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Chances are if you went to college in the late twentieth century, you borrowed money from a federally funded nonprofit organization known as Sallie Mae. If you're lucky, you've finished paying off those loans by now.
Sallie Mae is at the forefront of the growing electronic bill presentment and payment movement. EBPP allows consumers to view bills electronically and submit payment via direct debit or credit card. The process is generally helped along by a third-party organization that transforms the vendor's flat-file billing information consisting of cost, customer data, and due dates, into an electronic bill that often looks just like the paper bill consumers usually receive. The third-party organization then makes the bill available for payment through the vendor's own Web site and a myriad of other popular payment sites including banks and online payment vehicles like CheckFree Corp., Quicken.com, MSN.com, TransPoint LLC, PayMyBills.com, the U.S. Post Office, and Yahoo!
Although only a few hundred companies offer electronic billing to their customers today, the incentives are strong enough to cause those numbers to swell by next year, says Michael Killen, president of Killen & Associates Inc., an Internet consultancy based in Palo Alto, Calif. Killen believes that eventually, within about five years, 30,000 to 50,000 enterprises around the world will implement an EBPP solution for their customers.
One reason for that growth may be the recently signed Electronic Signatures in Global and National Commerce Act. Signed in June 2000 by President Clinton, the act, which gives the same legal stature to electronic signatures as pen-and-ink signatures, is one more confirmation that electronic documents and signatures are accepted in mainstream society. "The bottom line is that it bestows on an electronic document the same legal guarantees that are associated with a paper document. It removes one more barrier," Killen says.
Jumping on the bandwagon
| EBPP revenue booms|
From 1999 to 2004, worldwide Internet-based EBPP application and transaction revenue forecast.
|Source: International Data Corp.|
Reasons for entering into the EBPP arena are varied, but most center around improving customer service and retaining customers. "Today, it's table stakes to be in the business," notes Jeff Rudluff, director of Web commerce at Verizon Communications of New York.
Beyond the ability to survive and prosper against its competition, EBPP helps Verizon improve customer service and retain customers by offering personalized and customized bills and by allowing customers to interact, request, and receive answers to questions at any time of the day or night.
Verizon is developing an online interactive bill system that would allow customers to graph, sort, and analyze their bills in a variety of ways. That's especially useful for customers with home offices and small businesses, who might like to analyze their bills by type of call, as well as families who want to keep track of which children are making the most long-distance calls.
Other companies view EBPP as a way of bringing more customers to their Web sites, which, in turn will provide more opportunities for cross-selling other services. In fact, Gartner Group Inc., of Stamford, Conn., estimates that more than 60% of e-billers expect e-billing to create new revenue, mostly through cross-sales.
North Pittsburgh Telephone Co., for example, plans to offer information about other services to those enrolled in its electronic billing program. Among these services are its Do Not Disturb feature, which allows customers to program their telephones to allow a select list of callers through and direct all other calls to a recorded announcement and DSL service. "This way, we know who those customers are, and we can send them an e-mail very easily," says customer service manager Norm Carpenter, who works out of the main Pittsburgh office.
Carpenter stresses, however, that cross-selling is limited to North Pittsburgh Telephone alone and that the company doesn't plan to sell its contact list, which customers cannot opt out of. He expects customers who tend to be early technology adopters to be particularly interested in these services.
Customer service is such an important part of the EBPP scenario that several vendors have plans to step up features related to customer service. Most billing service providers (BSPs)--essentially, a billing application service provider (ASP)--offer a spate of Internet-based support tools and services designed to give billers control over the application in ways that can enhance their specific customers' service requirements. On the customer end, Derivion Corp., an Atlanta-based BSP plans to offer billers' customers the ability to view and pay bills through wireless technology.
"We view e-billing as the gateway to customer care," says Read Ziegler, Derivion's chief marketing officer. The company plans to add features that will allow marketing departments to add advertising banners to bills in real-time and send proactive e-mails on promotional opportunities. Although these "benefits" would seem to benefit the biller more than the customer, Ziegler insists that targeted marketing is a great way for companies to speak directly to their customers. "And while marketing and promotional tools are part of Derivion's e-billing value-add services, it's only part of the solution," he says.
Checks and balances
| AT A GLANCE: Sallie Mae Inc. |
The company: Sallie Mae Inc. of Reston, Va., has a loan portfolio of .5 billion with 5.3 million borrowers. The company employs 3,500 people.
