E-billing: The check is in the ether

In this article:
	AT A GLANCE: Southern California Edison
	Electronic bill presentment and payment involves three distinct processes:
	Three approaches to electronic bill presentment and payment
	The banks’ role
	E-biller lessons learned
	EBPP vendors

You may think paying your monthly bills is a grind, but it’s nothing compared to the money and effort companies expend generating those bills and processing the payments.

Consider this. If the nation’s utility companies switched overnight to delivering bills to customers and receiving payment only in electronic format, the utilities could save $1.2 billion annually, according to estimates by Killen & Associates Inc., a Palo Alto, Calif., market research company.

But independent consultant Tony Sidiropoulos says that among the many excellent reasons for biller companies to convert to an electronic means of dealing with bills (electronic bill presentment and payment, or EBPP, is the fancy term), reducing costs is not the best one–at least in the short term.

Last September, an EBPP pilot project Sidiropoulos led for the nation’s second largest utility company, Southern California Edison (SCE), of Rosemead, Calif., went live. And although he used the promise of cost savings to justify the project to senior management, Sidiropoulos believes giving customers more options is the best reason to do electronic bill presentment.

Six months after the pilot went into production, “[SCE] has not realized any cost savings. That will only come after a certain volume of customers sign up for [EBPP]. But Southern California Edison is committed to giving customers choice,” says Sidiropoulos, whose consultancy is in Pasadena, Calif.

Hedging its bets. A year and a half ago, SCE embarked on an electronic bill presentment project. Because it was not clear at the time–as it still is not now–who would prevail as the provider of EBPP services, SCE inked deals with both TransPoint and CheckFree.

Bill Reinhold, director of mass markets for SCE, and a member of the utility’s EBPP project team, echoes that sentiment. “[EBPP] gives customers a lot more control over their remittance relationship.”

Indeed, the top reason for implementing e-bills-especially among public utilities rushing to gain a toehold in the era of deregulation-is customer care. Both business customers and consumers are clamoring for more options for paying their bills.

EBPP is still in its infancy. Of the 7,500 major billers worldwide that account for about 60 percent of all repetitive bills, only 50 have initiated a strategy to issue bills electronically, according to Killen & Associates. These early adopters include phone, credit card, cable and insurance companies, as well as public utilities. But it’s not just customer demand for better service that’s driving EBPP. E-billing does offer the potential for great cost savings down the road. Producing, delivering, and accepting payment via an e-bill costs only slightly more than half as much as the cost to produce a paper bill.

“It costs about 58 cents for an e-bill vs. about $1 for a paper bill,” says Ken Kerr, research analyst for Gartner Group Inc., a market research firm in Stamford, Conn. But until a critical mass of customers elect to pay their bills electronically, the biller company will experience an increase in costs.

Beyond customer care-and those cost savings down the road-marketing is another major reason to do EBPP. “Ten years ago, the only purpose of a bill was to collect money. Now, the bill has two purposes: Collect the money and sell,” says Michael Killen, president of Killen & Associates. Companies can address their customers-or sell space to third parties for this purpose-much more efficiently electronically than on paper.

“Marketing is a real benefit,” agrees Sidiropoulos. “On the Internet, the insert mentioning a refrigerator rebate still lives,” he says. And for non-utility EBPP implementers, the potential to cross-sell and up-sell (that is, sell additional or more expensive services and products), and third-party advertising is even greater because they are less restricted in these activities than are utilities.

So what stands in the way of this more efficient way of dealing with bills? Plenty.

For starters, with more than 30 vendors, the EBPP marketplace is crowded and confusing. Billers are having a hard time sorting out all the players and their competing interests. And there is currently no standard way for a biller to send data to a bill payment service provider such as CheckFree Corp. or TransPoint (a joint venture of Microsoft Corp. and First Data Corp.). This makes it an even greater challenge to get data from a legacy system where the information generally resides, into a Web format and implement electronic payment receipt mechanisms.

Quality and security are another hurdle. E-bills have got to be both flawless and secure if consumers are to embrace them. If all that weren’t enough, over the next few months companies will divert more and more resources-including those that might have gone to EBPP-to solving the Y2K problem.

Despite the challenges, industry experts believe use of EBPP will grow quickly.

“The whole biller community will adopt EBPP relatively rapidly,” says Killen. Although only 8% of the world’s major billers will implement e-bills by 2000, that number will surge to 33% by 2005, he predicts.

