|By Jim Bruene on January 6, 1999 11:27 AM | Comments|
It will be a long time before the definitive text on how to build a Web-based bill pay center is written. For the next ten years or more dozens of approaches will be tried, refined, improved, and abandoned. We can’t tell you which approach is best, but we will outline four fundamental building blocks of a good online bill payment center.
One caution: Don’t forget to build tools and help areas for the vast majority of your Web site users who will still be paying bills by paper check for many years to come.
Segmenting the Opportunities in Interactive Payments
For banks there are two distinct targets in this nascent market: billers
and bill payers. Each has distinct, perhaps competing needs. Billers want to
maintain or enhance relationships with their customers using the bill as a
draw into their Web sites. Consumers simply want to
get the bills paid with the least amount of work while still maintaining control. It may be difficult for financial institutions to play both sides of this debate.
Electronic Bill Payment Market Segments
Source: Online Banking Report, 1/99
Building Blocks for Your Web-based
Bill Pay Center
The four building blocks of a compelling bill pay center (payment and presentment) are shown below. You could also include a fifth area directed at small businesses or you could weave small business information into the other four areas (detailed descriptions follow):
1. Education Zone – Interactive educational area where users learn about bill presentment and which billers support it.
2. Planning Zone – Users can check their account balances, monitor household budgets, review business P & Ls, and find out if they have enough cash to meet current and future obligations; links would be provided to alternative sources of funds should checking account balances fall short. For example:
- pay bill from existing credit cards or credit lines
- apply for line increases and pay bill from expanded line (if approved)
- transfer funds from other financial institutions and pay the bill
3. Paying Zone – Users should be able to pay any merchant, not just those that support presentment.
4. Merchant/Biller Zone – A place for merchants to investigate alternative payment options available from your bank.
5. Small Business Zone (optional) – A place for small businesses to find electronic solutions for both their billing (accounts receivable) needs and the business’s own payment needs (accounts payable). Ideally the financial institution could provide a single solution encompassing both.
Education (or New User) Zone
The education zone may be the most important part of your bill payment efforts for the next 24 to 36 months, yet it is the area most likely to be pawned off on the lowest-level marketing officer.
The education zone has a dual purpose. On the surface, it’s a place to get customers, employees and billers up to speed on your capabilities. This is an absolutely essential part of convincing users to try online billing and payment (see below for content ideas).
Less obvious, but far more profitable, is to sell bill payment lines of credit and debt consolidation loans. This could be accomplished by “sponsoring” the area with banners that take users to your “bill payment” loan calculators.
1. Searchable Biller Database with Email Updates: Users enter their merchants in a Web-based form (see mock-up below), and the bank provides available billing options, e.g. walk-in, mail, direct (preauthorized) debit, credit card, electronic bill payment (via your Web), or bill presentment (email, Web, etc). You could also enhance the database entries with customer service info, Web site info, due dates, etc.
2. Alternative Payment Sources: Ideas for getting the bills paid when funds are running low. Contains links to your loan application and other loan areas on your Web. It could also contain ideas for those not able to borrow, such as links to local community organizations that are able to provide emergency funding.
3. FAQs (frequently asked questions): Detailed questions and answers on the features and benefits of bill pay. Include a question/suggestion box where users can submit questions for individual answers and potential posting to the FAQ (offer prizes to stimulate usage).
4. Preauthorized Debit Signup Area: Create an area on your Web where users can sign up for and change preauthorized debit payments for your loans and other major billers in your area. Include educational material on how it works, what the checking account statement entries look like, consumer rights under Reg. E, and how to make changes. Include links to the billers’ customer service departments for specific questions.
5. Check Clearing Confirmations: Users can set a minimum threshold and any check above that amount generates an email to the user when it clears their account.
6. Service/Performance Guarantees: Outline your service standards, customer service capabilities, and payment guarantees. Explain how one goes about getting help when needed. Work on building trust
Mock-Up: Personalized Biller Database www.yourbank.com/mybills
*input by user **Company, News, Stock Quotes, Edgar, Message Boards
Planning (or Power User) Zone
Whereas the education zone is the key to signing on new users, the planning zone is where you can differentiate your service offering and lock your customers in for life.
You might divide the planning zone into basic and premium services with basic services available free-of-charge to any (registered) user of your Web. The premium zone could be used only by financial institution customers, with or without explicit fees.Content Ideas:
1. Financial Datebook: Essentially a day planner with an emphasis on bill payments and other financial activities. Can also be used for non-financial events such as birthdays, to do lists, etc. See OBR 6/98 and OBR 2/98 for a complete service description.
2. Reminder Service: Integrated with the financial datebook above, the reminder service sends emails to the user and anyone else to remind them of important dates and times. The emphasis is on financial matters, especially bill payment due dates, but the service could be used for personal and business appointments as well. See OBR 6/98 and OBR 2/98 for a complete service description.
3. E-Bill & Message Service: The bill payment function could be integrated with email so users could send optional confirmation emails to payees. Smart forms would fill in most of the information for the message, and user would simply add their comments to the message. Extensive archives would save the messages along with the payment instructions for future reference. See Online Money Orders for more detail.
