January - 2000 - issue > Cover

To remain competitive, companies are increasingly turning to Electronic Bill Presentment and Payment (EBPP) — that is, allowing customers to pay online. However, until there are sufficient adoption rates of both consumers and billers, cost savings in customer service, paper, postage and float will remain negligible.

Today, very few bills are delivered online. More than one billion bills will be sent over the Internet by 2001, however, and by 2007, that number will increase to eight billion, profoundly changing the way billers and consumers do business.

EBPP promises to be a new and efficient way to deliver bills to the consumer. Bills will become a marketing vehicle for the billers. They could engage in multiple one-on-one dialogues with the consumers based on how they segment them. These channels will create new opportunities for billers to target consumers with new services.

EBPP Process

The creation, presentment and payment of a bill is a fairly standard process. The usual process is:

* The customer enrolls for online bill presentment and payment. This can be done through either a consolidator Web site or at an individual Web site.

* The biller validates the enrollment. Some billers will issue a digital certificate during the enrollment process.

* Once the enrollment process is verified, the customer starts receiving bills online. Paper bills may continue to come to the customer’s home as well.

* For every billing cycle, the standard print stream is used as input for the bill creation at the Web site. This could also trigger an email that is sent to the customer notifying him/her about the bill and payment due.

* The customer logs on to the biller or consolidator site to view the bill and schedule a payment. Customers should be able to make full or partial payments, and many sites also allow for setting up recurring payments for bills.

* Once the customer has initiated a payment, his or her account is updated to reflect the payment. An email receipt is sent to the consumer.

EBPP is about delivering a bill electronically to customers either by email via the Web. Customers should be able to view the bill and arrange for payment from a designated bank account. Therefore, any EBPP system must be able to create a bill, present the bill to the customer and be able to handle payments in various forms and intervals.

There are three primary models emerging in the industry. Many institutions are following more than one model or taking a phased approach.

The Direct Approach

In this model, the biller creates the bill-presentation system. The biller’s system handles the creation, presentation and payment of the bill. Although this model serves the needs of the biller, it does not provide the consolidation that consumers and small businesses need.

Customers sign up for the online payment service, view and pay the bill at the biller’s site. Customers with only one account see only the bill that pertains to the company and must pay other bills due to other companies elsewhere.

The biller can process the payment in-house or through an existing payment processor.

Thick Consolidator

For this model, an aggregator of bills builds a system for presenting bills to the consumer. The aggregator works to sign up as many billers as possible to create a one-stop site for the consumer. The aggregator receives bills in many different formats from billers and is able to present the set of bills to the consumer. Aggregators have the ability to make payments to multiple financial institutions. The thick consolidator model allows the consumer to have a single point for viewing his or her bills. The amount of consolidation is limited to the number of billers that the consolidator is able to sign up. If the customer is not able to pay a majority of his or her bills, the value of the site is diminished.

One of the crucial drawbacks in this type of system is that the biller loses direct interaction with its customers. For large billers, this is significant as they always are seeking to provide more services and be able to cross-sell and up-sell products.

Thin Consolidator

This model is similar to the thick consolidator model, with the exception that the aggregator presents a summary of the bill. The consumer can then click through to the biller’s Web site to get the detail of the bill. Thin refers to the quality of the consolidator to maintain only a “thin” summary of the bill.

This model addresses the needs of both billers and consumers. Customers have a single site for view their bills while the billers have an opportunity to interact with the consumer when called upon for the bill detail. The thin model can also be implemented as a phased approach; billers can start with a direct model and move to the thin consolidator model, or have both models running.

The EBPP Market

The EBPP market is still in its early stages — there is no one model being used, and standards are yet emerging. However, marketing information shows that the EBPP market is set to grow tremendously with the growth of Internet usage in households.

The infrastructure is already in place for households to start using EBPP services. Close to 50 percent of US households have PCs, and more than a third of PC owners use financial management software. Another indicator of the ushering in of this new system is the decline in the usage of checks, which were used for 90 percent of all payments in 1990, and dropped to 76 percent in 1999. Before consumers make the switch, though, they need to become comfortable with switching from the paper-based form.

Standards

Open Financial Exchange (OFX) is a unified specification for the electronic exchange of financial data between financial institutions, business and consumers via the Internet. Now a widely accepted standard, OFX was first introduced by Intuit, Microsoft and CheckFree to ensure operability with personal finance software and banks. OFX version 2.0 adds support for the emerging XML standards.

The format know as Electronic Commerce Modeling Language (ECML) uses a set of uniform field names that streamline the process by which merchants collect electronic data for shipping, billing and payment. Participating companies are American Express, AOL, Compaq, CyberCash, IBM, MasterCard, Microsoft, SETCo, Sun Microsystems, Transactor Networks, Trintech and Visa.

Even though this standard does not directly relate to EBPP, there should be awareness for companies building EBPP capabilities.

Implementation Strategy

Before developing an EBPP strategy, a company must thorough research the current models that will best suit its business requirements. Once the EBPP model has been identified, the strategy for customer adoption and technology implementation can be identified.

Companies usually employ multiple electronic channels to reach multiple customer segments, and the same applies to EBPP channels as well. The direct and the consolidator models can co-exist, with each customer ultimately choosing which channel to use.

The biller should provide a direct option at its own Web site, no matter what other channels it employs, in order to realize maximum value from customer-initiated sign-up. This biller-direct option becomes the biller’s foot in the door to the EBPP environment, and sets the stage for a phased approach to deploying further electronic channels, including consolidator-enabled channels, to capture as many customer segments as possible.

Most importantly, implementing a direct model for a biller is a step that implemented quickly, while aggregators, which rely on critical mass and standards to attract consumers and deliver a meaningful ROI, ramp up and become mainstream.

Consumer Adoption

The key to a successful implementation of an EBPP solution is the acquisition of both billers and consumers. Once enough billers have been signed up, their customers should be enticed to sign up for EBPP.

Partnerships can also be set up that help drive consumers to the EBPP site. Several banks have set up partnerships with portals, for example, Citibank with Netcenter, Bank One with Excite and Union Bank with the women.com network. Other partnerships with Personal Finance Managers (PFMs) — for example, Quicken — can help with consumer adoption.

The EBPP application must be considered as part of a company’s overall e-commerce strategy. Implementations should stay flexible to support multiple EBPP models such as direct and thin consolidator. When choosing a technology and systems, companies should carefully evaluate whether they have the ability to support multiple billers on the system. The level of bill detail that can be stored should also be a factor in the final decision.

Dharmesh has over 9 years of consulting experience. Contact dharmesh@siliconindia.com