Billing's Unfulfilled Potential -- Consumers Lack Incentives And Vendors Wrestle With Interoperability As Online Billing Struggles
September 14, 1999
INFORMATIONWEEK : Paying bills is painful-and companies that specialize in sending out bills are learning that doing it over the Internet is more of a chore than they originally thought.
When online billing emerged a couple of years ago, proponents said merchants would soon be saving most of the cost of printing and mailing paper statements and processing the checks that were mailed back. But companies venturing into this area of E-commerce are finding out that online bill presentation has not lived up to its promise. The savings are elusive, the technology is complicated, and consumers and companies are not exactly screaming to receive their bills through their PCs rather than their mailboxes.
"It's complicated because there are many different variables you have to interweave," such as business rules and data formats, says Barbara Macy, invoice manager at aerospace manufacturer Hamilton Sundstrand Corp., which started an Internet billing pilot last year for business customers that is still getting off the ground. "Some of the customers were slow to warm up to it."
The two main companies selling online billing technology and services, CheckFree Corp. and TransPoint LLC, no longer promise big cost savings. That's because potential users of Internet billing realize that savings can be hard to achieve after they buy the necessary technology and integrate their legacy billing systems with the Internet.
"It is actually a cost" in the short term, says Dennis Jawor, director of treasury operations at Consolidated Edison Co. of New York, which began using the TransPoint system in May. About 1,000 customers are using it to pay their utility bills, but the company won't break even until that number reaches 100,000 people, a level Jawor says it hopes to reach within a year. "It costs us 50 to 60 cents to send a paper bill and process a payment, " he says. "This service has to come in at half that cost and we will get back the application and integration costs."
With cost savings still rather elusive, the main selling point for online billing is the benefits of having interactive relationships with consumers and the prospect of selling them additional goods when they come to pay their utility or credit-card bill every month. "The cost savings aren't great, " says Ron Kerver, E-commerce director at Consumers' Energy Co. in Dearborn, Mich., which uses CheckFree's technology. About 4,000 of the utility's 2.3 million customers are viewing and paying their bills online. "We're offering our customers the added convenience," he says, adding that online billing is a way to learn how to interact electronically with customers.
CheckFree and TransPoint provide technology to billers that lets them present data from their legacy billing systems on the Internet, and both vendors have various services to host billing data for companies. Once a company has done that work to integrate their information systems, they send their bills to CheckFree or TransPoint, which make them available directly to consumers via their own Web sites or pass the invoices off to various billing consolidators, such as an Internet portal or a bank.
CheckFree, which was founded in 1981, had been serving people who receive a paper bill and then choose to pay online. With the explosion of the Internet as a medium for financial management, the company naturally moved to the online presentment side of the business. It's E-Billing technology is now being used by more than 20 companies, including Chase Manhattan Corp. and MCI WorldCom. Another 30 or so are in various stages of deploying the system.
The vendor reported preliminary earnings of $10.5 million on revenue of $250 million for the year ended June 30. The company's finances took a beating this summer when its stock dropped nearly 24% on June 23 after three banks-Chase Manhattan, First Union, and Wells Fargo-announced an online-billing venture that may rival CheckFree and TransPoint.
TransPoint started as a joint venture between Microsoft and First Data Corp., a leading processor of credit-card payments. Citibank joined as a partner last year, bringing its experience and network for handling many forms of payments. So far, TransPoint has five billers in production, including Con Edison and GTE Corp. Ralph Young, executive VP of marketing at TransPoint, says about 15 companies will be live by Nov. 1 and that 23 billers are committed to the TransPoint Biller Integration System. As a private company, TransPoint doesn't release financial results.
CheckFree and Transpoint dominate the billing landscape, but many other companies are coming out with software and services for various parts of the complicated process of presenting legacy data on the Web and processing payments. BlueGill Technologies Inc., for example, provides a leading rendering engine for presenting bills online; Security First Technologies Corp. sells online financial software and services to banks. Then there are service bureaus, such as Output Technology Solutions Inc. and Billserv.com, that take billing data from billers and send it to distribution points, such as banks, portals, and so on. Meanwhile, virtually all major banks are testing some kind of online-billing system as they strive to keep themselves in the middle of consumer financial transactions.
CheckFree and TransPoint are predictably bullish about the future of online billing. "In January, you'll see a big spurt in billers going ahead and Web sites offering bills to consumers," says TransPoint's Young. " This time next year, it will be a dramatically different story." CheckFree's vice chairman Mark Johnson is also optimistic. "A lot of the investment and energy people spent in the last few years is at the point where it is going to explode," he says.
Perhaps. But the fact is that important obstacles on both sides of online billing-supply and demand-must first be overcome.
On the demand side, there just isn't a compelling economic reason to pay bills online. Trading stocks online saves people big money-$100 or more for a trade of several hundred shares. But paying bills online saves about 33 cents, the price of a stamp. And to make matters worse, many banks, such as Wells Fargo, are charging many customers $5 a month for online payment. "The demand side from customers really isn't obvious," says Beth Barling, a lead E-commerce analyst at consulting firm Ovum.
On the supply side, billers such as Con Edison aren't putting marketing dollars behind online bill presentment. "We don't want to spend a lot of money on something that has a small payback," says Con Edison's Jawor. Companies that routinely bill their customers also are frustrated because CheckFree and TransPoint technologies aren't compatible, making life difficult for their IT departments. The technologies perform similar functions-taking billing data and presenting it on the Web in a format that can be manipulated by customers who want to see various levels of detail and then initiate a payment.
But they can't talk to each other. That means billers have to evaluate both systems or place their bets on one of them. Installing one is challenging enough; using both would be a real headache.
Con Edison's Jawor says the utility went with TransPoint because the vendor's software allowed more control over the process. Kerver, on the other hand, says Consumers' Energy went with CheckFree because it preferred its business model, which lets companies retain most of their billing data while sending only summary information to consolidators such as CheckFree, banks, or portals. TransPoint's business model initially called for it to control detailed billing data, though the company has quietly backed away from that this year.
Interoperability
People such as Kerver are troubled by the lack of interoperability-but help may be on the way. "Early next year, there will be a solution for bill aggregation based on IFX," says TransPoint's Young, referring to the Internet Financial Exchange protocol that draws from both CheckFree and TransPoint technologies. Consolidators such as banks that use the IFX protocol would then be able to present consumers with bills rendered on the Web using both systems.
Regardless of who does it or what technology is used, consumers want a bridge between CheckFree and TransPoint so they can pay all their bills in one place. And billers don't want to worry about feuding between the two companies. " There's still a big battle out there," Kerver says. "That makes it very difficult for billers like ourselves to select one or another.
I don't think we should have to choose. We ought to be able to go through one clearinghouse."
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CheckFree
Norcross, Ga.
770-441-3387
www.checkfree.com
Top executives: Peter J. Kight, founder, chairman, and CEO
Employees: 1,600
Fiscal 1999 sales: $250 million
Main product: CheckFree E-Bill
Strengths
- Monopoly in online cash payments
- Supports open standards
- Has been in business since 1981
Weaknesses
- Faces increased competition
- Experienced outages at its new data center earlier this year
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TransPoint
Englewood, Colo.
800-357-3515
www.transpoint.com
Principal executive: Lewis Levin, CE0
Employees: 200
1998 revenue: Not available
Major products: Bill delivery and payment technology and service for linking companies, banks, and consumers
Strength
- Backed by heavyweights Citicorp, First Data, and Microsoft
Weakness
- Uses proprietary technologies
Copyright c 1999 CMP Media Inc.
By Gregory Dalton
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