The numbers are astounding. According to Robertson, Stephens & Company, U.S. billers will flood the mail this year with more than 27 billion bills; 15 billion to consumers and 12 billion to other businesses at a total cost of more than $100 billion. Using the Internet to link directly to customers and to automate remittance processing might cut billers’ costs in half and save the industry $50 billion or more. In other words, say good-bye to laborious paper check handling, OCR stub scanning, and all the rest of the paper chase.

But as appealing as this sounds, it’s only part of the story. The billing and payment process represents a biller’s prime marketing opportunity, and the Internet is an unequaled marketing tool. The cascade of statements produced monthly by the nation’s billers is compelling content. It’s highly individualized, dynamic and perishable. It’s interpreted and analyzed differently by each viewer. It shows up at regular intervals. And it must be acted upon quickly.

But too many billers are gravitating towards third party concentrators to handle their electronic billing and remittance processing. And by outsourcing, rather than accepting payment at their own branded Web site, they will undercut several of the financial benefits inherent in online payments, and almost all the precious marketing and customer bonding benefits.

Banks don’t have to look any further than the advent of electronic draft capture for credit card payments to see what happens when third party concentrators enter the payment equation. Compared to when banks received the physical bankcard draft, electronic draft capture made it much more difficult for banks to maintain their customer relationships. Instead, merchants could shop nationally for processing and no longer had to interact with their local bank when depositing bankcard drafts. And when banks gave up the customer contact and allowed their merchants to deposit electronically to non-bank third party concentrators, they gave up the depository relationship by default. As a result, 75 percent of all bankcard transactions are now processed by non-banks.

Using a concentrator for interactive billing and payment, the peril is even more profound. We are not talking about ancillary credit services anymore. We are talking about the life blood of the bank: demand deposit accounts. Standing by while third party concentrators inject themselves into this picture will lead not only to a strategic retreat, but also to a total rout that jeopardizes a bank’s profitable DDA customer relationships while leaving the lucrative Internet field to the non-bank victors, perhaps for good.

Innovations

Suffolk County National Bank to Launch Bill Presentment in Q1 1998

Suffolk County National Bank may be the first bank
in the world to offer bill presentment services
to small and mid-sized businesses.

On the Internet, you can never tell where the innovators will crop up next. In the case of electronic bill presentment, it looks like the first program in production will be at a Long Island community bank, Suffolk County National Bank (Riverhead, NY; $843 million).

SVP Alex Duroski confirmed that the bank is about to begin alpha testing s Web-based bill presentment program with a major regional biller. Electronic Funds & Data Corp.  www.billsite.com is handling the presentment and payment logistics, and serving as a general contractor for other billing services the biller is considering outsourcing.

The bank, which currently services the test biller’s DDA, stands to gain fee income from the arrangement, and will have a unique program to offer other billers in the area. Users of the service will go to a bank-branded version of EF&D’s BillSite,  www.billsite.com . Users needn’t be customers of SCNB, which is one of the attractive features of the program for the bank. Its logo will be in front of every user paying at the SCNB BillSite, and the bank can’t help but benefit from the exposure. At this time, the bank is not planning additional fees for non-customers (e.g., surcharges) but would not rule them out.
Contact: Alex Duroski is SVP at SCNB, 516.727.2855; Gary Glanz is President of EF&D, 516.537.6300, gglanz@efd.com .

Billing without Paper…or without Banks?

Ironically, no organization is better prepared to address this issue with billers than banks. Bankers need only translate their own experiences with being intermediated by payment processors in the electronic draft capture market, and more recently by software companies in the online banking arena, to be able to project the impact that payment concentrators are already having on billers and their relationship with banks. Banks have fought back by purchasing their own software companies, banded together as consortiums, and have turned to the Internet to avoid being intermediated by others in the battle to retain, brand and control customer contact. Now banks hold the key to empowering billers with direct interactive billing and payment services, while extending their own stewardship over the payment process.

Just as concentrators installed electronic draft capture terminals in every merchant site in order to garner bankcard transaction fees, banks need to be placing bill payment capture devices, in the form of electronic cash register software, at their billers’ Internet sites. Only by supporting such a direct payment and deposit capability will banks be able to maintain and foster the primary banking relationship with their billers and electronic consumers. At the same time, banks will be empowering their billers to manage their own customer touchpoints and leverage the cross-sell opportunities and one-to-one interaction power of the Internet without third party intervention.

Cybercash is promoting interactive billing
on the first page of its Web.

A service such as CyberCash’s Internet payment service, likened to an armored car on the Internet, is necessary to securely move the electronic payments from the payer’s browser to the bank. Rather than delivering cash and check deposits to a physical bank branch, the CyberCash service uses the biller’s electronic cash register software and advanced encryption to securely deliver EFT requests directly to a bank’s systems for processing. At the same time it provides the electronic payment information needed to update the biller’s accounts receivable system and post the payment.

By collaborating with their billers on this direct payment scenario, and by supporting electronic cash register software, banks can accept electronic check deposits with the same bank-controlled and branded process that they follow today for paper check deposits made to a local branch. The biller gains all the cost-saving and customer service benefits, while the bank fortifies its standing with the biller and retains control of the payment flow.

Banks should look at participating in interactive billing and payments as more than just a defensive measure. In fact, direct online payments can be used to extend a bank’s reach far beyond its current DDA base. By empowering a biller to accept payments directly at its own Web site, a bank is in effect establishing quasi DDA relationships with every consumer registered for online payment with the biller. It doesn’t matter if the consumers are retail customers of the bank or not. And it doesn’t matter where they live.

