InformationWeek
Defining The Business Value Of Technology
May 31, 1999
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George Roache, systems specialist at Con Edison, says the Internet application "hasn't grown as significantly as I would like" but that adoption should increase if the company markets the capability more aggressively. There's an incentive to do that because aside from direct debit, which automatically happens every month without any human intervention, the Internet is the least expensive way to collect money from the utility's customers. Automated telephone is slightly more expensive because customers dial the company's toll-free telephone line, and call centers are the most expensive.
The First Internet Bank, in business since February, offers its customers a bill-payment service, which for $4.95 per month debits money from their checking accounts to deposit money in the account of the payee. David Becker, founder and chairman of First Internet Bank, admits the bank is starting small; it has only about 320 customers. "Right now, most of our customers are paying three or four bills a month and still keeping another checking account," says Becker.
One way the bank differentiates itself from other payment services is flexibility. Consumers can write electronic checks to anyone and have the amount automatically transferred to the payee's bank. Becker hopes that capability, along with other new services coming this summer, like mortgage payment and an online brokerage, will draw more customers to the bank.
Other companies are working to tie together bill presentment and payment. TransPoint, a joint venture among Citigroup, First Data Corp., and Microsoft, this month launched a service to handle the entire process online. CheckFree offers a competing service.
Consumers aren't the only potential beneficiaries of online bill-payment schemes. Businesses could also benefit from an Internet trading network that makes it possible to pay suppliers. Floraplex, the trading extranet tying together flower growers, logistics, wholesalers, and retailers, is experimenting with online payment transactions in an attempt to improve efficiencies and cut costs. A pilot network connects 12 growers in the United States and South America with 35 wholesalers. Eventually, Floraplex hopes to add 35,000 wholesalers to the network."Generally, the grower's cost is less than 12% to 18% of the wholesaler's purchase price," Floraplex's Shaw says. "The rest gets added on by the auctioneer that imports the flowers." That, says Shaw, is a major reason why roses that cost $1.20 in South America cost $60 in this country. "E-commerce models reward efficiency by tak-ing the non-value-added participants out of the value chain," Shaw says.
All payments are done in real time, guaranteeing that growers--many of whom have suffered through payment delays in the past--get their money on time. That's especially significant in a country like Colombia, where high interest rates can diminish the value of money paid 45 days after a sale, Shaw says.
BankBoston, Bank of America, and IBM are involved in an online check-payment trial with the Department of Defense. The benefits go beyond eliminating the costs associated with processing paper checks. Defense Department employees can "send information about the transaction with the check, so automatically a record is created," says Jeff Sumner, VP of payment systems for IBM.
Albert Wahbe, executive VP of electronic banking for Scotia Bank, says the real winners in business-to-business bill payment are part of the same group that are reaping the rewards of the Internet as a commerce tool. "Small business is able to keep its processing costs down using electronic bill payment," Wahbe says, noting that thousands of small to midsize businesses use the bank's electronic bill-payment services.
Get Smart
Vendors are also experimenting with ways to push cash from the Web into the physical world. Visa and Scotia Bank are running a smart-card trial in Barrie, Ontario, that lets Scotia Bank customers download money from their accounts to smart cards at their PCs. "The Internet is clearly a fabulous place to buy and sell goods, but we are also working on ways to bring the Internet out into the world," says Visa senior VP Buckley.
Local merchants are equipped to read the cards and process transactions in the same way they would a debit card. Wahbe says at least 60% of all transactions made with the cards are valued at less than $60. "Smart-card readers are less expensive for operators and more convenient for customers because they don't have to carry around coins," Wahbe says.
CyberCash's Wilson expects smart cards to catch on. "There will be a card reader on the PC and the consumer will be able to insert the card when they're doing a transaction and remove it when they're done," says Wilson. "There will be a subliminal feeling of security."
--with additional reporting by Gregory Dalton
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Illustration by Hank Onsuna
Photo of Becker by Greg Whitaker
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