This article appears in the November 2009 issue of Cards&Payments.

Credit card issuers grappling with rising printing and postage costs are reviewing their statementing policies. Although the institutions are treading carefully to avoid customer backlash, some likely will discontinue sending paper statements within the next year or two, analysts say.

The credit card industry mails more monthly statements than any other industry, last year mailing 3.6 billion monthly statements (see chart) to consumers, according to the U.S. Postal Service. Credit card statements accounted for 57% of the types of bills sent by mail last year, more than those for cable/satellite TV or cell phone subscriptions (see chart).

Postage costs vary based on the type of letter and the level of sorting and automation payees provide, but this year the basic standard (bulk mail) rate rose 3.83% from last year, according to the postal service. Paper and printing costs also rose at varying rates, depending on volume and supplier, observers say.

Issuers taking action to cut their statementing costs likely will wean cardholders gradually away from paper primarily by introducing products and card features that offer solely online bill payment. And those customers who opt to continue receiving paper statements likely will have to pay a fee, experts forecast.

Indeed, issuers will introduce paperless statementing to customers by recasting the mailing of monthly statements as an add-on benefit, predicts Robert Hammer, chief executive of the U.S.-based card advisory firm R.K. Hammer & Associates. "It will be zero cost, at first, moving to some introductory fee," says Hammer, who could not predict when most card issuers would discontinue mailing paper statements.

But the writing is on the wall for such an event to occur based on recent moves by two major card-industry players, analysts say. And most issuers likely would take an indirect approach to breaking customers' habits of receiving mailed statements instead of abruptly introducing a fee, most analysts agree.

American Express Co. last spring stopped mailing monthly statements to its corporate credit card customers, though corporations with "extenuating circumstances" that request it can still receive a mailed bill for no additional fee, an AmEx spokesperson says.

"We started with corporate cards," the spokesperson says, noting she knows of no plans to expand the policy to AmEx's other card products.

The Hong Kong arm of United Kingdom-based HSBC Holdings PLC in August announced that, beginning on Jan. 1, 2011, it will charge its credit card customers $2.60 (HK$20) annually to continue receiving paper statements. Customers ages 65 and older and those who receive certain government benefits may apply for a fee waiver. An HSBC North America spokesperson declined to comment on whether the company will introduce similar fees in other markets.

Other major U.S. issuers say they are not charging customers to receive paper statements, but most continually urge customers through mailings and their bill-payment Web sites to switch to paperless statements, sometimes offering incentives. Many such exhortations to switch to paperless statements emphasize the environmental benefits of saving paper and trees.

Over the past year, issuers have stepped up the pressure to get consumers to go paperless. Wells Fargo & Co. earlier this year began offering $5 to cardholders who opt to go paperless, according to a spokesperson. JPMorgan Chase & Co. in the past has provided $10 credits and sweepstakes prizes to customers who opt out of receiving paper statements, although no such promotions are running now, a spokesperson says.

Wireless Example
Issuers are watching closely how the wireless telecommunication industry handles its move to paperless billing because of the markets' similarities, observers say. Like card issuers, wireless telcos send customers monthly bills that may include varying charges based on service use.

To cut their printing and postage costs, players in both industries for the past few years have been using a combination of lures, reminders and warnings to nudge customers into receiving and paying bills online.

Wireless carrier T-Mobile USA Inc. in August was the first among its peers to announce it would begin charging customers to continue receiving mailed bills. Last August, T-Mobile added a $1.50 billing-statement charge to customers' statements, offset by a $1.50 credit for the first month. That month some 33,000 customers opted to go paperless compared with only 1,000 who did before T-Mobile introduced the fee. T-Mobile sends out 16.5 million invoices each month.

But the fee triggered a firestorm of complaints from subscribers and a class-action lawsuit filed in September in U.S. District Court in the Eastern District of Missouri. The suit claims the statement-mailing fee constitutes "material changes to the contracts by T-Mobile."

T-Mobile in September reversed its plan to charge customers for mailed statements. Instead, it plans to take more time to determine the fairest way to move customers to paperless bills, a T-Mobile spokesperson says.

AT&T, Sprint Nextel and Verizon Wireless all charge $1 to $1.50 per page for bills itemizing calls sent and received. And Sprint has offered customers a $5 credit for "going green" by opting for paperless bills.

AT&T long has touted the overall convenience and environmental benefits of switching to paperless billing to its customers who pay their bills online. But recently AT&T added fear to the list of reasons to go paperless, suggesting that opting out of receiving a mailed bill reduces the chance of fraud and identity theft.

The cost to send paper bills by mail continues to rise as the cost of paper and postage increases. According to U.S.-based Regulus Group, which processes some 2 billion consumer bill-payment transactions each year on behalf of corporations, including several large credit card issuers, postage alone represents about 38% of the cost to distribute bills, and those costs are rising.

Cost Savings
Issuers also realize significant cost savings when customers pay their bills electronically instead of by mail, which is labor-intensive and slower for billers, says Josh Wendroff, Regulus director of marketing.

Regulus sees a "huge overlap" across all industries among customers who receive mailed statements each month but pay those bills electronically. "Many people are already receiving an electronic invoice along with a paper bill, which should ease their transition to going paperless," Wendroff says.

But card issuers face a more-difficult dilemma than do some other industries in weaning customers away from paper statements, says Tracy Dalton, Regulus manager of product development. "Consumers are reluctant to suppress paper on transactional types of bills such as credit cards," she says.

Most consumers are comfortable paying their credit card bills online, but the physical bill is "symbolic" to them of the ability to track payment histories and dispute transactions. Although consumers can perform these same tasks online, "receiving a critical document such as a credit card statement is a reminder, and many consumers are still not comfortable with e-mail delivery," Dalton says. 

A sudden policy shift forcing cardholders to stop receiving paper statements could cause customers to bolt to other issuers and swamp customer-service centers with complaint calls, Dalton says. "There is a level of consumer education that has to occur before consumers are forced to eliminate paper statements," she says.

Although card issuers are eager to slash billing costs, they are unlikely to hit consumers with fees to receive paper statements anytime soon, contends Gene Truono, a former Chase executive and managing director at BDO Seidman LLP's BDO Consulting in New York. "I don't think this is the time for credit card issuers to roll out a fee for statements, given the economic climate," he says.

Instead, issuers will begin to introduce a wave of new card products whose features include online payment only, Truono suggests. "Rather than giving customers the direct hit of a statement fee, issuers will most likely offer new cards, or reposition existing cards, so that customers must agree to pay online in order to receive a perceived new benefit," he says.

Consumers may be even less receptive to gentle nudges to switch to paperless statements because of changing attitudes toward card issuers, warns Doug Cottings, managing director of GfK Financial Services, a U.S.-based market research firm. "Our research shows there is a lot of unsettledness right now among credit card customers from all the negative media attention this year on banks and attention paid in the press to card industry reform," he says.

An online survey the company's subsidiary Roper Consulting conducted last May involving 4,000 U.S. adults found that 48% of respondents believed financial-services companies were not looking out for their best interests. The findings suggest consumers are "suspicious" about issuers' motives, and many fear issuers are looking to make up for their losses from the recession and the forced adoption of new card-industry rules, Cottings says.

"Customers fear issuers will make up for their losses by nickel-and-diming people on fees," he says, noting issuers could lose significant market share from negative publicity stemming from the addition of unexpected fees or other customer-service changes.

Issuers looking to cut rising paper and postal costs likely will wean customers gradually away from mailed statements. Eventually, customers who still want mailed statements will pay extra for them.  CP

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