"IMAGINE THIS," says Mike Seppi, product manager, electronic bill presentment and payment services at Cap Gemini America, the U.S. subsidiary of the global systems integrator. "I tell you that I've got a great idea: Let's cut a hole into the wall of a bank and put in a machine that will take the place of a teller. The consumer will walk up to the machine, put a card in, and it will hand out cash. What would you think?"
Now, 25 years after ATM machines have changed the habits of Americans, financial services and technology companies are partnering to deliver the next giant step in the financial relationship binding consumers, their banks and the companies that supply them with goods and services: the delivery of bills on the Internet. In the consumer sector of the U.S. economy, companies issued 18.7 billion bills in 1997, for a combined total of about $3.23 trillion. The Tower Group, a Newton, Mass.-based financial services consultancy, reports that processing those bills cost the billers more than $32.4 billion (or roughly $1.75 per bill) and cost consumers paying those bills another $11.5 billion.
"A presented bill today for an average biller！one that's not AT&T but still reasonably sized-costs the biller about $1.20 per bill presented and paid. In Wells Fargo's experience, it's reasonable to expect these bills will be presented electronically by integrated back-end systems for about 30 to 50 cents each," according to Dudley Nigg, executive vice president of online financial services for Wells Fargo Bank in San Francisco, which is now testing a virtual billing program.
Peco Energy, a gas and electric utility company that serves customers in the Philadelphia area and southeastern Pennsylvania, sends out about 80,000 bills each day. Charles Gunn, an analyst for the company, estimates that the round trip on each of those bills costs between $1 and $1.75. Peco is now planning to use the services of MSFDC, a joint venture of Microsoft Corp. and First Data Corp., to generate bills electronically and make them available on Web sites. "We could save quite a bit of money," says Gunn "They're talking anywhere between 25 and 35 cents to get a bill out."
GartnerGroup Research Analyst Geri Spieler says the move toward electronic bill presentment (EBP)！the creation and delivery of a bill that a customer views as an image on a computer screen rather than by looking at a paper copy received in the mail！is money-driven; predictably, the impetus is coming from corporate financial executives. The savings come not only from reduced processing costs but from cutting the float time for both outgoing bills and incoming payments. If electronic payment is integrated into the process, cost reductions will also be realized as the number of "exceptions"！lost or misdirected mail, payments lacking the bill stub or payments that for some other reason require manual handling！plummets. And if online bills are designed to allow the customer to "drill down" to the details of specific transactions simply by clicking, customer service costs could be cut as well.
Many business executives and analysts say that those cost reductions, though real, aren't the only driving force behind the move to Internet billing. Electronic billing also offers an opportunity to interact directly and one-to-one with the customer, and to deepen and broaden the customer relationship.
"It would be disingenuous to say cost was not at least a consideration in considering Internet billing," says Kirk Browne, product manager, enhanced billing services at BellSouth Billing Inc., the Birmingham-based billing arm of the Baby Bell. "But it was never the driving force. EBP, he notes, makes it possible to link the bills to potential revenue enhancements. "We have the ability to advertise goods and services on the Internet and to provide online ordering as well as to support online inquiries！to be able to take the whole interaction to a new level."
AT&T has long been interested in electronic bill presentment and has been offering the service as part of its One Rate Online package since March. "In the electronic world, they're coming to us, and coming when they're ready to come to us," says Kevin Duffy, the manager of consumer billing strategy at AT&T in Basking Ridge, N.J. "So the customer is in the mood to interact with AT&T. We can use this opportunity to provide targeted marketing to a group of one; you can't do that in a paper world."
DRIVEN BY POTENTIAL COST SAVINGS and new marketing potential, electronic bill presentment has suddenly become a very hot topic. It's also a complex undertaking because it involves identifying EBP customers, flagging their billing data, converting it to an HTML format for Web display and then placing that data as needed on the company's and/or third-party Web sites！not to mention establishing channels for electronic payment of those bills. Then there are the links to the company's customer care systems and the databases needed to track customer activities and interests to support the new targeted marketing opportunities.