Three EBPP models

Web-based electronic bill presentment and payment appeared on the scene more than two years ago. In the early days, the only option was for a biller to build a homegrown system to present its bills to its customers on its own Web site. Today, companies can use software tools to build their sites or outsource the process to a service provider. (Giga Information Group Inc. calls this the “biller direct” model. Billers like this model because it gives them control over the customer experience and also lets them integrate analytical tools and customer service with billing.

But besides being very cumbersome technically, this model is inconvenient for consumers, who want to view and pay multiple bills in a single place. “Consumers won’t want to go to different Web sites to pay their bills. Each Web site is organized differently. Who wants to remember passwords to a number of different bills?” says Erica Rugullies, a senior e-commerce analyst at Giga Information Group, in Cambridge, Mass.

Tony Sidiropoulos believes giving customers more options is the best reason for electronic bill presentment. Photo: Kim Kulish/SABA

The next model–and by far the most prevalent today–is the bill consolidator, or aggregator, model. Consumers go to a single place (such as the CheckFree’s site, a bank’s Web site or a portal like Yahoo!) to pay all of their routine bills. This is convenient and easy for consumers to use, but is often unacceptable to billers because it distances them from their customers.

In EBill 2.0 release, due in April, CheckFree intends to combine the best of both models with something it calls the “direct distribution” model. In this model, the customer goes to the aggregator site (a service provider such as CheckFree) and then is bounced immediately to the biller’s own Web site for bill payment and then back to the aggregator once payment has been made. This gives users the convenience of logging in just once to pay their bills, while giving billers control over the transaction.

“Direct distribution combines the other models to meet the fundamental requirements of customer convenience, biller control, and quality,” says Ravi Ganesan, chief technology officer for CheckFree, in Atlanta. CheckFree also includes many layers of powerful security features, shouldering much of that burden for the biller. “If we make a mistake and the customer is charged a late fee on the bill, we will eat the cost,” says Ganesan.

Three approaches to electronic bill presentment and payment:

The Biller Direct Model

Modus Operandi: A biller presents its bills to customers on its own Web site.

Pros / Cons

Billers have the capability to integrate online billing with analytical and charting tools, customer service capabilities and online stores.

Billers have control over branding, payment processing, customer enrollment and the look and feel of bills and the overall site.

This model is inconvenient for consumers who want to view and pay multiple bills in a single place.

The Bill Consolidator Model

Modus Operandi: Consumers go to a single place to view and pay multiple bills.

Pros / Cons

This model is convenient for consumers because it enables them to view and pay multiple bills in a single location.

Banks also prefer this model because it gives them an opportunity to provide their corporate and consumer customers with additional services and keeps them in the payment loop.

The party that enrolls customers can garner valuable marketing data about customer preferences and in this model, billers lose the opportunity to enroll their customers in EBPP services.

This model gives third parties an opportunity to come between billers and their customers, which is unacceptable to many billers. This is a particularly contentious issue in industries that are undergoing deregulation, such as telecommunications and gas and electric utilities.

The Invited Push Model

Modus Operandi: Biller E-mails graphically rich electronic bills directly to consumers.

Pros / Cons

This model prevents third parties from coming between billers and their customers.

It also has the potential to be highly convenient (so long as consumers can receive graphically rich bills in the same in-box as other E-mail) without having to use proprietary client software.

In most cases, this model provides billers with little tracking and auditing capability and does not incorporate electronic payments in an easy-to-use fashion.

Most solutions that support this model require consumers to use proprietary client software.

This model does little to enhance the biller/customer relationship unless E-mailed bills seamlessly link customers to the biller’s Web site, where the biller can provide customer service or other capabilities.

Source: Giga Information Group Inc.

Rugullies says if the technology works, Ganesan’s vision is a winner. “It’s a fantastic model, if they can pull it off,” she says. CheckFree’s two chief competitors, TransPoint and CyberCash, have not yet reached this level of functionality yet, say analysts.

Giga terms the third and last scheme, which is not yet prevalent, the “invited push” model. This involves delivery of bills directly into consumers’ e-mail boxes. This is not to be confused with e-mail notification of bill delivery, in which consumers receive an e-mail message alerting them that an e-bill is waiting for them at a Web site. Rugullies believes billers will stay away from “invited push” for at least a year while vendors address technical barriers to adoption.

