Epayment products include any online technique for moving money from one entity to another. It includes hybrids, such as pay-anyone bill payment that boasts an online front-end but is often fulfilled with paper on the back end. In alphabetic order, the following epayment products should be considered for your product line.

Next month we’ll mix and match the products to develop recommended epayment product suites to match your strategic objectives.

ACH/Debit Helper

Description: A service that helps customers understand and enroll in preauthorized debit programs; it can also help users control, track, and make changes to established preauthorized debits. See Interbank Transfers  for ACH originations.

Functionality: Prepopulate the area with information on all the major billers in your area that support preauthorized ACH debits including your own loans. 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.

Pros:

• Preauthorized debits are great for the bank. You get the benefit of locking the customer in to your checking account with little cost since the originating party pays for the transaction and usually handles customer service, authentication, and problem solving.
• Low development expenses, much of the legwork could be done by a summer intern.

Cons:

• Must be developed in house
• More customer service calls: Because of your positioning, customers will ask you to solve problems that otherwise would have resolved directly with the biller.
• Little opportunity for fees

Pricing/Biz Model: Free to increase customer lock-in.

 

Bill Aggregation

Bill aggregation from uMonitor.

Description: A subset of account aggregation, used to download and consolidate billing statements. It could be offered on its own, or within a comprehensive account aggregation program such as Yodlee.

Pros:

• Demonstrated consumer demand for ebilling and account management
• Customers locked in to your service
• Positive PR and marketing benefits

Cons:

• Ongoing expenses to a third-party
• Increased customer service and tech support

Pricing/Business Model: We expect most to offer bill aggregation free of charge; but it could support monthly or annual fees. Alternatively, statement aggregation could be offered free with payment services available for a fee.

Bill Concierge/Virtual Bookkeeper

Description: An all-encompassing service that helps users with their entire bill payment situation, from managing paper flow, sending due-date reminders, identifying the lowest-cost source of funds to pay each bill, making the actual payments, and troubleshooting problems.

Functionality: Bill Concierge is similar to scan-and-pay from PayTrust or Metavante/CyberBills
. However, where those programs are high-tech, requiring considerable trust in the new technology and systems, Bill Concierge is decidedly high-touch. A human Virtual Bookkeeper would be assigned to each account to assist with setup and user education, and to help solve ongoing payment and billing problems.

 

Automation would still handle most of the tasks, but the end-user would be spared much of the learning curve. A bank could contract with a scan-and-pay provider to handle the back office functions.

Pros:

• Differentiates your services
• Difficult for competitors to copy
• Positive PR

Cons:

• Labor intensive, with tricky and potentially costly customer service issues
• Difficult for fees to completely cover costs
• Would require talented account reps

Pricing/Business Model: Should provide enough value to justify significant monthly and/or annual fees, as much as $25+ per month; more for the small and microbusiness segments.

Biller Lookup &
Information Clearinghouse

Description: Searchable database of major billers; optional email updates when new information is listed.

Basic Functionality: Compile a list of major billers in your area (a great summer intern project). Users could search by merchant name to determine available billing options (see mock-up below). Listings would include corporate address, payment address, phone numbers, fax number, email addresses, Web address, and whether the company accepts electronic payments through your pay-anyone service and/or its own Web site.

 

Advanced Functionality:

• Allow users to save their own personal database of billers, with optional fields for users to enter account numbers and notes.
• Integrate it with your bill-pay service, so that once users create their own biller database, they can immediately begin paying bills to those merchants electronically.
• Integrate the biller database with account aggregation so that billing statements could automatically be downloaded and aggregated.
• Integrate with a credit line that can be tapped specifically to pay bills.

Pros:

• Low initial investment
• Capture email addresses of those who signup for updates
• Differentiates your bank from the competition
• Useful addition to your Web site
• Positive PR

Cons:

• Database must be compiled and maintained
  in-house
• Little fee income opportunity

Pricing/Business Model: Basic lookup would be provided free of charge to generate leads. Premium versions integrated with electronic bill payment and/or account aggregation could command fees.

 

 

Mock-Up: Personalized Biller Database <www.yourbank.com/mybills>

(1) all fields can be changed and saved by the user    (2) input by user

 

 

Credit and Debit Cards

Description: With a 90%+ market share at the online point-of-sale, credit cards are an important part of the electronic payments mix. Credit cards can also be used in lieu of checking as the core transaction product for virtual banking programs.