Reason for turning to EBPP: Sallie Mae wants to be first in the market to provide superior customer service, and learn enough about EBPP to expand its offerings to universities in a for-profit venture.
Technology vendor chosen: billserv Inc., a billing service provider that translates Sallie Mae customers' billing data stream into online bills and makes those bills available at hundreds of sites online.
Rationale for choosing the BSP route: It wanted to provide increased customer service without having to purchase, install, and learn complicated new software or increase hardware capacity.
The cost of doing business via EBPP: $50,000 to $100,000 in up-front costs, plus about 35 cents per transaction. Receiving and paying bills electronic is free to Sallie Mae borrowers.
Future plans: Although there is a hefty up-front cost, Sallie Mae plans to generate substantial income by offering to act as a billing ASP for as many of the thousands of universities it does business with as possible.
For some companies, EBPP can be a way to save money, even though initial set-up fees average from about $35,000 to $75,000 or more, and transaction fees average between 25 and 40 cents each. "We probably spend .50 to to produce a printed bill and mail it today. With EBPP, it's less than 50 cents per transaction, so we're looking at up to an 80% savings on the billing costs after we absorb the initial up-front cost," North Pittsburgh Telephone's Carpenter says. He adds that it might take some time to absorb those costs, depending on the customer adoption rate, but that the investment was worth it just to stay in tune with EBPP technology.
Although the set-up fees may sound expensive, "Frankly, the ASPs are underwriting the cost to get market share," notes Avivah Litan, research director for Gartner Group's Research Advisory Services group in Potomac, Md. The fees take into consideration the work involved in converting billers' print streams to Web format and integrating those streams with their own systems.
But not every company banks on EBPP to save money. Sallie Mae never deluded itself into thinking that EBPP would be a money-saver, says Nina Vellayan, director of product development for the company. Instead, Sallie Mae chose to enter the EBPP arena to provide better service to its customers.
Cost savings are especially elusive for Sallie Mae, which historically has sent out yearly coupon books at a cost of less than per borrower instead of monthly bills. So while other companies are saving tons on mailing and printing costs with EBPP, Sallie Mae never had these costs in the first place. "When you add up the cost per transaction of EBPP and multiply it by 12, it's about , so going to EBPP is actually more expensive than processing paper checks," Vellayan explains.
But Sallie Mae had more than customer service on its mind when it chose to turn to EBPP. By partnering with billserv.com Inc., in San Antonio, Texas, Sallie Mae plans to eventually market the service to thousands of affiliated universities, acting as those universities' ASP. The idea is to set up EBPP systems for universities, which will be able to present tuition bills along with telephone and other bills to students through the university's Web site. The hope is that this will garner student and family loyalty and attract more people to the university's Web site.
This model will allow the company to generate income by charging the universities an up-front set-up fee of $10,000 to $20,000 as well as the transaction fees, Vellayan explains. These fees are lower than those charged by traditional BSPs to attract university customers, she says. Already, seven universities have signed up since Sallie Mae started marketing the service in March 2000.
Choosing an approach
One of the most popular approaches to entering the EBPP world is through a BSP like billserv. The BSPs take a company's print stream and parse it into eXtensible Markup Language (XML), PDF, or HTML, depending on what the developer chooses to use. The data is then presented at the biller's Web site or a hosted distribution end point such as a bank or one of the dozens of billing portals.
"If they come in through the biller's site, they are really coming into our solution," Derivion's Ziegler explains. "The customer then reviews the bill, clicks a pay button, chooses how he wants to pay, and then we batch that data and process the transaction."
By using the BSP model, North Pittsburgh Telephone was able to get the EBPP system running fairly quickly--within 60 days--without an in-house IT staff. "And we didn't want to reinvent the wheel," Carpenter adds. The BSP model is also attractive because there is virtually nothing for the telephone company's staff to do once final modifications have been made. "The product is pretty much stand-alone and will require maintenance only when we change the format of our bills," he says.
Sallie Mae's reasons for turning to a BSP were similar. By using billserv as its intermediary, Sallie Mae gives its customers the opportunity not only to pay their loans electronically but also to pay other bills posted to places like CheckFree, the U.S. Post Office, Yahoo!, and TransPoint, at the same time. "All we have to do is send our bills to billserv. They distribute them to all the front ends so our borrowers can get our bill from anywhere they want to get it from. And we don't need any additional software or hardware," Vellayan says.
