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Electronic Bill Presentment & Payment Models

Electronic Bill Presentment & Payment (EBPP) is supposed to be the killer app on the Internet for companies looking to reduce the cost of distributing invoices and processing payments. Unfortunately, reality has yet to live up to the marketing hype surrounding the consumer acceptability of these products.

Consumer EBPP  (B2C)

Corporate EBPP  (B2B)

Consumer EBPP
By using software programs like Quicken introduced in 1984 for electronic bill payment, consumers were expected to change their old-fashioned bill paying habits in favor of paying bills via the PC. The low level of acceptance, which never grew beyond the early adopters of the technology, was blamed on input requirements because billing information was still paper based. The Internet provided the vehicle to deliver electronic bills or invoices. With the ability to receive and pay bills online, usage of electronic bill payment was supposed to take off. It still has not. Less than 5 million households are actively initiating electronic payments.

Today, electronic bill presentment and payment (EBPP) is still plagued by the infamous "chicken-and-egg" syndrome. Consumers are unwilling to utilize online bill payment until a large portion of their bills are available online; while billers are unwilling to present bills electronically until a significant portion of consumers demand it.

Further hindering the advancement of EBPP are the numerous methods (models) of presenting bills online and plethora of technology vendors offering solutions that support these models or variations of them.

There are three common EBPP models being promoted in the market today.

Biller Direct

Biller Consolidation

Consumer Consolidation

There are a number of technical and behavioral obstacles to be overcome before any of the bill presentment and payment models will be attractive to large number of consumers.

Hurdles

  • Less than half of all consumer households are equipped with modem equipped PCs.
  • Approximately 20% of all payments are one-time payments which are unlikely candidates for on-line billing.
  • Who "owns" the customer and how payment discrepancies are resolved is a major issue especially where third party processors are involved.
  • When a customer inquires about a bill, the company customer service representative does not view the same version of the billing information.
  • Writing a small number of checks still takes less time than booting a PC, dialing up an Internet connection and clicking on web sites.

Biller Direct
In the biller direct model, the billing organization makes bills available on its own web site and invites its customers to view and pay their bills directly from this site. Typically, the biller sends an email message to the consumer alerting them to a new bill. The customer then logs onto the biller site via a secure connection, reviews her billing information, and enters payment instructions (usually for a pre-established payment mechanism).

Biller Direct Model

A variation on this model allows the biller to send summary bill data in the email message with an embedded hyperlink back to its web site for bill detail and marketing messages. The consumer can then respond immediately to the bill by clicking on the link, which transfers the session back to the biller site for reviewing bill detail and setting up payment.

The biller direct model is the simplest and best-defined EBPP model in use today. The biller assumes the central role in this model, handling the responsibilities of customer enrollment/service, bill data translation/formatting, web site presentation, payment initiation, and remittance processing. A growing number of technology vendors offer software to handle some or all of this complex process. By using this model, the biller essentially creates a new channel for distributing bills, which may parallel other e-commerce initiatives.

On the payment side, the biller utilizes its existing bank relationships for electronic payment processing and remittance posting, a key advantage. Some of the major credit card companies and utilities are adopting this model. There is a strong belief that controlling the payment interface can build customer loyalty.

The major disadvantage of this model is that the consumer must visit a different web site for payment of each bill. In addition many bills are cycled at different times during the month so consumers must log-on at different times to pay them or keep track of the e-mail notifications.

Biller Consolidation Model
The biller consolidation model is inherently more complicated, primarily because one or more third parties act as middlemen to route billing and payment data. These middlemen fall into two broad categories: bill consolidators and biller service providers. Bill consolidators receive billing data from numerous billers, aggregate and sort it by consumers enrolled in EBPP programs, then send it to distribution points based upon where individual consumers are enrolled. These distribution sites are commonly banks, but can also be Internet portal sites such as AOL, Quicken.com, and Yahoo! Finance and even the United States Postal Service. Biller service providers play a similar role on the billing side, but usually partner with a consolidator for payment processing. Biller service providers also tend to target small to mid-sized billers with a low-cost fully outsourced solution.

Biller Consolidation Model

After consumers log into their EBPP service sites (banks and portals), review their bills and schedule payments, payment instructions are sent back to the consolidator for processing. In addition to payments for electronically presented bills, these instructions commonly include those to payees that customers have already set up in their EBPP programs. These are typically for recurring household bills, but can be made to any person or business (commonly referred to as a "pay anyone" service, which is offered by most large consolidators and banks). Due to the prevalence of pay anyone services, roughly half of all payments processed by consolidators are fulfilled by printing and mailing paper checks. The remainder go through electronic channels (ACH, MasterCard RPS, EFT networks, etc.)

Thick and Thin
There are several variations on the consolidator model, based upon product and service offerings of the consolidator and the involvement of biller service providers. The main difference in these model variations has to do with the amount of billing data transmitted to the consolidator for storage and customer access.

The so-called "thick consolidation" model refers to the transmission of full bill detail to the consolidator, while in the "thin consolidation" model only summary-level data is transmitted. In this model, if the consumer wants to access bill detail, she/he hyperlinks back to the biller's site.

