leading electronic billing ty had acquired CheckFree, the ‘electronic bill payment Fiserv, whi and payment pioneer ia 2007, achieved Teadership in thy researching and understanding 97% nly billers and financial intermediaries Py fejgo end users who paid thei bills (see ‘exhibit 1 for an illustration of Fisery te relationships with direct and ineirest Zastomers). Electronic bill payment an gaining wider acceptance, with Seely 70 percent of onfine household ig it as their primary mode oF paying retry ot with less than 20 percent of consumers regularly using e-biling ri ology’ to view their bills, Black comming, over the opportunities and challenges The faced at the other end of the adoption curve. pon cu gored his options, Black eeoun ee Oo crucial the e-iling posse would likely be for Fisery. Fiserv a motogy already assisted Com busiteg with their “outgoing” iter i sures onic bill payment. ing focus instead on 60 jnteractions—helping sriere sround trip” of OUtgOiN enti myeere poston in he, valve Oe ir consumers, bllers, and farther eogeons. Eiing was aso ¢ PERN “Gignificant revenue stream Fi OF the 118 milion howsebok fp He Ted States in. March 2009 Tor Fiser Gre considered “onine” (connec 606 Tntexnet), and the a¥eraEe 8 oy reseed 10 bills per month fom eA OF 10 different bills. Mor ver, taming off paper stentially lucrative business for Fiserv? And if 90, ‘But was ebilling pot “qaas the best strategy to take full advantage of this technology? mas indisputably better for the planet. whatFISERV TAKES ON THE E-BILLING MARKET 9 FISERV AND ELECTRONIC BILL PAYMENT Fiserv (NASDAQ: FISV) was formed in July 1984 with the merger of Sunshine State Systems of Tampa and First Data Processing of Milwaukee, regional provid: crs of financial services data processing for small banks and thrifts. Fiserv went Public in 1986. By 2009 the Fortune 500 company, headquartered in Brookfield, Wisconsin, employed 20,000 people in 230 global locations. The company's 2008, revenues were $4.74 billion, with net income of $537 million. Fiserv competed in several markets: it was the U.S. market leader in core processing services and the largest independent U.S. check processor, It became the leading U.S. Internet banking services provider and leader in Dill payment and presentment services when it acquired CheckFree ia December 2007. : In 2009 e-billing represented a relatively small revenue stream for Fiserv A majority of the company’s e-commerce division revenues came instead from elec tronic bill payment. Electronic bill payment was conceived by a former decathlete named Pete Kight while he was managing health clubs in Texas in the late 1970s, At that time, convenient monthly payment methods were not available, so health club consumers were often pressed to pay for an entire year in advance—and each year afier. This caused frustration for consumers as well as for the health club salespeople who had to perpetually convince them to renew their memberships. Having successfully tested an automatic monthly payment arrangement between his health club and a local bank, Kight returned to his hometown of, Columbus, Ohio, to launch a company called CheckFree. The company, which he initially ran from his grandmother's basement, provided electronic payment set- vices not just to health clubs but also to any biller and its payee. He was convinced that over time clectronic bill payment was more efficient and would win out over paper-based processes, Kight’s first customer was a friend who owned an apart ‘ment complex. The friend agreed to let Kight use the building's computer at night, and Kight agreed to sign up the friend's tenants to pay their rent electronically. Building on the technology and knowledge he developed to serve that first cus- tomer, Kight led CheckFree through the early days of the lntemet and successfully ‘competed against rivals such as IBM, Microsoft, First Data, and Citibank. As the com Pany grew, Kight’s management team recognized that encouraging adoption and use of electronic bill payment required not only convincing billers and banks to take part but also successfully marketing the service 10 end users. The team also realized that banks and billers had many more important priorities than developing strate- aes for marketing electronic payment services, To maintain leadership among larger rivals, therefore, the company had to understand the marketplace better than any ‘one else and continually redefine strategies based upon consumer wants and needs. ‘The company committed itself to understanding consumer behavior in relation : to electronic bill payment, Black and Johnston spearheaded many of these activi ties, and worked with banks in a consultative manner to help them understand market segments, identify which consumers to target, and communicate with tar- geted consumers. Their efforts helped CheckFree and its partners shift from male ing key marketing decisions based on managers’ intuition or opinions to using a data-based understancling of consumer needs and preferences to drive action, In August 2007 Fiserv entered into an agreement to acquire CheckEree in an all-cash transaction valued at approximately $4.4 billion, By 2009 electronic bill payment was gaining wider acceptance, with penetration driven by convenience over traditional payment methods, savings on postage, and improved perceptions of payment security (sec Exhibit 2 on page 100 for adoption sates). Blectronic bill payment was naw so pervasive