You could add value to your card program in a number of ways

• Fraud watch program
• Interactive statements
• Credit card statement aggregation (see below)
• Online balance transfers
• Prepaid cards with online replenishment
• Friends-and-family debit cards, used to transfer funds to others for ATM withdrawal.

Pross: A well-understood and profitable product with high customer demand.

Cons: Intense competition, fraud and bad debt

Pricing/Business Model: Interest income and fees.

 

Credit Card Statement Aggregation

 

Description: A subset of account aggregation used to download and consolidate credit card statements; could be offered on its own, or within a comprehensive account aggregation program such as Yodlee or uMonitor.

Pros:

•          A great tool for increasing balance transfers from competitive cards.
•          Solid consumer demand for billing information and account management.
•          With permission, you will be able to create sales pitches knowing more about the customer’s other card balances (a real-time picture vs. several months delayed from the credit bureau).
•          A better understanding of where you stand compared to the competition across your entire account base.

Cons:

•          Must educate customers on the benefits of aggregation and how to use it.
•          Trust and security issues and concerns
•          Ongoing expenses to a third-party
•          Customer service costs to answer questions
  on aggregated statements..

Pricing/Business Model: Most, if not all, financial institutions and card issuers will offer card aggregation free of charge to have first crack at transferring balances from competitive cards. Incremental interest income should more than cover the costs.

Expedited Payments

Description: Optional expedited payments with guaranteed next day delivery.

Rationale: Other than Quicken fanatics and other ultra organized super humans, who hasn’t put off paying the bills just a bit too long? These days, missing the credit card due date by even 1 day can easily cost $50 or more counting the late fee and extra interest expense. Expedited payments, even priced at $20 to $25, would appeal to customers facing large penalties unless their payment is absolutely, positively there by 5:00 p.m. the next business day.

Functionality: Ideally, expedited payments would be integrated into your bill-payment program. Users would be able to upgrade payment delivery from the usual 5 days for a graduated price depending on how quick the payment must arrive .

Pros:

• Great PR, marketing copy
• Increases fee income
• Increases the value of your entire bill-
  payment program
• Differentiates your bank; difficult to copy

 

Cons:

• Customer service burden dealing with frantic last-minute bill payers; you will need to build several layers of confirmation emails and tracking mechanisms to assure users you will actually make their payment on time.
• Problems with merchants not posting the expedited payments on time.
• Liability if the payment isn’t credited on time
• You must build the system yourself
• Even though it’s a lower cost alternative compared to late charges, customers may resent your fees, perceiving that you are taking advantage of their predicament.

   

Pricing/Business Model: Fees could cover all program costs and deliver a profit.

Financial Datebook & Reminder Service

Description: Essentially a day planner with an emphasis on bill payments and other financial activities. Can also be used for nonfinancial events such as birthdays, to-do lists, and so on.

Functionality: The service would work much like any datebook, Microsoft Outlook for instance. Users would add bills to the calendar and select one-time or recurring options. Users could choose to receive reminders to pay at various intervals before the due date. They could select whether the reminders came by email, voice message, instant messaging, or a combination of the above. While the emphasis would be on financial matters, the service could be used for personal and business appointments as well.

Pros:

• Differentiates your product offering
• Intuitive, low-risk way to get users started monitoring, then eventually paying bills online

Cons:

• Probably requires in-house development, although there are a number of Web-based calendars available that could potentially be adapted for a reasonable cost
• The need to provide “tech support” for calendar problems

Pricing/Business Model: It would be difficult to justify any explicit fees, so it would be yet another product justified by increased customer satisfaction.

“Friends & Family” Reloadable
Debit/ATM Cards

Description: A master account (the parents) is linked to one or more subaccounts (the kids) each with its own ATM/debit card. From a Web interface, the master account user transfers funds to the sub-accounts who can then withdraw cash at an ATM or use the debit card at the point of sale.

Functionality: Funds transfers trigger an email to the subaccount user notifying them of the transaction. Automated recurring transfers, such as allowances, can be established to maintain a constant flow of cash without having to log in every week and manually move money. Visa Buxx was pioneered the reloadable card concept, but it could be accomplished without using Visa’s system.

