During the dawn of the Internet, the ability to seamlessly and electronically conduct commerce was envisioned. This new e-commerce was meant to make our lives easier by being able to purchase and pay for things over the Internet without barriers or hassle. A new industry emerged. Banks saw the opportunity to allow more payments flow through their system and added bill payment services as a convenience. In the early days banks charged a fee for the service because it was easier and cheaper than writing a check and mailing payments to various service providers: credit cards, utilities, car payments, etc. Those fees eroded as the ability to pay directly to the service provider came to life and marginalized the service provided by the bank. Insurance carriers were slow to adopt these new abilities due to a variety of issues including security, customer demand, need etc. In the end, e-commerce is meant as a way to provide better customer service and foster loyalty.
In the past few weeks we have seen two large companies use e-commerce as a way to run up fees and go against the very intent of e-commerce. A very large bank announced that it would start to charge a $5 per month convenience fee for using debit cards they issued. Processing debit cards for the bank is much cheaper than handing thousands of checks by an army of people. Much of this was predicted months ago when congress cut the transaction fee a bank could charge for debit cards. The announcement brought a huge backlash against the bank including negative press, protests in the streets, and account holders moving to other banks. Many banks announced they would not charge such a fee and welcomed new account holders with open arms.
A similar event happened very recently by a large wireless telephone provider. Paying bills over the Internet or even over the smart phones they sell and service is very, very convenient. So convenient, the wireless company deemed, they decided they should charge a $2 per month fee to cover their service. Odd that a company would want to charge people to pay bills for the service they are providing. And, paying online is far cheaper to the carrier than handling a check. It did appear odd that a wireless company was making it more cost effective for a customer to write a check and mail a bill with a $0.48 stamp to avoid a $2 fee from the wireless company. Again, there was a large backlash and the company quickly backed off of the new fee.
Online purchasing and payment processing is a great way to attract and retain customers. Insurance carriers are now deep into online quoting, issuing, claim reporting, bill payment processing, and more. In fact, online insurance processing has greatly shaped the industry into an interesting place to do business. Let’s hope our industry learns from the two examples above that charging customers fees to conduct e-commerce is a bad idea and will create scrutiny and ill will; something insurance carriers always need to avoid. Providing excellent customer service makes companies better.
Frank Heaps is the managing director for Innovation in Insurance (i3), and is an adjunct professor of insurance at the Moore School of Business, University of South Carolina.
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