Verizon Communications went a different route, preferring to develop its own electronic billing system so it could gain the type of interactivity executives felt was missing from other EBPP solutions. The company funnels its bills through CheckFree and TransPoint. Rudluff says Verizon chose these two consolidators because of their reach and ease of use and because the company believes most customers will eventually pay bills through consolidators. "We've developed our own gateway to push the bills out to those consolidators and to our direct bill site," Rudluff explains. "We just pull the raw data from our back-end systems and pump it through a database and present the information to our customers."
Consumer acceptance challenges billers
|Lessons learned about EBPP
There is no doubt that the adoption rate among billers--especially those in the Fortune 500, which can expect larger economies of scale by going to EBPP--is on the upswing. A recent Gartner study finds that billers expect their volume of consumer electronic payments to grow by nearly 550% in 10 years, from 9% in 1999 to 47% in 2009.
That growth will be almost completely driven by the billers themselves, who have many incentives to offer these systems and thereby convince customers to use them. The primary driver for most companies is the expectation of cost reductions at some later date, followed by customer service, staying competitive, and cross-selling, Litan says.
So far, only about 1% of customers given the option of paying bills electronically have decided to do so. "Simply put, most consumers do not find online billing payment compelling and have no incentive to switch from their trusted checkbooks," Litan says. She says the primary barriers to using electronic bill payment services include a strong preference for using old checkbook methods and a reluctance to pay for such services. To address this issue billers are beginning to offer the service for free as long as the bill is paid through the biller's own Web site.
"Billers have a lot of motivation to do this, but it's not clear if customers will accept it without some incentive," Litan says. A Gartner Group survey of 40,000 households showed that today, nearly 50% of adult billpayers simply don't want to use EBPP. Unless billers provide monetary incentives, the adoption rate will continue to be slow, Litan says. "And they had better do it soon because they won't get anywhere until they do," she says.
But time--and incentives by billers--will help convince some consumers to pay bills online. Litan predicts that by 2002 the number of U.S. households using online bill payment will increase to 15 million, from three million in 1999.
So far, less than 1% of Sallie Mae's customers have chosen to pay loans electronically, but Vellayan expects the number to grow to at least 2% to 5% by the end of 2000 once the company begins a marketing campaign. By 2001, she hopes that as many as 10% of customers will pay bills electronically.
North Pittsburgh Telephone's Carpenter is similarly optimistic. Starting at ground zero in September 2000 when the system is fielded, Carpenter hopes that 10% to 15% of the company's 72,000 customers will begin to use electronic billing immediately.
The future of EBPP: "You've got bills!"
| The EBPP players|
Five industries account for the majority of the 17 billion bills sent to consumers annually.
|Source: Gartner Group Inc.|
Once customers and vendors are used to EBPP, billing vendors plan to take the service to new heights. The next frontier, many believe, is a move into e-mail-based billing. Today, most billers send automated e-mails to customers in the EBPP program with links directing them to a Web site where their bills are hosted. But in the future, some vendors may chose to e-mail entire bills directly to their customers to further streamline the process, reduce overhead, and continue the trend toward increased customer service.
Killen & Associates believes that by 2005, adoption of e-mail-based billing delivery will account for 38% of all electronic billing, up from 18% in 1998.
Companies like MessagingDirect Ltd. of Edmonton, Alberta, one of the first to promote e-mail-based billing, stand to gain significant market share if they market themselves aggressively before other billing vendors get into the field, Killen says.
"The present approach of consolidating bills on a Web site or presenting a particular biller's bills at a Web site has problems. If everybody decides to go get their bills at the same time, you have a scalability problem. Whoever builds these consolidating Web sites has to consider peak periods," Killen says. "Getting consumers to go to a Web site is a more passive approach. A more active approach [of e-mailing bills to the customer] is better."
But not all billers agree. The e-mail method of bill payment won't pan out, Verizon's Rudluff believes, because there is no payment methodology for e-mail and presentation methods are limited.
