Want to retain customers? Pay their bills for free

What does it cost to keep a customer? Or perhaps the question might better be stated how much does it cost to replace a lost one?. Profinium Financial, a $320 million state-chartered bank in the southern Minnesota community of Truman, is using a twist on a basic banking product to help get customers so comfortable, it's hard for them to leave their bank. Profinium offers free bill-paying services if the customer pays at least three bills per month using their online program.. "The cost of acquiring new accounts varies widely, depending on what the bank is offering as an inducement to get customers to open accounts," said Mark Groves, Consulting Analytics Manager at Sheshunoff Consulting. "The often quoted range for acquiring new accounts is $75-$150 per account. . "In regard to retaining customers, we have done some investigation into what the average account may bring in, in general revenue terms, and we think it may be in the range of $200-$275 per year. Therefore it is a much better proposition to keep accounts, which in theory should have a net income stream, versus spending money to acquire an account," Groves said. . I've had accounts at several banks that offered online bill-paying services, but none of them were free. Having more time than money, I felt I could buy a lot of 44-cent stamps for what each bank was charging for the service. I was content to go to my vendors' web sites, such as my credit card, and schedule a payment from there for free.. So offering bill-pay as a complimentary service intrigued me, especially since I knew the bank must be paying for the service. Mike Bissen, chief financial officer at Profinium Financial, was forthcoming with his answers.. At year-end 2006, Profinium offered the free bill-paying service, but only had 109 customers signed up. "Penetration was really small. We were only doing about 5,600 transactions for the whole year. It just wasn't getting used," Bissen said. "We decided if we're going to have this product we want people to use it. The other thing we discovered, in doing research, was the retention of customers was greater if they had bill payment. So many people don't want to go through all that work [again]." Profinium also realized other banks were going to be offering it and wanted to make sure their products and services were just as attractive, if not more so.. The bank did its due diligence and decided to switch bill-pay providers to First Data Corporation. At year-end 2009, the bank had more than quadrupled its bill-pay clients and the number of transactions more than quintupled. "The systems have improved; the new system is so much easier to use," Bissen said. "We now have 450 users … It has become an integral part. We're picking up about 10 more bill-pay customers per month." The bank has about 9,600 customers, so just under 5 percent are using the service.. "People like it. It's partly a result of more people using the internet as their primary banking relationship contact," Bissen said. "It's working in our favor at this point.". To get increased usage of the program, Profinium offered the service free to its employees and required them use it. "I have to admit I was one of the converts," Bissen said. "I didn't use bill-pay very often because I did most transactions with my debit card." When doing online bill-pay, "I found I could do more things with this than I thought. You can control [your money] more than having auto payment with the entity you're dealing with.". The service costs the bank $5.95 per user for a monthly bill of about $2,700, but Bissen feels that's a small price to pay overall. "In today's banking environment, it's so hard to attract and retain customers" that you don't want to lose them. "We do feel it's well worth it to retain our customers.. "Industry numbers are out there that tell you how much it costs to replace one, so anything we can do to retain them is huge in our ROI and income. And any time, it's much more beneficial to retain a customer who has their primary checking account with us [as opposed to] a rate-shopper coming in for a CD or high-rate type deposits," Bissen said.. Unexpected benefits of the program include how many potential teller transactions were avoided. Bill-pay now takes care of 25,000 transactions annually. "If we had 25,000 more proof items, that would have had an impact on our bottom line," Bissen said.. While the bank hasn't done any data mining to track demographics, Bissen said customers of all ages are using it. "It's not like it's just young people," he said.. The bank doesn't do a lot of paid marketing of the service or statement stuffers; it depends on good ol' fashioned word of mouth marketing, marketing on their web site and one-on-one contacts with customers. "When people come into the bank to talk with us, we ask if they have it. When they call in the operations center for account information, we try to offer that to them," he said. "We try to do relationship-type enhancements."