and advanced that most constr ‘er8 could use their bank's Web site to pay anyone, including individuals, electronically,i MENTATION, AND MARKET TARGETING 1 cuanren 4 OPPORTUNITY ANALYSIS, MARKET SEG! 100 Consumer Adoption Rates for Electronic Bill Payment and E-Billing ore | | | | | | | Penetration (USA) of consumers fewer calls to customer 5 E-BILLING: OPPORTUNITIES AND CHALLENGES bills are electronic versions of paper bills seit consumers by billess. Billets ering ebilling services incluced utility compart” cable/satellite TV provid ees, and financial services firms. E-bills contained the same information a5 Paper tills and offered the same due date, Fiscty developed the technology t0 allow pal amers to receive and view e-bills ata bier ‘Web site Sr feeclnack from bllers reassured Black (hat they were strongly in favor of converting their consumers from receiving PADS! pills to receiving e-bills. This oO eigenn vas driven in great part bythe signi financial savings offered by ctpilling, Billers sent monthly bills to consurisTs Processing and sending each of these paper bills cost an average of $1.25 De pill, and bllers saved up 10.45 percent ‘per bill for consumers who no longer “received the paper bill. Furthermore, a con parison of sample consumers who “teeived paper bills versus a similar sample Me ore ebiling showed that the Tatter made 10 70 ‘20 percent Saice, thanks mainly to the reduction of paymen! claims roan error in submitting and processing transactohe ‘This erdated a0 pillers, regardless of whether caused by ditional anaual savings o the ebill consumer was stil receiving Paper Sbilers also saw e-billing as an opportuni practices, One eneriyy company reper Un iter converting 130,000 const Prat aang, it was able to save 31 ts of paper (he fequivalent of 753 te) ce to a reduction in production and delivery Som, ©! ing also led to com Taare water savings and preenfouse 28 Feqelens raters were also inverested in the possibility dhe ebilling might increase see, nital data showed that consumers receiving ebills wore a service; dhis might lead to greater satistactioe with “inelthood of defection. Also, because jdentity ONE Pacnnarertals taken from maifboxes and wash Feo vf greater security than consumers WO received ¥ $2 to $4 per consumes for bills ty to enhance their environmental consumer satis Sktremely satisfied swidh dh fhe bifler as weil asa lower dften got thei information Sreless ebill consumers enjove tea had to dispose of) paper bills 1 ep ahese many benefits, 2 majority oF bles no4 omy offered e-iling to teak onsumers but also provided # at no, charge Nonetheless, alkhoud!FISERV TAKES ON THE EBILLING MARKET 101 consumers who tried e-billing expressed high satisfaction with the service, less than 20 percent of online consumers used c-billing as sheir primary way of view- ing hills. Black wondered what was holding up the adéption process. ‘To better understand consumer perceptions of e-illing, Black asked Johnston to commission several primary consumer research studies. Just as Black and John: ston had used market research to help banks target key segments and effectively | position electronic bill payment, they hoped to use research to generate recom | mendations for billers to convert paper bill-receiving consumers to satisfied end | users of e-ills Be =-siLuina MARKET RESEARCH Online Interviews and Segmentat Johnston hired a well-known market research firm to study and segment the mar- ket for e-billing, As a first step, the firm conducted 1,236 30-minute online inter- views with 2 US. sample of e-billing users and potential users. (All respondents had regular Internet access and spent at least one hour online weekly.) Survey respondents were asked 2 number of questions about their attitudes and behaviors relating to finances, Family life, and professional pursuits. These re: sponses were statistically analyzed, producing six distinct groups with different atti : tudes and behaviors. These groups are listed and described in Exhibit 3 on page 102. 3 q Focus Groups Johnston also conducted focus groups with potential consumers who did not ‘use e-hilling, Bight groups of 8 individuals (64 total) were given a description of chilling and asked a series of questions about their willingness (0 use it. Al though focus group participants expressed moderate interest in c-billing overall, they also had several questions, including: + "Does 1 illing automatically pay the bill too” + “Who sends the e-hill? The bank or the company I have to pay?” + “Can I sign up for e-billing through my bank or do T have to ask all the in- dividual companies?” + “What exactly is the benefit of e-billing?” Participants also expressed their opinions on e-billing’s benefits (e.g., “Getting bills electronically is simpler and quicker than getting them on paper") and draw backs (e.g., “A paper bill is a physical reminder to pay it; an e-bill doesn’t give me eat that”), One feature that many participants said would help motivate them to use 4 : ebilling was “divisibility,” of the ability co receive c-bills without being required : i: to stop paper bills. Concept Test ‘Asa final step, Fiserv conducted a formal concept test of e-billing. The firm con- : {acted 2,000 individuals who were not using e-billing (but who were representa tive of the overall population of consumers) and encouraged them to try it for two months and then respond to a survey about it. The offer provided a general description of e-billing