This is a very exciting proposition. For the first time, a wholesale bank can actually have an advantage in the retail banking arena. Suddenly the wholesale bank has relationships with consumers across the nation. Think of the possibilities. Could the bank use the accounts registered with its billers to begin expanding its services? Could it issue a digital debit card against registered accounts held by other banks and start garnering new fees? Clearly, taking an aggressive stance with interactive billing can open new doors for a bank, even as it protects and deepens a bank’s existing DDA relationships with its most prized depositors: billers and electronic consumers.

Unfortunately, this same opportunity exists for the shrewd non-bank concentrator who has seized control of the customer interface and DDA registration process by providing this service to banks and billers. It is this customer interface and registration component that adds a whole new risk element to the outsourcing decision.

Mock-up of a browser being used to aggregate bills. The frame on the left side contains links to each users’ bills housed on the biller’s Web sites.

Why Consumers Will Benefit from Direct Biller Payment

Consumers don’t owe the money to the concentrator, software supplier or the bank for that matter, they owe it to the original service provider, the phone company, electric utility, insurer and the like. It is the original service provider, for example the electronic utility, that must be paid or the lights don’t stay lit.

So the key is to enable consumers to meet their financial obligations in the most expeditious, direct and user friendly way possible without radically deviating from the logical way they make payments today. Our research shows that you can accomplish this by empowering consumers to concentrate billing obligations on their own computer or Webtop.

Fortunately, thanks to continually evolving Internet push, pull, and user interface technologies, the biller-controlled model can boast similar if not stronger conveniences than registering with a concentrator. For example, leading browser software, including Microsoft’s and Netscape’s, now include bookmark features that allow consumers to handily group their obligations in one payment folder on their own Webtop, as opposed to relying on an third party service. Using
the bookmark feature, consumers can store the location of each billing obligation. When it is time to pay the bills you simply go to the folder, select “open all” and individual frames open on your computer screen for each of your bills.

The key here is you don’t need to employ the old service bureau concentrating model to simplify navigation for the customer. That is the beauty of the Internet, you are only a click away from a direct connection to the site of your choice.

Even newer browser technology allows Web users to “subscribe” to specific Web sites. Once subscribed, specified information can be downloaded to the user’s PC at predetermined intervals, providing an “off-line” way of viewing bills.

So how does it work? It’s fairly simple. You bring up a page you want to receive in the IE 4.0 Web browser and choose to add it to your “favorites.” You then have the option of just adding the link as a bookmark or you can “subscribe” to the page. Subscriptions offer two options — one is a simple notification via a red flag on your bookmarks list when the page has changed, the other is

notification PLUS downloading the page. If you choose to download, you also have the option of receiving
e-mail notification when your subscribed pages change. You can even customize e-mail delivery schedule. It only takes a few seconds and voila, your credit card and cellular phone bills appear via e-mail every Friday morning before you have to complete your expense report. Your mortgage bill arrives on the 15th of the month and so on.

As utilities become more deregulated, as we have seen here in California with the landmark legislation to deregulate electric power, billers need new ways to distinguish themselves from the competition. Their statement data and how they weave it into the overall information exchange they have with their customers can be used as a distinctive competitive advantage for the biller. By farming out bill presentment, billers risk being disconnected from their customers.

Customer disconnect is an issue that banks must be sensitive to when proposing to host or concentrate remittance obligations with concentrators on their site. Can a biller really risk giving up their most prized customer data and content and touchpoint to a third party? Should billers be paying a concentrator to take their content? Or should it be the other way around, with the concentrator bidding for the rights to the biller’s content in order to draw traffic to the concentrator’s branded Web site?

Banks need to remember that the biller can provide the incentives to get customers to come to their site since they are the “original service provider” and the money is ultimately owed to them, not the concentrator. Billers can allow the consumer to participate in electronic bill payment one biller and one payment at a time, without the monumental commitment of devoting several weekends to learning how to operate a personal financial manager or committing to the ongoing cost of a pay-anyone bill payment program.

Concentration of billing obligations is naturally controlled by the consumer. You don’t receive one envelope with all your bills from all your service providers today, nor do you expect to since you are doing business with separate and distinct entities. Our market research shows that consumers don’t want their bank to know what they owe others and vice versa. Presenting a consumer’ bills on a bank’ Web site gives the customer the impression that the bank is the “Big Brother” of one’s financial matters and they consider it obtrusive.

AT&T Universal Card was one of the first card issuers to present statements online. The company recently added a payment function called AutoPay, which according to its Web is “so convenient (your) bill practically pays itself.”

As banks look at the advantages of providing direct interactive payment capabilities to their billers, they should also be looking to their own houses. After all, financial institutions constitute the third largest billing community in the United States, with banks generating monthly bills for mortgage loans, consumer loans, credit cards, brokerage services and more.

All this compelling content can help drive customers to a bank’s own Web site where a host of value-added services and one-to-one marketing opportunities can reside. A bank could offer, for example, personalized investment services or tax-planning services tied in to a customer’s accounts. Additional revenues could also be generated by displaying paid advertising or providing links to other companies’ Web sites.

In a time when banks are endeavoring to maximize the value of a customer’s lifetime relationship, interactive billing and payment represents a potent relationship-building tool, with a direct feed into a bank’s customer information files.

Richard K. Crone is Vice President and General Manager for CyberCash, Inc. He is responsible for the company’s PayNow Secure Electronic Check Service. Mr. Crone can be reached at 650.413.0165 or at rcrone@cybercash.com