It's a big job, but Peco Energy's Gunn calls his company's target date of the first quarter of 1999 "hopeful" and says that it may have to be put on the shelf at some point until the company has IT resources available. At BellSouth Billing, Browne acknowledges that the decision to rely on Norcross, Ga.- based CheckFree Corp. for processing of the company's electronic bills was a time-to-market decision. CheckFree Vice President for Product Development Hayden Reed reports that of 30 billers the company was dealing with last summer, all but 4 had outsourced Internet billing operations to CheckFree.
Diverting the Data
Wherever the systems reside, though, the data to create those bills must be extracted from the company's billing system.
Because Florida Power & Light Co., headquartered in Miami and Juno Beach, Fla., had already EDI-equipped its billing system to feed data to commercial customers, it has been able to scale down that process and modify it to feed consumer bill data to CheckFree. BellSouth took a different approach; it modified an existing software tool, created to allow customers to analyze their bills, to generate a data file in HTML format. Peco, faced with year 2000 challenges, chose what Gunn calls "the easy route" and went right to the bill print stream, siphoning formatted bill data from printed bills.
"We could have written additional elements in the master file to pull the data out right after the bill calculation," he says, "but it would have been much more work. Also, like most utilities, these are old legacy systems, and some of the programs in there you just don't want to tinker with if you don't have to."
An array of vendors and potential business partners are lining up to help companies access billing data and convert it to HTML for Web display. Some, such as BlueGill Technologies Inc. of Ann Arbor, Mich., and eDocs Inc. of Westborough, Mass., focus on the data extraction or conversion, while others！including International Billing Services, San Francisco-based Just in Time Solutions Inc., Total System Services of Columbus, Ga., Netscape Communications Corp. and Oracle Corp., offer data manipulation as part of larger solutions.
One necessary decision in planning deployment of Internet billing is where on the Web to place customer bills and how to get them there. Companies can choose either or both of two options: to place the bills on their own corporate Web sites and to make them available to bill publishers and consolidators that will put them on other Web sites！their own, other high-traffic sites and particularly the sites maintained by banks and the vendors of personal finance software.
Placing the bill on their own sites offers companies a number of benefits: It brings the customer to the company's branded site, which reinforces the relationship. Companies can control the information provided and how it's displayed and can provide direct links to customer service systems. No issues are raised for the customer about security or the privacy of his or her bill data, because no third parties are involved.
Unfortunately, what works best for the biller is not necessarily of great benefit to the consumer. As Dave Medeiros, group director of the wholesale banking group at The Tower Group, noted in a February 1998 report, "The actual visible cost to consumers of paying bills by today's methods is only about $3 to $5 per month per household for checks and postage. Therefore, electronic bill presentment and payment will be adopted by consumers only if the service is made more convenient, secure, affordable and easy-to-use than today's prevalent method！simply writing a check and returning it via mail."
EBP experts are aware that it's unlikely that a consumer who pays an average of a dozen bills a month will get excited at the prospect of having to visit each biller's Web site, deal with 12 separate payment transactions and manually record each payment in his or her personal financial records. It's much more appealing to think about visiting a single Web site, checking over a list of bills, asking questions and examining detailed charges as needed and then paying them each with a mouse click, with those transactions automatically recorded.
Online bills get to banks and other third-party sites today through a set of intermediaries that take the billing data, format it and make the bills available on their own and other Web sites, collecting a fee for each bill-related transaction.
The insertion of a third party into the relationship between biller and customer troubles some EBP experts because it removes the opportunity to build a stronger relationship.
Two data models shape the relationship between billers and consolidators. They also delineate the two companies that at the moment appear likely to dominate the consolidator market.