4. Bill Pay Calculators/Budgeting Worksheets: Provide consumer and small business budgeting templates and financial calculators. See SmartCalc www.smartcalc.com for a wealth of licensable ideas.
5. Bill “Overload” Protection Services: Provide overdraft protection targeted towards bill payment needs. Loan advances could be triggered via a link from the bill payment section of your Web site or via email requests.
7. Links to Biller Order Entry: Along with linkages to biller’s customer service, include similar linkages to the biller’s online catalogue or order-entry sites. This could be made into a profit center by selling enhanced links to billers, or better yet, offer bank clients complimentary enhanced listings to deepen business relationships.
8. Smart Payment Services: We’ve long advocated an expanded role for banks in helping users monitor and pay their bills. Banks could establish a bill payment “cockpit” that would provide a very real sense of control over their monthly payments. Users would log in to the virtual bill pay driver’s seat; take a quick glance at the fuel gauge (checking account balance); review bills paid last month; and see estimated payments for the coming month (estimates would automatically be generated from payment history).
Users would have an opportunity to override the estimated payment amounts, or simply allow the month’s bills to be paid on “auto-pilot” (with the bank making estimated payments on the user’s behalf). Users should be able to twist virtual dials within the cockpit to increase or decrease the size of the payments, turn autopilot on or off, etc. The end goal is to make bill payment practically invisible for the user.
9. Bill Payment Budgeting Services: Utilities have long offered services that average or “smooth” the customer’s billing amount over the year to make it easier to budget for and pay the seasonal spikes in the amount owed. A bank could apply the same concept to the sum total of all the bills, calculating a single average monthly bill payment that would be deducted from the user’s account once per month. It would work much like a mortgage escrow account. It could be prefunded with a customer deposit, or shortfalls could be covered with a loan advance.
10. Bill Pay Usage Incentives/Score Keeping: A few banks have tried one-time sweeps (see Bank of America, OBR 12/96 ; and SFNB, OBR 5/97 ) designed to encourage bill payment usage. But we know of no one that has incorporated ongoing usage incentives into their bill payment program.
We think financial institutions should experiment with both approaches. Users need an initial incentive to learn a new way of performing an everyday task. But ongoing incentives could change sporadic bill pay users into heavy users creating significant exit barriers for your online base. The incentives don’t have to be large, they could even be non-monetary in nature. You just need something that allows users to “keep score” and create a bit of a game around the drudgery of bill payment. Some ideas:
- Frequent flyer miles: Award one or two miles per $100 paid. A household paying $40,000/yr. in bills would earn only 400-800 miles, which would cost about $10 per year. You could award bonus miles for various actions like setting up a mortgage or referring a customer.
- Bill pay “green stamps”: Establish a point system that allows users to collect points redeemable for bank services or discounts at area merchants.
- Performance rewards: Track the number of paper checks written vs. electronic items (see below) and reward users with points for certain milestones. For example, award 500 frequent flyer miles whenever electronic items are more than 50% of the total.
- “Free bill” sweeps: Pick one bill pay transaction each month and pay it for the lucky customer. This is a proven promotion that is also good marketing and PR.
- Recognition: Customers could be rated on the percentage of their monthly checks written online, with t-shirts for those in the 90% club.
Whether you provide monetary incentives or not, you could provide continual feedback on electronic bill payment “performance.” Track adoption of electronic payments over time with comparisons against last month, last year, etc. Provide comparisons against other users, with top performers posted on the Web (with names disguised). Performance measures could include: highest percentage of electronic items vs. total items; biggest increase compared to previous month, year, quarter, etc.
The payment zone encompasses the financial transaction area of your Web. We recommend establishing double password protection before allowing out-of-bank payments (see CompuBank, OBR 10/98 ). In the Payment Zone, users should be able to access pay-anyone bill pay, bill presentment (soon), and send money to any individual or business worldwide. Users should also have access to “control panels” to adjust payment and security preferences.Transaction Functions:
1. Pay-Anyone Bill Pay: The most common way to offer bill payment today. Typically bills are paid through a private dial-up connection using software provided by the bank or third party, such as Quicken, Managing Your Money, or Microsoft Money. Of the estimated four million pay-anyone bill pay users in the U.S., we estimate less than one million are using the Web to initiate payments. Quicken continues to be the leading bill payment platform, claiming more than one million users for a 25+% share. But the future of bill payment and presentment lies on the Web which provides a far richer environment for control, user education, customer service, interactivity, cost savings, customer service linkages with the billers, and very soon, bill presentment.
2. Online Money Orders: We’d switch banks for this: a form on the bank Web to send paper money orders and messages to individuals or businesses. The form would allow users to enter an unlimited amount of descriptive information that would be passed on to the recipient in the form of an email and paper item with the money order. The combination of guaranteed funds and integrated messaging would allow the money order to be used for consumer bill payments, business invoice payments, payments for goods purchased online (especially from individuals in online auctions or classifieds), monetary gifts, and so on.
