Online billing slowly gains momentum

Electronic bill presentment and payment (EBPP) has the potential to improve customer service and help retain customers--and it may also benefit your bottom line.


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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.

Web commerce director Jeff Rudluff says Verizon Communications believes most customers will eventually pay bills through consolidators.

If you're still making those monthly payments, however, Sallie Mae just made it easier for you to pay your monthly bill. A private company since 1997, Sallie Mae Inc., based in Reston, Va., has embarked on an ambitious project to offer all of its 5.3 million borrowers the opportunity to receive and pay bills online.

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.

Web commerce director Jeff Rudluff says Verizon Communications believes most customers will eventually pay bills through consolidators.

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.

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