Sample of thick consolidation

Other variations include different payment methods supported, degrees of control over payment offerings and channels, biller administration functions, marketing capabilities, and pricing.

Consumer Consolidation Model
The consumer consolidator model is the only one that currently enables consumers to view all their bills via the web, if they so choose. This is accomplished through a 'low-tech' approach of routing all paper bills to a service center for scanning into pdf formats, which can then be viewed online.

Consumer Consolidation Model

There are generally no interactive capabilities with the bills and all additional bill content (statement stuffers, regulatory notices, etc. ) are trashed. The service provider's site has a handy user interface for organizing and viewing bills and entering payment options. Some even offer storage of historical bills online or on a CD. After the consumer views his/her bills and sends payment instructions back to service provider, the service provider then transmits these instructions to a bank or other payment processor for fulfillment.

A Comparison of the Models
For billers that want control over all aspects of the billing/payment process, biller direct is the model of choice. Without the involvement of a third party processor, the biller maintains direct relationships with its customers and privacy concerns are minimized. This control comes at a high price though. Costs for licensing and implementing EBPP software can easily run into high six figures. From the consumer's perspective, this model is the least desirable. The primary reason is that consumers must enroll to receive electronic bills with each of their billers separately, and then receive bills individually from billers. Unless consumers grant access to their e-bills to an aggregation service, the bill data cannot be integrated with any online banking accounts. Consumers must also authorize payment arrangements with each biller individually. To minimize processing costs, the biller can limit payment options to ensure all payments are processed electronically. In this model, banks essentially remain in their current role of background payment processor. On the other hand though, banks lose the opportunity to generate new revenues from bill presentment services offered to existing corporate clients and the opportunity to integrate EBPP services with retail online banking offerings.

The biller consolidation model gives a distinct advantage to consumer, since multiple bills can be viewed and paid from a single web site. If the consumer accesses bills from her bank site, bill payment can be integrated with her checking or other accounts. Both banks and billers have limited roles in implementation of this model. For this reason, costs for billers are significantly lower than the direct model and, depending on the consolidator's pricing model, banks can present bills from numerous billers with minimal investment. The main disadvantage of the biller consolidation model is that both banks and billers face potential disintermediation from their customers, along with valuable opportunities to generate new revenues from EBPP services. Customer service issues can also be a problem in this model, since no one entity has ownership of the entire process. Servicing customers is an important requirement in this model since typically half of all payments must be paid via check, which increases processing time and errors.

The consumer consolidation model represents a transitional model that will serve to build awareness and comfort with EBPP services to some consumers. However, it will likely not be a long-term play due to inherent limitations in the paper billing process. Namely, consumers do not receive bills any faster (in some cases more slowly) and the value of the bill is improved little over the paper version, since it has no interactive capabilities. (Techno-savvy consumers can receive similar value to these scanning services by purchasing an inexpensive scanner, and scanning and indexing bills on their own.) Customer service is still an issue since the scanning service acts as an intermediary between the consumer, biller, and payment provider (banking system). The lone significant advantage to this model is that is represents the only method today by which consumers can receive all their bills electronically and subsequently pay them from a single location. A significant portion of payment in this model (greater than 50%) are also paid via manual methods.

Key Model Characteristics

There are many product and service offerings which provide a single-point gateway for high-volume mailers to extract information from legacy systems and send the data to bill consolidators, consumer service providers, or the companies web site.

Corporate EBPP  (B2B)
The attention B2B e-commerce is receiving is just short of phenomenal. The treasury departments involvement in e-commerce is extremely strong, even where it does not directly involve the payment process, such as electronic order entry.

There are fundamental differences in the market drivers between the b2c and b2b markets. While a growing majority of companies plan to increase their use of the Internet to deliver invoice and payment information to other companies, there are significant operational barriers to implementing wholesale changes to the payment process. The most significant challenge for most companies is the integration to a legacy billing and receivables system.

Barrier Electronic Payments

What is Driving the Adoption of B2B?
In the B2C market the main driving force is reaching out to consumers and building better relationship which foster a product loyalty which hopefully translates into the consumer increasing their purchases. In the Business to Business market cross selling and up selling are less important. What is important is saving money and accelerating the flow of funds.

There are five B2B catalysts stimulating the adoption of B2B Solutions:

  1. Increasing experience with Web technology
  2. Consolidation of industry standards
  3. Simplification of application technologies
  4. Increasing stickiness in B2B technologies
  5. Cost savings and new revenue opportunities

While e-commerce initiatives are becoming wide spread, Corporate EBPP is likely to follow the slow and steady acceptance pattern the industry experienced with Financial Electronic Data Interchange (FEDI). Using the Automated Clearing House (ACH) as the payment vehicle the Internet is bringing affordable technology to small and mid-sized businesses that allows them to participate in e-commerce just as FEDI provided the means for large corporations to deal with their major trading partners.

The addition of smaller trading partners will accelerate each year but transaction volumes are likely to remain low until industry standards are developed and companies are able to modify or replace their IT infrastructure to take full integrated advantage of web based applications.

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