"Can you imagine a scanned 15-page telephone bill presented in an e-mail? It would go on forever and be unmanageable," he says. //
Karen D. Schwartz is a freelance writer specializing in business and technology. Based in the Washington, D.C. area, she can be reached at email@example.com
|"After a year-long B2B EBPP pilot, the findings were: Invoice receipt could be guaranteed worldwide, dispute resolution was easier, and administrative processing costs were reduced. "|
EBPP in the B2B marketplace
Although more than 90% of all electronic bill presentment and payment (EBPP) transactions take place in the business-to-consumer (B2C) arena, there is still a growing need for EBPP solutions in the business-to-business (B2B) marketplace. Businesses in the United States generate approximately 12 billion bills for other businesses, making the potential impact of EBPP huge. B2B billing over the Internet will become so popular, in fact, that it will begin to surpass the use of electronic data interchange (EDI) e-billing by 2002, even among major billers in the utilities and telecommunications industries, according to Gartner Group Inc., of Stamford, Conn.
The average cost of producing a printed business bill is $1, compared to a cost of about 33 cents when delivering a bill over the Internet--figures similar to those in the B2C space. But the challenges in implementing a successful EBPP system in the B2B space are different and center on the processing of invoices. Major obstacles include bills with multiple pages, the need to communicate with a variety of accounts payable systems each with a different structure, and the need to have multiple levels of authorization.
"B2B invoices are much more complex, both in terms of the size of the invoices and type of data. Where business-to-consumer bills are often small in length such as a cable or telephone bill, business-to-business invoices can be hundreds to thousands of pages of complex data," explains Dan McGurl, CEO of Bottomline Technologies of Portsmouth, N.H., which offers e-billing software for the B2B marketplace. "And in the B2B space, there are a significant number of adjustments or disputes related to invoices that have to be resolved before bills can be paid."
Those are just the types of issues Hamilton Sundstrand Corp., a Windsor Locks, Conn.-based aerospace manufacturer, hopes to address by turning to EBPP. The company, which does business with 300 to 400 vendors, joined a pilot program in 1998 spearheaded by Northern Trust Bank of Chicago, along with Frito-Lay Inc., Kraft Foods Inc., Nabisco Inc., and PepsiCo Inc. During the year-long pilot, the five companies used e-billing software created by Northern Trust, which has since been purchased by Bottomline Technologies, to transmit bills to payors. The system allowed the companies to post invoices and accept payments via direct debit.
In the case of Hamilton Sundstrand, the pilot was conducted with 10 customers, some international and some domestic. The most important finding, says CFO Tom Rogan, was that invoice receipt could be guaranteed worldwide. Other findings included easier dispute resolution and reduced administrative processing costs.
When the pilot ended in January 2000, executives at Hamilton Sundstrand chose to continue with e-billing, adding more live customers to the 10 pilot customers. The system has been so successful that parent company United Technologies Corp., of Hartford, Conn., has adopted it as well.
Here's how it works: Hamilton Sundstrand sends invoices to Northern Trust in an EDI file, which is translated into HTML and posted on a Web site maintained by Northern Trust. Customers access the site using a two-tiered password to review invoices, note disputes or changes, send e-mails to the appropriate sales or financial representative, approve invoices for payment, and make payment via direct debit or credit card. Payments are credited to Hamilton's account, and a payment acknowledgement is than sent to the customer.
"They are in total control of the invoice," Rogan explains. "If there is a short shipment or pricing error, we can work through the dispute before our terms expire with the customer. And it reduces the amount of reconciliation we have on both sides."
Although Rogan wouldn't divulge the software licensing fee or the transaction fee, the cost to the company is clearly not free. Gartner Group estimates that B2B e-billers spend an average of $490,000 in the first year of implementation, which includes hardware, software, labor, and integration.
"But people have to realize that there is an enormous benefit here in reducing the size of accounts receivable of any company by removing all the disputes from the process," Rogan argues. "If disputes are uncovered earlier in the process, we have a better chance of collecting our receivables and fixing problems. The savings in working capital will more than offset the cost in transaction fees we may pay."
Although adoption of EBPP is slow in the B2B sector, it is gaining converts rapidly--so rapidly, in fact, that Gartner Group expects billers' volume of electronic payments received and sent out in the B2B space to rise from 14% in 1999 to more than 60% in 2009.
"Acceptance of EBPP in the business community is just beginning," says McGurl of Bottomline Technologies. "But there is no technology hurdle to overcome. It's a mindset. This is a major change to the process of a large organization."
"Currently, we have about 3% of our customer base on EBPP, which is a carry-over from the Northern Trust pilot days," says Barbara Reid Macy, manager of electronic commerce in Hamilton Sundstrand's finance division. "A new system upgrade in September  should increase the current percentage to 10. The plan is to grow this to 20% by Q1 2001." --Karen D. Schwartz