Visa Buxx product description

Pros:

 

•  Great money-management and educational tool creating awareness of the bank in schools, PTAs, and the community.
•  Good PR and marketing opportunities; especially for gaining more business from parents when the services are cross-sold to student loan and student checking customers.

• Good relationship enhancer and word-of-mouth publicity.                                        

•  Saves the customer time, money, and hassle in transferring funds to family members, especially those living out-of-the-house.  

  Cons:

   

• Initially, a bit complicated; reminiscent of programming the VCR: you know it would save time in the long run, but you just don’t want to hassle with reading the manual today.
• Fraud, fraud and more fraud. Since few banks currently offer this service, the pioneers will be the targets of every fraudster on the planet. AAA recently had to shut down Internet and telephone reloading of its prepaid cards due to fraud. Cardholders could only reload cards in person at participating AAA offices. The vendor, Sunrise, FL-based WildCard Systems www.wildcardsystems.com  tells us that the issues have been solved and remote reloading will be back up soon.
• Customer service costs for lost cards, disputed charges, and all the service issues associated with credit/debit cards

  Pricing/Business Model: When positioned as a parent/child service, the product should be offered with low fees, $20 to $25 per year or less, if its primary goal is to retain the parent’s business.
  
   

  

  Visa Buxx has a template that makes setting up and maintaining an automatic allowance system very simple.

  Guaranteed Payments

  Description: Guaranteed “good funds” payments initiated online and converted into paper items delivered via postal mail or picked up at a branch. Includes: Money Orders, Cashier’s Checks, Gift Checks, Tax Payments, and Travelers Checks.

  Payments could also travel electronically with the recipient withdrawing the cash via ACH (PayPal system), at a branch (Western Union/MoneyGram system), or withdrawn from a participating ATM (newer Western Union system).

  Functionality: Within your bill-pay area, allow users to upgrade their payment to “guaranteed money order” for an additional fee. Money orders could be mailed via regular bill payment channels or picked up in the branch by the sender or recipient with proper ID and/or a transaction number communicated to the recipient by the sender.

  Recipients would receive an email communication explaining that good funds are on the way. As soon as the recipient received this message, they would be certain of being paid. Some bill-pay programs, such as Online Resources and iPay LLC, send all bill payments with good funds, although the recipients don’t necessarily know that.

  Other paper items could be ordered in a similar fashion. For example, Wells Fargo allows online banking customers to order cashiers checks, travelers checks, and foreign currency (see screenshot below).  

  

  Wells Fargo takes online orders for cashier’s checks, travelers checks, and foreign currency.

Yahoo! Finance provides three epayment products, bill pay through Checkfree, email payments via HSBC, and interbank transfers through CashEdge.

 

Advanced Functionality: The form used to initiate a money order could include optional fields for a personal message to the recipient. The personal message could be sent via email and/or paper enclosure with the funds. This 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. For an additional fee, users could “gift wrap” the paper envelope and check with birthday/holiday greetings (see example below).

Example: In the mock-up below, users are able to compose a holiday greeting and add a gift as they pay the monthly lawn-care bill. Previous online money orders could be archived to make it faster for subsequent payments to the same parties.

Example Money Order Form

*optional fields

Pro:

•          Increases fee income
•          Increases value of epayments program

Cons

•          Limited customer demand
•          Complicates choices for online payments
•          Additional customer service and
  operations tasks
•          Ideal system not currently available from existing vendors; must be developed in-house

Pricing/Business ModelModel: Fee-based premium transaction.

Interbank Connectivity /Transfer

Description: A service that allows users to easily move money between different financial institutions using ACH and/or wire transfers, depending on how fast the transfer needs to be made.

We had expected Web-based interbank transfers to be the norm by now  but only a few financial institutions have added it. Fraud concerns and lack of a solid business case have put interbank transfers on the back burner. Interestingly, Yahoo is a pioneer, having launched a funds transfer service more than a year ago .

Pro:

•          Most users need it from time to time
•          Easy to communicate product benefits
•          Potential for profitable fee income

Cons:

•          Fraud
•          Customer service costs to assure new users the product works; and resolving potentially tricky problems when it doesn’t
•          Implementation costs
•          Customer confusion regarding time lags and authentication for ACH-based transfers

Pricing/Business ModelModel: The service could support transaction fees or a monthly subscription that allowed unlimited ACH transfers. A two-tiered program would be logical with 2- to 3-day ACH outbound transfers priced at $2 or less and next-day wires at $10 to $15.
In-bound transfers should be free-of-charge.          ð

 

Person-to-Person (P2P) Electronic Payments

Description: Web-based, electronic payment service designed primarily to move funds from individuals to other individuals/small businesses.