and allowed consumers to continue receiving paper bills, during the trial period, Only 4.5 percent of the sample expressed interest in the offer, though the response rate was close to 8 percentamong F-Savvy Planners andFISERV TAKES ON THE F-BILLING MARKET 103 CEQUEIES Consumer Segments: Attitudes Toward E-Billing Consumers who tried e-billing for two months were asked which features they liked about the service as well ie as why they might sill want fo receive a paper bil The most camnmon responses foreach segrnen we eponed fom , : What 1 Like Most About hy Il Want Wy Peper Bi | Its ease to have all my fnancal in- No reason: moat esawvy planners wee : formation in one pace—on my computer” unlikely to ce tka ake the oan : Mi Manimizers For my day nancial management activ. “Every detail mir tone when : ties ebils make teaser for me to move Tm doing ancl plana Paper : Information beeween the diferent pro bills neem to have tone cot oe grams I use to manage ny Rar information?” Setetmpeener “fal had was ecilling it would save me "a always trying to Agu out a bener a tot of ime opening and handling paper wayto manage ances Thats cos bate todo when you can ly out al of your i Convenience Seekers Desperate Avoiders Paranoid Paper-Pushers ‘get 2 Jot of ills and statements each onth--paper everywhere! If Thad ¢ billing only, ie would reduce cluter in my home: If used e-billing only, I know it would 2e- ally help the environment Its nice to know I have a huckup some. Dills on a rable." know from experience that com puter problems can cause a huge waste of time—extremely inconvenient, I need paper backup just in case I expe: rence a breakdown or a disk failure” ‘Getting a paper bill helps remind me ‘that I need to pay." “All of my financial planning is in one where in case the paper bill gets lost” place ina filing cabinet. lt would be ie too confusing to have most documents —- there and some on my computer” ‘Maximizers. When a similar sample was offered $20 in gift cards to try e-billing, 53 percent agreed. After using e-billing for two months, 73 percent of participants either agreed or strongly agreed with a statement indicating their willingness to adopt e-billing for the long term. Follow-up interviews suggested that the trial period helped ase initial confusion about e-billing and skepticism about its value, For example, ‘one participant noted, “This is a great idea, a great product. But { really needed to use if to understand how geeat it is.” Consumers were also asked which e-billing features they liked as well as why they might still want a paper bill. Results are reported in Exhibit 4 and are divided by segment. E-BILLING REVENUE MODEL AND CONVERSION costs Fiserv's e-billing revenues came from two potential sources, For consumers who opted to receive an e-bill through Fiserv’s biller-direct system but chose to also continue receiving paper bills, the biller paid Fiserv $0.025 each time the con- sumer viewed the e-bill. For consumers who opted to turn off paper billing in favor of Fisesv's e-billing, the biller paid Fiserv $0.40 per month per consumer104 @ GETTING THEM TO TURN OFF PAPER quAPTER 4 OFPORTENITY ANALYSIS) MARKET SEGMENTATION, AND MARKET TARGETING regardless of the number of views Consumers receiving e-bills viewed them 3° veerage of once a month, whether O° Not hey had cured off paper billing, aijers encouraged consumers £0 acP) eilling using combination of irecr mail advertising, exoail cumpaiEn® Trilling inserts, and Web-based adver Giang, These efforts tended 10 focus, ‘he consumer base as a whole rather tein specific subgroups. Figures om previous campaigns showed that he taverage cost 10 convert & conSUMET rpfy from all-paper billing t© exclusive sept was $4.50. The average cost t0 CONT consumes from all-paper billing coup viewing Cite tl ecelving 8 PPT boll) was $2.00, it Moaners already viewing their bills ine (but still receiving paper) were significanly more Sikely to euen off PAP billing than those not receiving eis sien Tonsamers used 12 months of bi) Ne ng with paper, it cost billers an arrerage of $1.50 per consumer 10 CONV. them fo turn off paper. data existed about whether consumer teceiving €-bills from one billet were more likely 1 receive ebills from synoihes, However, a recent Strvey Sfeeved that almost rwo-thirds of consume avo did not receive paper bills from seieast one biller Ce-ill only) stl veal paper bills from at least one ofher piller. pack and Johnston were encouraged PY Ihe market research they had conducted to understand ¢-illing trends and consent segments. Although e-billing adop- ro ates lagged behind chose for elector pall payment, there was strong ev von at consumers save the value of vecivonic bill presentinent—espectally dence ey tied it. Now Black and Johnston Thad to develop recommendations snsumers from oe nthe marker research findings ro BeIP pillers move their co a ejve paper billing 10 exciusive DUN Pe lack and Johnston recognized that the EVP was expecting strategic recommendations that would convines hillers to take specific actions 40 increase veiling adoption. ‘This would furthes ‘establish Fiserv as a provider of user faendly technologies that billers and ‘banks could employ te make their sie fickier and their consumers more vidoe, in twin making their relations iPS ar merly improving Fiser’s bottom tine, WY repare for his strategy more profitable an tray, Black began poring over the research reports 10 pr session with Johnston.