We think bill presentment could be a significant business development tool, both on the consumer side and with small and mid-sized business. And you don’t have to be a mega-bank to play in this market. Suffolk County National Bank, with assets of $843 million, could well be the first bank in the country to use electronic bill payment to attract new business.

Billing is still a regional opportunity. In each city and town there are certain billers, primarily utilities, that have a relationship with nearly every consumer and business. These are the so-called “marquee” billers in your market. But many won’t be big enough to register on the radar screens of MSFDC or Checkfree for another year or two.

Local financial institutions have the inside track in winning the bill presentment/payment business from these billers. But it’s not an opportunity that will last forever. As soon as an MSFDC hits stride in 1999 or 2000, you can bet they will be partnering with companies that can bring on the smaller billers, just as ISOs brought on smaller merchants in the credit card market.

We think it’s time to move bill presentment up the priority list. If you’re not talking to your clients about bill presentment within the next 12-18 months, you can bet someone else will.

Bill Presentment as a Consumer
Account-Acquisition Program

The opportunity right now isn’t the $0.25 transaction fees on the few bills that will be paid online before year 2000. It’s the new customers you can attract with an innovative program that is highly beneficial to the biller. So you might try offering it for FREE.

Why would anyone offer a unique, highly valuable program for free? To get first crack at the early adopters that will seek out the bill presentment program as soon as they hear about it on the news. As these affluent, wired users register to pay bills online at the biller’s site, they will be provided ample opportunity to sign on with your online banking services to pay the rest of their bills online. (Since you are offering the presentment program free-of-charge to the biller, you will require the biller to display your logo/link on its billing Web.)

And your selling efforts don’t have to be limited to just the first time bill presentment is used. Depending on your contract with the biller, you could cross-market your banking services every time the user logs in to pay their bill. You’ll also know where the user banks from their registered checking and/or credit card numbers, so highly customized sales pitches can be crafted.

Eventually as transaction volume picks up, and sales to new billers slows as competitors emulate your offerings, you could begin charging fees at whatever the market will bear. It might even be the other way around, with banks or others paying the biller in order to get the exclusive right to present the company’s bills and collect the payments. One can envision Web content providers such as Yahoo, paying top dollar (perhaps through comp advertising) to get a chunk of the 1.5 billion monthly bills presented on its site. There would be many synergies with Yahoo’s other content areas.

Consumer Account-Acquisition
with Surcharges

Don’t want to give it away entirely? Here’s an alternative that brings in immediate fee revenue AND attracts new accounts. Adopt the ATM surcharging model. Provide bill presentment/payment services free to your customers, but charge customers of other financial institutions a nominal fee, less than the cost of a stamp, each time they make a payment. This should keep everyone happy. The biller can offer a new service that cuts its billing and remittance processing costs; your customers get a value-added service for free; and customers of other banks can still pay their bill online for less than the cost of a postage stamp.

One caveat. This approach might not work for highly regulated utilities that have to be careful not to favor one class of customer over another. But given that ALL of its customers stand to save on the transaction, the proposal might fly.

Bill Presentment as a Small Business Acquisition Device

If you’re the first in your market to offer bill presentment/payment services, it could be a powerful method for bagging new small business clients whose billing operations may be extremely costly, especially on a per-item basis.

To create momentum in the market, concentrate on signing at least one marquee biller before soliciting other businesses. Once other billers hear that xyz is doing it, they will call you.

You may want to bundle Internet billing with other payment products. Those using your billing product might also be required to maintain a checking account for depositing payments and a line of credit to cover returned items.

Provide an Option to Pay Bills Directly
from a Special Line of Credit

Who said bill payment was all about transactions? When consumers are paying their bills, they are forced to think about their financial situation. Especially if money in the primary checking account is running low. This is the perfect time to cross-sell loan products, such as an overdraft line of credit or bill consolidation loan secured by home equity.

On your bill presentment menu, users could choose from various credit options for paying their bill. If the biller accepts credit card payments, that could be one choice. But that’s not where you want to drive customers. Card payments add costs to the merchant, and unless you are the card issuer or merchant acquirer, they don’t do anything for your bottom line.

Instead offer a special bill payment credit line. We can envision the tagline, “extra credit for paying your bills on time and online.” Or offer a cobranded line of credit in the biller’s name, for example the Con Ed Credit Line. In our fictitious example, the utility would benefit by a shortened payment cycle, reduced collection costs, and fewer calls to customer service on payment-related matters.

Credit approval will be the biggest obstacle to a successful program. You probably would need a “while you wait” approval process like Beneficial 2-Minute Loan which takes two minutes to apply for and two minutes to receive credit approval .

Provide a “Check My Balance” Function on the Biller’s Web Site

Whether users pay their bills directly at the biller’s Web, or at Checkfree’s, or yours, their likely first step will be to check their checking account balance before authorizing payment. Negotiate a hyperlink (exclusive?) within the bill payment section of the biller’s site that takes your customers directly to the balance inquiry section of your Web. Not only does this provide added utility for your customers, it would be a powerful way of advertising your online services to non-customers.

Provide Bill Payment Automation Functions

Many large billers offer numerous payment options such as pay-by-phone, preauthorized direct debit, payment-budgeting services, and credit card payments. Their Internet payment processor should be able to duplicate these options in cyberspace, and then some.

There is no reason why users would have to visit a biller’s site every month, though the biller may want them to for marketing purposes. New users registering online with the biller (or with you on behalf of the biller) could choose from a series of automated payment preferences. Then they would only need to return to change preferences or investigate a specific bill or perhaps to run some statement analytics.

Billers could still maintain the monthly contact with their customers by sending HTML-laden e-mails confirming the automatic payment and cross-selling additional services.

Move Up the Billing Value Chain

Gary Glanz, President of Electronic Funds & Data Corporation www.billsite.com , has created a virtual billing company which companies can use to outsource their entire billing process, or just pieces, such as Internet billing. Glanz figures it costs billers $5 or more per month per customer to operate their billing function. This includes metering the bill, calculating the payment amount, processing/printing the statements, delivering the bills, handling customer service on billing questions, processing remittances and exception items, and finally trying to collect late payments.

A financial institution such as Suffolk County National Bank (see p. 15) can essentially resell EF&D’s full menu of billing services to meet a broader array of billing needs than simply Internet bill presentment.