Functionality: PayPal is the leader in the field of Web-based P2P; although Western Union, a First Data company, dominates the business overall if you consider traditional person-to-person transactions requiring a trip to an office to initiate and/or receive the funds. Banks can integrate P2P service into their payments suite by creating a front-end to PayPal, Western Union, and other providers using screen-scraping/auto-login techniques or simply providing basic links to other service providers.

Pro:

•          A popular service with eBay users, it could be enhanced by a direct interface from the user’s bank account.
•          Differentiated service offering

Cons:

•          Fraud is the biggest issue with P2P services; however, if you are merely providing a link to other service providers, your exposure shouldn’t be any greater than it already is.
•          Customer service costs for lost cards, disputed charges, fraud, and other issues associated with electronic payments. Again if you are merely acting as a conduit, your responsibility is lessened; however, you may still be called in to solve tedious customer problems.
•          Added costs of screen-scraping services

Pricing/Business ModelModel: Unless you are PayPal or Citicorp, there is little opportunity for fee income (even Bank America recently canceled its plans to enter the market). This is free, relationship product.

Pay-Anyone Electronic Bill Payment

Description: Initiate payments online to any biller or individual. Payments are fulfilled with paper or electronic items depending on the biller. Most volume is handled by Checkfree, Metavante, and Princeton eCom. Other providers include iPay LLC, Online Resources, NetZee, and several others (see part 3 in next month’s OBR).

The service has been available since the mid-1980s through dial-up services. Until just a few years ago, the majority of online bill payments were initiated through Quicken or Microsoft Money. Now most come from Web-based services.

Pro:

•          Customers expect it to be part of an online banking program; competitors have it.
•          Advanced users find that it does save time, money and worry making it good for long-term customer relations.
•          Helps users track monthly payments for budgets, taxes, and other record-keeping needs.
•          Small businesses can especially benefit due to their more complicated financial and tax-reporting needs.

Cons

•          Timing delays: Since many payments are still fulfilled by paper check, users must initiate payments 4 or 5 days in advance of the due date; a slower turn-time than the write-and-mail system it replaces.
•          Cost: Direct out-of-pocket costs average $4 to $5 per month paid to service providers; also, significant, and sometimes hidden, costs exist for customer service and management time spent solving customer problems.
•          Customer service issues: When the bank inserts itself in the monthly bill-payment process, it can become a lose-lose situation when problems arise; the customer doesn’t know who to go to resolve the issue, and the bank doesn’t know if it was user error, service provider error, or merchant error; so it must investigate all three possibilities, an expensive proposition.
•          Customer dissatisfaction: Looking at the three previous bullet points, you can see a large opportunity for dissatisfaction. Bill payment is a premium-priced service that delivers payments slower and with lower overall quality than the service it replaces. That’s why it only has 5 to 6 million users 15 years into its adoption curve.

Pricing/Business ModelModel: In 2000, about 80% of banks charged fees to partially cover costs . But the best way to make a profit is by bundling a bill payment line of credit .

 

Planning, Budgeting, and
Payment Averaging Service

Description: This service encompasses any number of financial planning calculators and worksheets. It could also provide a monthly money-management service that combines and averages all bills into one monthly payment, charged to the user’s checking account, line of credit, or other source of funds.

Functionality: Utilities have long offered services that average or “smooth” the customer’s billing amount over the year to make it easier to budget and pay for seasonal spikes in energy used. A bank could apply the same concept to the sum total of all bills, calculating a single average payment amount that would be deducted from the user’s account each month. It would work much like a mortgage escrow account reconciled and recalculated annually. The account could be funded by ACH debit and/or loan advance.

To encourage systematic savings (pay yourself first), the monthly “bill” payment amount could include a set amount transferred to a personal savings account, time deposit account, or indexed mutual fund account.

