Facing the e-bill

01 April 2006Features

The combination of technology and the willingness of billing organisations and banks to co-operate means that it looks like EBPP’s time has come. Joy Macknight reports.

Forrester Research predicts that 20 million more Americans will pay their bills online over the next five years. In the November 2005 report, Online Bill Payment to Grow 75% by 2010, Forrester also projects a dramatic turnaround for banks that will surge ahead in growth over the next five years as more firms follow the lead of Bank of America, Wachovia and Washington Mutual, which offer free online bill payment. Forrester predicts that by 2010, the electronic bill presentation and payment market share in the US will be split nearly in half between banks and individual billers’ sites.

Billers have long understood the business value of moving their customers from paper to electronic bills. They can reduce postage and printing costs because they don’t have to send a bill or manage all the workflow that surrounds paper bills; establish a closer link between bill receipt and payment and reduce cash cycles; improve customer service; and even brand themselves as environmentally friendly by saving a few trees.

Banks, however, have been generally late in recognising the business case for EBPP, the main reason being that they don’t get the benefit from the last ‘P’. Mike Wright, chief executive of Striata, an electronic communications technology firm, explains: “Their benefit is not generally in the payment, so the P in the EBPP is not there. They want the EBP, which is the presentation and saves on the cost and increases the value of service. For banks, it is more around the service.”

Banks have basically two benefits: firstly, they can direct customers towards some of their cheaper channels, using more online banking and less branch banking; and secondly, customer retention is higher when people use EBPP. Thomas Meyer, an economist at Deutsche Bank Research, says: “It’s a good instrument for cross-selling and for marketing. If you have such an approach, your customer will be using many services, so you can smoothly integrate products and have a good chance that the customer is willing to buy them. This is where most banks see the biggest benefit.”

Cathy Graeber, principal analyst at Forrester, agrees. “Some of the bigger US banks have done great studies comparing offline customers to customers that bank online, and they watched the profitability differences over time. What they found is that when you get those kind of electronic hooks of payments into a customer, they stay longer with the bank than people who look just like them but never went online to pay their bills. They increase their balances and the number of products they own with the bank, and they also start serving themselves. Because they are visiting the branch less often, and calling the call centre less often, they cost less to serve,” she says.

The tide has turned for EBPP for a number of reasons. The infrastructure — high speed internet access — and the rise in internet banking have aided the adoption of EBPP. But fundamentally, the banks and the billers have finally converged, which means they are ready to move forward together — and bring the consumer with them.

Jason Bacon, head of new business and customer development for the internet channel at Lloyds TSB, says: “The challenge of EBPP has always been to align the interest of billers and banks at the same time. Obviously there are the billers, especially the major billers but even the smaller billers, which have had some success with online bill management services, but the challenge is that consumers have to have different passwords, different IDs for each service and log in separately to each one, which undermines the ease of use. If you can mange them all in one place, that is a huge advantage.” Lloyds has signed up to OneVu’s vision of EBPP [see box] and is planning to go live this summer.

Australian EBPP service BPay is seen by Bacon as the best working example of banks and billers coming together, with 14 million bills being paid through the scheme each month. BPay View gives consumers a single point of access to receive and pay their bills electronically through their internet banking site. The Australian banks have aggressively taken up this opportunity, outnumbering the billers by almost two to one.

Andrew Arnott, general manager of BPay, says that it was often the billers’ legacy payment systems that have held back implementation. Graham Lloyd, partner at PA Consulting Group, agrees. “The investment that billers made in their websites is now a bit old. It’s been several years since they really did it and so we think some of the heat has gone out of that scenario where they say ‘we have spent a shed load of money, therefore we are bloody well going to use it’. In reality, neither you nor I as consumers want to log on to our ten billers websites on a Sunday for the pleasure of seeing how much we owe them.”

Meyer also highlights the difference between a direct billing approach and a consolidated EBPP system, which he believes would be a real benefit in convenience. But there are some problems in getting a truly consolidated EBPP system off the ground.

“The problem with a consolidated approach is that it only makes sense for a customer to use it if there are many billers that are also going to use it. If all your bills are managed there, then that’s fine and it is convenient. If half of your bills are managed there and half are managed elsewhere, it makes extra hassle. To convince customers, you need a lot of billers. And on the other hand, the billers have a problem if not all customers are going to use it, or at least a critical mass of customers,” Meyer says. “The segmentation of the German market makes it more difficult to introduce a consolidated approach.”

There are initiatives in Switzerland and Austria that are promoting the EBPP system quite forcibly, as well as the Nordic countries which are advanced in using whatever is online quite extensively.

Meyer thinks that in the medium to long term there will be a move to consolidated EBPP, even in countries like Germany, because the extra convenience and the cross-selling incentive for banks is a good argument, but primarily it’s a way for billers to save a lot of money. Banks, if they want the billers as customers, will need to implement such a system.

Steve Wright, director of global marketing at CheckFree, one of the leading EBPP technology vendors, sees the B2B market as the next area of growth. “We see a big demand for the next generation of B2B e-billing and e-invoicing being driven by the banks. I think that they have realised that there is not only a consumer angle for this, there is also a corporate angle. There is a huge benefit that the banks can provide to corporate customers and to their end customers — so there is a big market for that and it is just beginning.

“If the banks are considered the middle of the financial supply chain, then by having visibility of the cash position of those businesses, they can start to provide, not just billing and invoicing services to corporate customers, but factoring services, discounting services and short term loans to help the business to survive and stay afloat during a month when there may be a requirement for extra working capital.”

From a technology perspective, the next new thing may be mobile — but the potential for mobile technology to be integrated into an EBPP system is still a debatable issue. Many believe that it does not add any extra value, since internet access is so ubiquitous.

Striata’s Wright thinks that it will be the next new thing, but there will be some restrictions. “I am talking about mobile in the sense of a normal mobile phone with a one inch screen — you can’t send a document, but you can send a message. So does the future hold a process whereby I will receive a message from my bank and be able to pay the amount that is due? Yes, with some kind of authentication password or code to it that will ensure that only I could have done it. This would be more around standard payments which are not very susceptible to interference.

“I believe the EBPP market is maturing in the following way: using the web as a backup place where you can go and get your history, or go to if you are not at your email; delivering your bills by email with a payment process in them; and then the second delivery of payment details straight to your mobile. A hybrid system of all of the above is when EBPP will really be cooking on gas,” says Wright.