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July 27, 1998

Payment By Electrons

Electronic bill presentment and payment could save companies billions of dollars, but could also change your relationship with customers

By Jeetu Patel, Linda Andrews, and Sean Gallagher

or many companies, the applications that have the most visibility to customers are the most mundane: billing and statement printing. Electronic data interchange and E-commerce applications have taken the paperwork out of many business-to-business and some business-to-consumer relationships; however, paper is still the interface to financial and billing information for most customers of account-based services--telecommunications, utilities, banking, financial services, insurance and benefits management, and credit cards.

About 15 billion recurring bills are generated in the United States annually. The print and mail methods by which organizations handle billing with their customers haven't changed for decades. But as Internet commerce transactions become more commonplace, organizations and consumers alike can see the tremendous benefits of conducting their billing transactions electronically, via electronic bill-presentment and payment technology.

Taking the paper--or even just a percentage of the paper--out of the billing process could save U.S. companies billions of dollars a year, according to Department of Commerce estimates. Presenting bills and statements electronically can provide companies with a vehicle not just for cost savings, but for targeted marketing, improved customer service, and other new applications that could provide a critical competitive advantage. And if customers can "round-trip" billing transactions online--submitting electronic payments for services that are billed electronically--the potential gains are huge.

Billers could eliminate printing and mailing. Customers could stop writing checks and mailing them back. Billers and banks could resolve transactions more efficiently. Electronic payment is more convenient for the customer, and billers receive payments faster. In addition, billers can realize a further benefit: the ability to conduct targeted marketing campaigns based on specific customer-billing information.

Clearly, the savings in time and money would be substantial, as would the advantage of increased control over the entire process. Right now, moving toward electronic bill presentment represents a competitive advantage for billers. The challenge is getting customers to buy into it. Until the technology makes electronic bill-paying easier than paper, customers will use the payment process with which they are most familiar.

Electronic billing requires the biller to have the necessary tools and technology. Such tools provide the infrastructure for communication among the three principal constituencies involved in the billing and payment process: the biller, the customer, and the banks that handle the transfer of funds. As the market moves toward electronic bill presentment and payment, the parties involved play the following roles:

Billers can electronically deliver bills to customers, or customers can retrieve their bills from the biller's Web site. Billers' systems need to support both paper and electronic delivery, and they need to integrate with line-of-business systems in order to facilitate processing.
Consolidators aggregate billing data across many billers. They need to be able to deliver bills, route transactions to the appropriate bank, and deliver the funds to the biller.
Banks need to provide online access to statements and allow customers to pay their bills online.
Consumers need a way to access their bills. They may have desktop software such as Quicken or a custom bank application. But more often, consumers want to use their Web browsers as an interface.

Growing Pains
The new technologies provide an industry-standard mechanism for organizations to use in providing data to their customers or consumers. But the bill-presentment and payment industry is still young. There's still confusion in the marketplace as vendors begin to implement strategies and visions that will shape the future relationship between biller and consumer.

The important elements in the billing process are presenting outstanding balances and transferringfunds from one account to another. In the world of electronic billing, both can be handled in a number of ways--through E-mail, through a secure browser connection, through proprietary software, or any combination of the above.

To make electronic billing work, the system has to be as reliable and as accurate as paper. As a result, most billing packages leverage users' existing billing applications.

Because much of the business logic of billing applications is embedded in the code that creates printed statements, it's often impossible to separate the printing process from the billing process. So the majority of bill-presentment software extracts billing data directly from the data stream that is to be sent to the printer--AFP, Xerox MetaCode, or line-printer system data. This data is parsed into statements, then the data from each statement is extracted.

The parser has to be able to identify which statements to publish online, so it must reference a set of rules and a "registration database" that stores the identities of accounts with electronic-statement access. Statements belonging to unregistered accounts are purged from the parsing process so they aren't included in the extracted data.