No matter which model a biller chooses, there are three steps to EBPP. First, data from the biller’s systems (often a mainframe) must be extracted and transformed into a Web-compatible format–no small feat. Then the data must be pushed into electronic bill templates, which reside on a bill-presentment server. Finally, the funds must be collected electronically. Software and services are available for each step in the process.

Lessons from the trenches

Sidiropoulos, the independent contractor for SCE’s pilot, wasn’t the first to grasp that cost savings isn’t the best reason to implement EBPP. Nancy Miller, payment options specialist at Portland General Electric Co., says customer choice was the overarching reason to offer customers electronic billing. “We’re always looking for more ways to serve the customer,” says Miller, in Portland, Ore.

Jim Vander Biezen, manager of billing services for Nicor Gas, a division of Nicor Inc., says he became interested in EBPP a few years ago when he read in the newspaper that his company’s service area-greater Chicago-was one of the highest consumer Internet usage areas in the country. “Electronic bill payment fit our consumer demographic,” says Vander Biezen. Nicor, based in Naperville, Ill., went into production with its e-bill application last September. CheckFree is the bill payment provider.

“Billers want to provide customers with an enhanced experience-more information about their bills than they could previously get and more accessible information. They want to use this to grow customer loyalty,” says Rugullies. This is particularly important to utility companies, which are struggling to differentiate themselves after industry deregulation introduced competition in the mid-1990s.

But, as any biller will tell you, implementing EBPP is not a trivial matter, in terms of both complexity and cost. First, the biller must perform data extraction and transformation for Web-compatible bill presentment, at a cost of about $50,000 to $100,000. Second, providers such as CheckFree, CyberCash Inc. and TransPoint will charge set-up costs of about $35,000 to $50,000, not including maintenance fees. Finally, most providers also charge 25 to 30 cents per round-trip transaction (from the presentment of the bill to the consumer to the corresponding payment to the biller).

The costs can easily run double or triple these amounts, especially if you decide to go with more than one bill payment provider. SCE did just that-inking deals with both CheckFree and TransPoint. This was a conscious choice-and not just because it’s unclear which provider will take hold in the future. SCE simply wanted to offer SCE customers more choice, according to Reinhold. “We don’t yet know which provider will take hold. From a biller’s perspective, why limit your options?”

Sidiropoulos thought both CheckFree and TransPoint would be a good bet. “There will be customers that will buy anything Microsoft sells,” he says, referring to one of TransPoint’s co-owners. “But CheckFree was making a success of this long before anyone else hit the market. The combination seemed like the best of both worlds.”

Despite being higher in cost and hassles, it was lucky that SCE elected to go with both providers for its pilot project. Last October, TransPoint announced there would be a two-week blackout period to conduct maintenance, during which no transactions would be executed. The blackout stretched to more than three months; TransPoint did not put its service back online until Jan. 14 of this year. In the meantime, SCE’s online billing application marched ahead, with CheckFree as the service provider.

U.S. businesses send or receive some 26 billion bills, account statements, and payments annually. And they pay some $17 billion in postage alone, according to the U.S. Postal Service.

According to Ralph Young, executive vice president of TransPoint, SCE experienced an extended outage while TransPoint was upgrading the pilot code to v1.0 production code. “v.1 code was a comprehensive upgrade and its development took longer than expected. This resulted in an unexpected delay in the SCE pilot,” says Young, in Englewood, Colo. Young says although he wishes the pilot upgrade could have been completed more quickly, he’s pleased to deliver SCE superior code.

But that mishap didn’t make SCE dump TransPoint. It will continue to move forward with both providers, in order to hedge its bets and offer customers the most choice. Reinhold is philosophical about the delay. “When you’re developing a complicated new product that’s software dependent, you have to take the time to do it properly. Pilot projects are the times to iron those things out,” he says.

File format folderol

The single greatest challenge for IT managers in preparing for EBPP is selecting the format in which data will be sent to the bill payment provider. Web-compatible data formats include flat file, EDI (electronic data interchange) and OFX (Open Financial Exchange). The options are many and the choice is not always obvious.

According to Sidiropoulos, SCE initially hoped to transmit bills to CheckFree and TransPoint in EDI format, since it was already exchanging information with its largest business customers that way. But this strategy failed.

