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November 16, 1998

Bill Presentment And Payment Hit The Web

Organizations seek savings by taking the paperwork out of the billing process

By Jeetu Patel, Gautam Desai, and Jay Bromberek of Doculabs

E-Commerce:
The Next Step

Selling Overseas

Beyond Transactions

Billing Via The Web

E-Business Roundtable

What's the most visible aspect of your company?

f you ask your customers, it may be your billing and statement-printing applications-which might even be the only interaction you have with your customers in a given month. Increasingly, organizations are moving away from paper-based billing and payment processes, and turning to the Web.

The Web makes great sense for any company that's involved in recurring billing and account-based services-telecommunications, utilities, banking, financial services, insurance and benefits management, and credit cards. 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.

Think about it. Billers could eliminate printing and mailing, which is great for the bottom line. Customers, billers, and banks could resolve transactions more efficiently, which is great for everyone. And billers can use electronic presentment and payment as a new medium for targeted marketing campaigns based on specific customer-billing information.

The electronic bill presentment and payment (EBPP) market is real. Large vendors such as Microsoft are getting into it. The biggest utilities and credit-card companies are getting into it. Banks and financial institutions are getting into it. Even Xplor International, the trade association for digital output and printing strategies, has made it a top research priority.

The biggest problem for most billers is figuring out what technologies or services to use in a Web-based bill presentment and payment approach. With this in mind, Doculabs conducted a benchmark evaluation of the products, strategies, and services from a number of vendors that claim to offer EBPP solutions.

We discovered that there is a huge disparity among different solutions, and that the market for EBPP is immature. Moreover, billers and consumers alike need to understand and embrace this new approach to doing business for EBPP to become truly widespread.

Though some banks are starting to implement electronic bill-paying solutions for their customers, we are not likely to see complete alternatives to legacy billing systems for at least another year.

Direct Billing Vs. Consolidator
Before looking at technologies and solutions, it's important to understand the two major models for EBPP: the direct-billing model and the consolidator model.

In direct billing, the biller hosts the information on its own Web site. Customers must log on to the Web site to access their statements and initiate the payment. This model is attractive for billers: They maintain total control over the information the customer sees; they maintain direct control over all transactions; and they can use the sites and the bills to market their products and services to customers.

This model also has a few drawbacks: It's the biller's responsibility to acquire, customize, and maintain the infrastructure through which bills or statements are presented-including the application software, hardware, and firewalls. The biller must also build the application and infrastructure to let customers access and pay bills online-or contract with a service bureau to do it.

With the consolidator model, a third party handles the billing process for multiple billers. Customers log on to the consolidator's Web site to access their statements and initiate payments. The idea is that customers will have to go to only one site-the consolidator's -to retrieve and pay all of their bills and statements.

There are different types of consolidators. In some cases, the consolidator presents the customer with just the bottom-line information, requiring the customer to link back to the biller's site for the detailed information. This is known as a thin-consolidator model.

In the thick-consolidator model, the consolidator hosts all information about a bill, and the biller and the customer never come in contact. It's advantageous for the biller because the entire process is outsourced. However, the biller may also lose marketing opportunities, such as the chance to brand the payment site with its own logos and marketing messages.

In both the thin- and thick-consolidator models, consolidators handle the billing data from multiple billers, and provide customers with a single point of access for multiple billers' statements.

A major goal of the consolidators is to provide the transaction engine and infrastructure, and to collect a click-charge for every transaction they conduct. In this fashion, the consolidators are busily signing up major billers and putting them on the same payment site in order to make their site more attractive to the billers' customers. But it will take time for one or even a few consolidators to emerge as market leaders. At the same time, billers may feel pressure to align themselves with multiple consolidators, even though doing so will be resource-intensive.

What does this mean for customers? In the short term, it means that customers will still have to go to multiple consolidator sites, or to a combination of consolidator and biller sites, in order to pay all of their bills. In the long term, the consolidators hope that the consolidation model prevails, but we're still a long way from having any one consolidator handling all the bills from all the billers.

High-Profile Vendors
Plenty of vendors-some of them big players-are trying to capitalize on EBPP's potential. Two of the biggest players are CheckFree Corp. and TransPoint. CheckFree is an established company, and its home-banking and transaction-processing services are widely used in major financial institutions. TransPoint, formerly known as MSFDC, is a joint venture of Microsoft and First Data Corp. The company was renamed TransPoint when Citibank recently took an undisclosed equity stake in the venture.

CheckFree and TransPoint act as consolidators. Their goal: to provide a transaction engine that hosts the lion's share of all billing transactions. Such consolidators charge billers a transaction fee for bill presentment and payment fulfillment of the bill, typically in the form of a click-charge.

TransPoint may have a better opportunity for success, thanks to an extremely comprehensive end-to-end solution for handling the entire electronic billing life cycle. However, CheckFree is more established in the financial community, making the company a comfortable partner for many banks. Conversely, TransPoint has been viewed-perhaps unfairly-as direct competition to banks and financial institutions. The truth is, TransPoint offers services that are quite complementary to banks. TransPoint's services and technology are sound; the challenge will be to change the industry's perceptions of TransPoint's role in the EBPP market.

