Is It Time for You to Go Paperless?

Have you noticed that your bank really wants you to go paperless? Nudging you to turn off paper statements every time you log into your account, reminding you every so often that it’s the earth-friendly thing to do, and even offering statement credits as an incentive, the banks are giving the hard sell on the paperless push.

Industry analysts expect those efforts to intensify even further. “In 2010, we’ll see much more aggressive pitches to go paperless,” says Emmett Higdon, a senior analyst with Forrester Research who covers online and mobile financial services.

With new legislation cutting into banks’ profits from overdraft charges and credit-card interest income, the industry would certainly welcome the savings. Depending on their size, banks spend anywhere between $1.50 and $3.50 per customer on printing and mailing monthly statements, says Don Shafer, the chairman of BancVue, a consulting and marketing company for small banks. On the other hand, preparing an electronic statement costs between eight and 15 cents per customer.

Those savings quickly add up when you multiply by tens, if not hundreds of millions each month. But what’s in it for the consumer?

The banks are quick to point out the advantages of shunning paper statements. To start with, you help save trees. The switch also reduces the clutter in your overflowing filing cabinet. And, arguably, paperless banking reduces your chances of becoming a victim of identity theft. (At the very least, not leaving bank statements and other sensitive information lying around the house protects you from so-called “friendly fraud,” in which someone you know and with access to your home steals and misuses your identifying information.)

But if adoption rates are any indication, consumers have yet to buy into those pitches en masse. Although an average of 55% of online checking, savings and credit-card customers today receive electronic statements, only 22% of checking-account and 16% of credit-card users have gone paperless, according to Higdon. (The rest receive a paper statement and an electronic one each month.)

The main reason for banks’ difficulty in convincing customers to switch is that when they first started offering electronic statements, they weren’t aggressive enough in encouraging people to use them as a substitute – rather than an additional service, says Higdon. Now, banks are having a hard time getting their customers to embrace this way of banking.

“If you ask a customer who’s been receiving paper statements for 30 years to all of a sudden receive it online, there’s going to be a resistance,” says Ron Shevlin, a banking industry analyst at market research firm Aite Group. Banks have had some success with offering statement credits to customers who shun paper statements, but what they’ll have to do if they want to achieve a critical mass of support is make online statements better than their paper versions.

One way of making e-statements appeal to more consumers is building in more interactivity, Shevlin says. For example, banks could allow customers to sort purchases or create various reports and trends out of their transaction information; they might also offer targeted savings coupons based on past purchases. “People will respond to a $20-$25 coupon offer, but the challenge is making [the statement] better, not simply pleading and begging people to be green,” he says.

Some regional banks and credit unions have taken an alternative approach, offering customers the ability to earn as much as 5% interest on their checking account (most banks these days are offering 0.5%, if anything). With these so-called rewards checking accounts, signing up for e-statements in lieu of paper is a built-in requirement. (For the scoop on rewards checking accounts, read our story How to Earn 6% On Your Cash -- though keep in mind that these days the highest yields you’re likely to find are around 5%.)

Although banks are unlikely to require consumers to go paperless with traditional checking accounts, many now enroll new customers in paperless statements by default, Higdon says. (Consumers can still request to receive paper statements.)

Are new fees in the future of those who opt to continue receiving paper statements? Although the end of free checking is a hot topic these days, it’s unlikely that banks will start charging statement fees, Higdon says. Wireless provider T-Mobile tried imposing a $1.50 fee in August 2009 but quickly reversed its decision after an unexpectedly strong consumer backlash. “It’s going to be far more effective to have an aggressive paperless campaign than it would be to start charging for paper,” Higdon says. “You’re likely to get much better adoption and keep customer satisfaction.”

If you are considering forgoing paper statements, be sure to follow some general security guidelines. Always access your bank account from a computer equipped with the latest antivirus software and a secure Internet connection, says James Van Dyke, founder and principal of Javelin Strategy & Research, a financial-services consulting firm in Pleasanton, Calif.