E-biller lessons learned Do your due diligence. There are so many players it can be quite difficult to keep abreast of all of them. But keep up to date with industry news; that way you’ll be ahead of the curve as standards emerge. Understand the different data formats (such as EDI, flat-file, APF, OFX) for bill data prior to choosing one. Also, make sure you nail down who will be responsible for the ongoing data transmission to the E-bill aggregator (such as CheckFree or TransPoint). Recognize that e-billing can be a politically charged affair. Many different corporate groups from marketing to IT to billing may try to seize ownership of the program. Assemble representatives from various departments to ensure user acceptance. Maintain a strict project plan and be sure to manage all outside resources to ensure compliance with the plan. To test the process flow, include a pilot test in the plan and accept nothing less than perfection before customer launch.

Everyone’s EDI is designed differently. Some companies have difficulty transmitting data via EDI, according to Sidiropoulos, in which case they frequently select files, which is the route SCE chose. SCE contracted with Princeton TeleCom Corp. to transform the data into the proper format to be sent to the bill payment services.

Portland General Electric, by contrast, is able to transmit its data using EDI, because its EDI forms were designed to contain all of the bill’s elements. “Since we already had EDI it was easier to transmit data that way,” says Miller.

As with any e-commerce application, security is paramount. The type of security infrastructure needed at the biller’s end depends on a whole host of variables, such as where the bill payment mechanism and bill data reside. Suffice to say, U.S. bill aggregators such as CyberCash use strong, 128-bit encryption to protect the billing site. (The export of strong encryption algorithms is illegal.) Since the most common Internet browsers support 128-bit encryption, consumers should feel as safe with their online billing data as they are beginning to feel with their online purchases.

The payoff

And it is consumer comfort level that will determine the adoption rate of EBPP. In the near term, users agree, the best bet is to aim low.

Nicor Gas has very limited aspirations for its EBPP application. Since it rolled out the pilot, currently only about 900 customers have signed. Says Vander Biezen, “It’s a fraction of 1% of our total customer base. But that’s okay. We recognize this is in its infancy.”

Nicor encouraged its employees, who are also customers, to participate in the pilot project that went live last September. Troy Davis, a spot gas buyer for Nicor, signed up for the EBPP option because he wanted one less check to write every month. “I would love to pay all my bills this way. It would save me a couple of hours every month,” says Davis.

One wrinkle: Shortly after he signed up for the service, Davis forgot his password. It took three months for CheckFree to send him a written statement containing his password. He alerted Vander Biezen to this glitch; CheckFree is working on a solution.

Broad user acceptance of e-billing won’t come overnight, says Portland General Electric’s Miller. “This is a totally different way to think. It will be up to the customer to go get their own bills.” At least it’s an escape from that monthly paper chase. //

EBPP vendors
Bill data extraction and transformation
(Vendor/Product)

Software
@Work Technologies Inc. / WorkOut
Bell & Howell Co. / IMPACT
BlueGill Technologies Inc. / 1to1Server
edocs Inc. / BillDirect
Electronic Funds & Data Corp. (EFD) / BillTools, BillSite
Novazen Inc. / Novazen Electronic Bill Presentment & Payment
TriSense Software Ltd./ PaySense

Services
Electronic Data Systems Corp. / iBilling
Pitney Bowes Inc. / Digital Document Delivery
Princeton TeleCom Corp. / Presentment Server
International Billing Services(IBS) / Electronic Billing Solution

Bill presentment
@Work Technologies Inc. / WorkOut
BlueGill Technologies Inc. / 1to1Server
Edify Corp. / Electronic Banking System
edocs Inc. / BillDirect
Electronic Funds & Data Corp. (EFD) / BillTools, BillSite
Just in Time Solutions (JIT) / BillCast
NCR Corp. / SmartEC Billing Plus
Netscape Communications Corp. / BillerXPert
Novazen Inc. / Novazen Electronic Bill Presentment & Payment
Oracle Corp. / Oracle Internet Bill & Pay
TriSense Software Ltd./ PaySense

Services
CheckFree Corp. / CheckFree eBill
International Billing Services (IBS) / Electronic Billing Solution
Pitney Bowes Inc. / Digital Document Delivery
Princeton TeleCom Corp. Presentment Server
TransPoint/ TransPoint e-bills

Bill payment
Oracle Corp. / Oracle Internet Bill & Pay
TriSense Software Ltd./ PaySense

Services
billserv.com / eBilling
CheckFree Corp. / CheckFree E-Bill
CyberCash Inc. / Interactive Billing and Payment
TransPoint / TransPoint e-bills