In the "thick" consolidator model, the biller provides complete summary and detailed billing data to the consolidator, using proprietary interfaces and protocols. The consolidator converts the data into HTML and stores it on its server, using it to generate bills on its own and other Web sites. In the "thin" model, the biller provides only summary data to the consolidator and does so using a protocol based on the Open Financial Exchange, or OFX, specification. The consolidator puts the summary data into Web format, stores it and makes the summary bills available to third-party sites. When a customer looking at a bill decides he or she wants detailed information and clicks on the provided link, that customer is then shifted to a detail page at the biller's own Web site.
The thick model is offered by MSFDC and CheckFree. The thin model conforms to an industry initiative called Open Internet Billing that was proposed in June by AT&T, Intuit and Just in Time Solutions; it is one of the options available from CheckFree.
There are arguments to be made in favor of each model. The thick model makes sense for smaller companies that choose not to build and manage secure 24/7 Web sites and for those for whom time to market with an Internet billing solution is the primary consideration. The thin model will help a biller who intends ultimately to offer direct onsite billing by mandating the creation of needed infrastructure. It also safeguards a company's detailed customer data.
AS SEEMS TO BE THE CASE WHENEVER MICROSOFT enters a market, a faction has formed that is critical of the approach MSFDC has chosen. The debate centers on a traditional hot button issue: open standards.
Analysts say open standards are important to allow billers to keep costs down by creating just one system to transmit bills to publishers and consolidators. There is broad support for basing those systems on OFX-Pres, the bill presentment section of the OFX standard. A potential competitor, The Gold Standard, proposed by Integrion Financial Network LLC, a partnership of 18 North American financial institutions, Visa USA and IBM Corp., is currently being merged with OFX.
CheckFree supports the thin model, where only summary data is being delivered, using OFX-format data transmission. But MSFDC doesn't support the thin model. Despite the fact that Microsoft was one of the creators of OFX in 1997, MSFDC implements OFX only partially; to get bill detail data from billers, it uses a proprietary Biller Integration System that requires an NT-based server at the biller site. MSFDC argues that OFX is too restricted in its functionality to support its data-rich application.
In a June 1998 "Planning Assumption" report, Giga Information Group industry analyst Erica Rugullies noted, "Many financial institutions are holding back on implementation of OFX solutions until MSFDC and CheckFree show that they can cooperate. Despite CheckFree's efforts to work with MSFDC, MSFDC claims to see no need for interoperability testing and does not foresee exchanging bill data with CheckFree. However, technology providers as well as billers are exerting significant pressure on MSFDC. Giga believes in the next 12 months MSFDC will switch to a more open strategy, including use of OFX between itself and billers, and the exchange of bill data with CheckFree and other EBPP service providers."
There are other deployment issues as well; chief among them is how to tie customer care systems into the new billing setup so that call center representatives can see what customers are seeing. Most companies are putting off grappling with that issue by publishing to the Web a bill that's identical to the printed bill. At the same time, they're working to make those Web sites smarter, trying to anticipate consumer questions by providing self-care links.
An Early Adopter Market
Internet bill presentment has all the hallmarks of an early adopter market. Early pilot implementations are everywhere, but no single technology dominates, and many involve proprietary solutions. Those that are available today offer only limited functionality and aren't taking full advantage of the Web's potential. But it won't take long to reach critical mass. When a consumer can access four, five or six bills on the Web, the market is likely to skyrocket.
Many of those early adopters are getting to market quickly by planning multistage projects, initially outsourcing much or all their bill presentment processes, then building resources and gradually pulling the components in-house. "Do it in stages; there are some really good integrators out there who have some knowledge of working with this stuff. It's a great way to get something done and save on some of your resources," Gunn advises.
Jane Wallace, senior vice president of payments at Bank of America's Interactive Banking Division in San Francisco, offers two bits of advice: Be sure your investment is in a system that will give you the widest reach possible, and understand what your migration path is. "There should be an exit plan," she says.
But AT&T's Duffy urges that you not wait too long. "Everything in the Internet is moving really quickly. Don't sit back and wait for the market to be mature; customers will want it."
Alan S. Kay covers business and consumer technology from San Francisco. He can be reached at ask@well.com.
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