Pros:

• Assists customers in creating and managing an ongoing budget; good for relationships and customer lock-in.
• Differentiates your product offerings

Cons:

• Calculators and worksheets are readily available from suppliers such as FinanCenter.com; however, the bill-payment averaging system would require in-house development.
• Potentially challenging customer service support for the escrow account and bill-averaging questions and problems.

Pricing/Business Model: It would be difficult to justify explicit fees, but revenue could be generated from escrow account balances and integrated credit lines.

 

Prepaid Cards for Travel, Gifts,
and Various Business Uses

Gift and prepaid cards are available from AAA Motor Club,  www.storedvalue.aaa.com  Bank of America  www.bankofamerica.com/giftcard  Marriott, and others; Wildcard Systems powers these programs.

Description: A modern day traveler’s check. In most cases, prepaid plastic cards make more sense than its more common paper counterpart.

Functionality: Users preload the cards, then withdraw funds at ATMs or use them to make purchases wherever Visa/MasterCard is accepted. The cards can  be reloadable by telephone, Web, and in-branch.

The travelers card version (e.g., Visa TravelMoney) allows users to leave their regular ATM card at home, reducing concerns over losing a card, especially when traveling abroad. Couples might want to split their funds and load it onto two cards, each carried by just one person. That way if a pickpocket makes off with one of the cards, you still have one that is active.

Gift cards would be identical except for packaging to appeal to those wishing to make monetary gifts.

The business version could be used to deliver refunds, rebates, and premiums to customers. Qwest has been offering $50 prepaid Visa card to buyers of its enhanced products. Businesses could also use prepaid cards to distribute expense account advances, bonuses, or even regular payroll (e.g., Visa PayRoll), to employees.

 

 

 

Pro:

•          Convenient to purchase online; reduces branch traffic
•          Versatile payment product: Accepted at nearly 20 million locations worldwide; can be used for cash withdrawal in local currency; easier to carry and use compared to traveler’s checks.
•          Fee income
•          More attractive and secure than sending a check for a gift.
•          Business users could achieve cost savings compared to paper alternatives.

Cons>Con:

•          Fraud: Since few banks currently offer it, pioneers are the targets of every fraudster on the planet. AAAb>AAA recently shut down Internet and telephone reloading due to fraud. Cardholders could only reload in person at participating AAA offices. The vendor, Wildcard System, says the issues have been solved and remote reloading will available again soon.
•          Customer service costs for lost cards, disputed charges, and all the service issues associated with credit/debit cards.
•          Consumer awareness/understanding for prepaid cards is lower than traveler’s checks

Pricing/business modelmodel: Multiple revenue sources: 1%-2% origination fees, interest income from float, and abandoned funds (captured through monthly dormant account fees). Expense cards used by businesses could also command monthly/annual subscription fees.

“Scan & Pay” Total Bill Management

Description: A service that receives users’ bills, scans them into digital format, posts them to the Web for customer viewing, and pays them according to customers’ preexisting instructions. See also, Bill Concierge, and Smart Payments, next section.

Pro:

•          Available turnkey from PayTrust and Cyberbills
•          Differentiates your service offering
•          Good solution for customers who travel extensively or maintain multiple households.

Cons>Con:

•          Limited demand
•          Complicated setup diverted bills to the vendor
•          Cost
•          Customer support, especially for new users

Pricing/Business modelmodel: Could easily command
$10 to $20 monthly fees, but that will cover out-of-pocket vendor costs only.

Smart/Automated Payments

Description: Much like Scan & Pay (above) except without the scanning of paper bills. The goal is to eliminate the monthly bill-payment chore, automating the vast majority of bill-payment activities.

Functionality: Banks could establish a bill-payment “cockpit” that would provide a sense of control over monthly payments. Users would log in to the virtual bill-pay driver’s seat; take a quick glance at the fuel gauge (deposit account balances and available credit); review bills paid last month; and see estimated payments for the coming month (estimates would automatically be generated from payment history). Similar functionality is already built into Quicken and Microsoft Money.

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, and so on. The end goal is to make bill payment practically invisible for the user.

Pro:

•          Differentiates your bank
•          Locks in customers
•          Difficult for others to replicate

Cons>Con:

•          Development and maintenance costs since it’s not available turnkey from a supplier
•          Learning curve: For new users, the automation may be difficult to comprehend and set up.
•          Customers service support costs

Pricing/Business ModelModel: Premium-priced fee product covers most out-of-pocket expenses.