Banks offer incentives to move online.

So you think banks haven't given away anything since the days of hoola hoops and poodle skirts when a new savings account came with a free toaster?

Look again.

In an effort to convert more customers to online banking and bill paying services, banks have once again mined to freebies, but these aren't your father's toasters.

Some banks are now offering to pay bills for you. And at others, there is cold hard cash waiting for customers who sign on for online bill paying.

Why the newfound largess?

Put simply, "It's a race to win the customer's relationship," said Marge McNaught, senior vice president for lending and technology at Premier America Credit Union in Chatsworth.

Banks and credit unions have been offering such services as the ability to check balances online or to transfer funds from one account within the bank to another since the late 1990s without much fanfare.

But a study conducted by Bank of America Corp. several years ago showed that customers who used online bill paying were far less likely to switch banks and far more likely to increase the services they used from their bank.

The study confirmed what some already suspected and began a groundswell among those who hadn't.

"Bill payment is a clear retention driver for financial institutions," said Kevin Doohan, director of marketing at Digital Insight Corp., one of the major software players in the online banking industry. "So banks are pushing that."

The BofA study recorded an 80 percent lower attrition rate among customers that used online bill paying. And those same customers on average had deposit balances that were 38 percent higher and loan balances that were 45 percent higher than those who did not use the services.

"Based on this study we decided that online bill pay was valuable in our strategy to building customer relationships and retaining customer relationships," said Betty Riess, a spokeswoman for BofA.

Free services 

As a result of the survey BofA began to offer free online banking to all customers, regardless of the other products they used, or didn't use, at the bank.

Two years after the fee waiver, the number of customers using the bank's online bill paying soared to 10 million from 3.1 million.

Bolstered by the report a number of financial institutions began offering online bill paying services free. Now, with free online bill paying the price of entry banks are upping the ante again.

Premier America periodically offers $25 to customers who pay two bills online.

Telesis Community Credit Union based in Chatsworth will enter online bill payers in a periodic random drawing. The winner gets a bill paid by the credit union, up to $500.

And large, national banks are offering as much as $100 to sign up for online bill paying.

"Once one of your competitors has it, you have to answer the call," said John McCune, manager of financial institutions group research at SNL, an industry research company. "We're at the point now that it's becoming ubiquitous."

The number of customers using online banking and bill paying services is still small--estimates are anywhere from 2 percent to 20 percent of each bank's total customer base. That means there is plenty of opportunity still out there, but there is considerable resistance as well.

"There's still some uneasiness about how secure these systems are," said Mike Gomez, CEO at Fiscal Credit Union in Glendale. I think the biggest barrier is convincing people that the security on these things is pretty good and you probably have a greater chance of being defrauded by using a credit card in a restaurant."

Greater education

Fiscal has formed a task force to try and determine what kinds of training and education employees need to sell the products.

Others have set up demonstration stations in the branches in an effort to help acclimate customers to the new systems.

At the same time, banks and credit unions have been feverishly expanding their online services.

The different services require a substantial investment of money and time to connect the software and make it all operational, but financial executives say that the investment pays off.

"We figure it's an investment in reducing lobby lines and calls coming into the center," said Richard W. Cooper, vice president of government and community relations at Telesis. "It's a great way to provide service and again, it's the competitive issue, and in this day and age you want the middle income folks that everyone wants to have."