Citibank's recent equity investment in TransPoint could actually hurt the company's image in the eyes of financial institutions. Don't be surprised if competing banks are leery of partnering with TransPoint; even though TransPoint wants to compete with CheckFree, some banks may resist partnering with a company in which rival Citibank has an equity stake.

To CheckFree's credit, the company has positioned itself as a value-added service for financial institutions, and not as a competitor to them-a perception that will position the consolidator for growth.

Software And Services
Service-oriented vendors are also getting into the EBPP market. For example, many service bureaus that handle outsourced printing of payroll and billing are also handling the outsourcing of electronic-billing applications. Companies such as Bell & Howell, International Billing Services, and Pitney Bowes offer outsourcing services that can include simple billing services, passing billing data on to other consolidators, or even hosting biller-branded payment sites. With this approach, billers can outsource the technical headaches of EBPP, while holding on to their branding and marketing opportunities. Service bureaus can provide EBPP as a biller-direct service, or they may act as a conduit between billers and consolidators. Service bureaus that act as intermediaries are commonly known as biller service providers.

Control For Billers
Then there are the technology vendors. Companies such as @Work, BlueGill, eDocs, and NetDelivery provide software that billers can use to create their own EBPP systems on their own sites for biller-direct applications. This gives the biller total control over the process, but it also makes for lots of work. For example, it will be up to the biller to configure the technology to extract the appropriate data from the print files or legacy system, and to develop the appropriate business logic specific to the biller's transaction processing. In addition, incorporating personalized marketing into the application will require custom development. To help billers, the technology vendors provide products that make these tasks easier.

These same technologies can also be used by consolidators and outsourcing service providers. The result is that technology and service vendors often compete with one another on some deals, while partnering for other deals. For example, technology vendors provide billers with an alternative to consolidators and service companies; at the same time, the consolidators and service companies themselves use the products from the technology vendors.

Yet another group of companies is jumping into the fray: banks and financial institutions. In fact, some banks will want to act as consolidators-which means that they will compete with the likes of CheckFree and TransPoint. Other banks will instead form partnerships with consolidators, acting as consumer-service providers for the consolidators. In this way, the bank can act as the entry point for customers, and can provide customers with value-added services such as tallying their bank balances-an attractive prospect for retail banking customers. But banks that follow this approach will be in direct competition with other customer-service providers, notably portal service providers such as Yahoo and Netscape, which might launch electronic billing capabilities.

Another critical aspect of EBPP is payment and fulfillment. Companies such as CyberCash Inc. handle the electronic payments and clear credit-card transactions. In this way, the company acts as a clearinghouse between billers, banks, and customers. CheckFree also provides payment services, although it doesn't support credit-card payments.

Many Paths
What all this means is that billers and consumers alike may be dealing with a whole host of different organizations for conducting online billing transactions. For example, consumers could take many paths to get to their bills: the biller's site, a biller-branded site hosted by a service bureau, a bank's site, or a portal site that gives the customer access to bills.

On the back end, billers might set up their own sites to host bills and transactions, hire a service company to build the site for internal hosting, or give the whole thing to an out-of-house service bureau. The service bureau in turn might act as a consolidator, or might provide the biller's data to multiple consolidators in order to give consumers a variety of access options. The options, players, and combinations for conducting EBPP seem limitless.

Clearly, the market is still evolving. Because of this, vendors of products and services must learn to co-exist and cooperate, even as they compete with one another. The current trend for the various players in the EBPP market is to hedge all bets and keep options open in anticipation of market maturity. For example, Citibank just invested in TransPoint, but the institution was already an investor in Financial Network LLC-a consortium that includes IBM and other large financial firms and is working with TransPoint rival CheckFree.

A larger question is: Which of the EBPP models will emerge as the dominant one? Will it be the biller-direct model? One of the many consolidator or outsourcing models? Many of the vendors in the market have committed themselves to one of these choices, and market acceptance of one approach or another will invariably leave some vendors by the wayside.

Keeping Control
It's clear that the biller-direct model will always have a place. This model has inherent advantages over consolidation in terms of direct marketing and control. The fact is, some billers will simply refuse to relinquish their control over the billing process or expose themselves to risk.

But in the long term, odds are that the consolidator model will become more prevalent than the biller-direct model. The consolidator market has strong vendors offering attractive service options. The consolidator model will continue to gather steam as financial institutions provide EBPP services and act as consolidators themselves. And some of the objections to the consolidator model-such as the loss of marketing opportunities, lack of branding, loss of control over transactions, and risk of data misuse-are quickly being addressed by the vendors that provide consolidation services.

The service bureaus are well positioned for success, no matter which model prevails. Service bureaus understand paper-based billing, and can translate that core competency to EBPP. Service bureaus can also leverage their existing customer bases, migrating them to EBPP, or offering a managed program of print and electronic delivery.

Likewise, service bureaus can take the process completely out of the billers' hands or manage the billers' in-house operations on a contract basis.

The challenge for billers is to understand exactly what the different vendors are offering, the approach they use, and the specific portions of the EBPP problem they seek to address.

Jeetu Patel is VP of research and Gautam Desai and Jay Bromberek are analysts at Doculabs, an independent research and advisory firm. To order the company's report on the EBPP market and vendors, contact Doculabs at info@doculabs.com or www.doculabs.com.

Download a list of Leading Vendors Of Electronic Bill Presentment And Payment in PDF.