Transaction fees could cover the costs. As you can see in example below, users are able to compose and deliver a holiday greeting and gift at the same time the monthly lawn-care bill is paid. Other than the free-form message, all other fields would be completed using drop-down boxes on a Web-based form. Ideally, previous online money orders would be archived so that recurring payments could be quickly entered. The service could also be delivered via email assuming adequate security measures were put in place. Eventually encrypted email will become commonplace, so security concerns will disappear.
Online Money Order Mock-Up
3. Transaction Feedback Loop: To gauge customer satisfaction over time, create an email-based feedback loop for each transaction. Send an email confirming each transaction with an estimated posting date at the merchant. Consider posting cumulative responses to the survey in a public area so users can gauge how well individual merchants handle electronic bill payment. This will also help pressure merchants to improve their capabilities to receive electronic payment and remittance info (see 11/97 for more detail).
The database of user feedback could also be leveraged in other ways:
· provided free of charge to merchant clients in the Merchant Zone
· sold as market research to merchantsSource of Funds Options:
A robust bill pay program should include a number of payment options. The traditional model of limiting bill payment to a single source of funds, typically a checking account, will soon become outmoded.
Bill payment should be allowed from the user’s choice of any account at
your financial institution. Progressive financial institution should also
consider allowing payment from competitive accounts. After all, you want the
customer locked in to your Web services. Whether the payment comes out of
your checking account or someone else’s is less
important than being top of mind when the user needs additional credit to pay the bills or make an investment.
You should also allow bill payments to be directly charged to credit line or credit card accounts at your bank. You might even allow payment from competitive credit cards which gives the user additional choice and allows you to pocket credit card cash advance fees.
To further increase loan outstandings, offer an instant bill pay line increase program, where users can easily apply for additional credit to make bill payments. This program could be quite profitable, and a source of meaningful differentiation for your program. See OBR 11/98 for more ideas on increasing loan outstandings.Control Panels:
1. User controls: Users should be able to log into an area that
contains a “virtual dashboard” of dials and settings that can be adjusted to
change bill payment and security preferences.
See also Smart Payment Services and Security Controls, below.
2. Security Controls: Studies show that upwards of 75% of Internet users have concerns about fraudulent transactions. Financial institutions could take a large step in alleviating these concerns by providing a suite of fraud controls that can be set and adjusted by users.
The security controls should be flexible and set by the user. If security parameters are violated, the resulting action would depend on the severity of the breach and takes into account the habits and preferences of the user. Most times, a simple email “heads up” would alert the user to the activity. For example, every time a bill payment for more than $1,000 was initiated an email would be sent to the user. Assuming it was legitimate, no further action would be necessary.
But serious breaches would be handled differently. For example, if one day 50 bill payments totaling $7,200 were initiated to a new payee with a post office address, the system would hold the payments pending contact with the user.
At a minimum, users should be able to select the maximum number of bills
initiated in a certain period. For example, no more than $2,000 in bills
initiated in any 7-day period. Users could be issued an override code in the
event they needed to override the fraud parameters. (Use of the override would
also trigger a message.). S1, the parent of pioneer SFNB, was the first
to incorporate security preferences into its online banking platform
(OBR 11/97 ).
Merchant (or Biller) Zone
The Merchant Zone would primarily educate merchants and sell alternative payment programs and credit products.Alternative Payment Programs
Merchants could learn about the features and benefits of setting up alternative payment programs for their customers such as:
- credit card payment options with integrated email credit card receipts
- direct debit with Web-based sign-up and maintenance
- electronic billing statement presentment with integrated electronic payments
- special user loan programs
- payment smoothing (averaging) services
- turn-key billing services (see EF&D, OBR 11/97)
As an adjunct to online bill presentment, banks could offer credit programs for biller’s clients. Biller clients needing additional credit in order to pay their obligations could be referred to the bank for an instant credit application. This is a triple win. The customer wins because they can pay their bill, the bank wins because it picks up new customers and/or new loan balances, and the biller wins because they receive the funds with no collection expense. Depending on program pricing, billers could receive a share of the credit revenue stream as well.Merchant Program Maintenance
The Merchant Zone could house the password-protected forms for merchants to:
- update the specific merchant info in the Education Zone
- inquire about services
- sign up for services
- find out how many bank customers have an account with the merchant
- sign on for service bureau-based bill presentment
Small Business Zone (optional)
Small business customers could be served with appropriate content within the other four zones, or you could develop a specific area that speaks directly to their needs. We would prefer the latter, but either could work. The Small Business Zone would include tools and service to help small businesses with their billing and payment processing needs (see Merchant Zone left and OBR 9/98 for more details).
The area would include advice on how to automate accounts payables through online bill payment and financial messaging. Small business versions of the Planning Zone and Payment Zone services could be built to provide better value to your businesses clients.The Small Business Zone would also be a good place to sell other business-oriented payment services such as credit card merchant processing, payroll services, tax services, cash management, and so on.
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