from americanbanker.com
Upswing Predicted for Online Bill Presentment
Monday, March 12, 2001
By Andrew Roth
Online bill presentment is now limping through the low point of the technology hype cycle, but an upswing is coming around midyear.
So says Avivah Litan, the research director at the GartnerGroup consulting firm in Stamford, Conn.
The cycle moves from high expectations through a backlash of skepticism to enlightenment and readiness for adoption, according to Ms. Litan says. And electronic payment and presentment, once hyped as a killer application, is now in the middle of that cycle — consumer disillusionment — she said in a recent report on the subject.
But not for long.
The “technology trigger” for consumer electronic bill presentment and payment (EBPP), the Litan study says, was Checkfree Corp.’s launch of the first electronic bill consolidator, a site in which numerous bills are presented, almost four years ago.
That event was followed by the 1997 launch of MSFDC (renamed TransPoint LLC when Citibank bought a minority interest in November 1999), an e-bill consolidator jointly owned by Microsoft and Atlanta-based First Data Corp.
In 1998, 18 major banks afraid of losing customers got into the game by joining International Business Machines Corp. in a consortium called Integrion that would manage bank EBPP strategies, as well as online banking applications. The banks included Citibank, First Union, what was then NationsBank and is now Bank of American, and Bank One.
Integrion folded last year.
EBPP hype reached “peak of inflated expectations” in June 1999, Ms. Litan said. That is when three major banks, Chase, First Union and Wells Fargo — also three of CheckFree’s largest bill payment customers — formed a private bank-owned company, Spectrum LLC, to directly compete with CheckFree’s bill consolidation services.
In February of last year, market consolidation began.
First, CheckFree bought its chief rival, TransPoint LLC of Englewood, Colo., for nearly $1 billion — though TransPoint had almost nothing in tangible assets.
Then, CheckFree then quickly acquired BlueGill Technologies of Ann Arbor, Mich., and the EBPP assets of Bank of America, which had refused to join Spectrum.
At that point about half of all large billers were prepared to offer bills online.
Then the worm turned.
In late 1999 and early 2000, around the time that technology stocks began to crash, it became apparent that though the bill presentment applications were built and billers were onboard, consumers were not adopting.
“The reason consumer bill presentment failed is pretty simple,” Ms. Litan said. “It’s too expensive. It’s difficult to enroll — you can’t enroll on the spot, you can’t get instant gratification. Consumers don’t even know what bills they have available to them through their providers, and consumers won’t bother fishing around for what bills are online.”
Jeetu Patel, vice president of research at Doculabs, an electronic commerce consulting firm in Chicago, cited other reasons. “The spread of broadband [Internet access] is not as pervasive as one would like to see,” he said. Also, broadband access is now “fairly expensive for middle-income people,” Mr. Patel observed.
There is good reason to be disillusioned about EBPP. Adoption rates are positively anemic at less than 1%, GartnerGroup estimated.
There are basically two models of online bill presentment: consolidator and biller direct.
Consolidators aggregate bills from a number of sources so consumers can easily get all their bills in one place. They may offer only bills that have already been put into an electronic format by billers, or they may scan paper bills into e-bills on behalf of customers.
In the biller-direct model, customers go right to a biller’s Web site to get their bills.
Both have been slow to catch on, but biller-direct is a success when compared with the consolidator models, especially in the credit card industry. Three card issuers have enrolled about seven million consumers for their online account management applications: Citibank about three million, Discover Card about 2.6 million, and American Express more than two million. However, active users visiting the sites every month probably constitute only 15% to 30% of total enrollees, Ms. Litan said.
Ms. Litan says that the consolidator model eventually will win out, but that hindering adoption are difficult customer enrollment procedures, high costs (averaging $6 a month), and a lack of financial incentives. Fewer than 200,000 Americans use the e-bill consolidator networks that have been formed during the past two years, according to Gartner’s estimates.
Mr. Patel sees a mix of biller-direct and consolidator models in the future. “The type of bill to be paid and the level of detail associated with the bill is directly proportionate to the amount of interest that is going to be generated,” he said.
“For a telephone bill or credit card bill, it is justifiable to go to a Web site, because there is a substantial amount of dollars and detail you can view and do analysis,” Mr. Patel said. As for fixed-amount bills, “you would look at the bill if you were going to a place to look at other bills — like at a consolidator.”
John Perry, the chairman and chief executive officer of the Spectrum bank consortium, said initial adoptions rates were similarly low for some now-ubiquitous banking technologies, including point of sale debit transactions and automated teller machines.
“I think adoption rates will continue to ramp up as consumers understand the convenience,” Mr. Perry said. “It takes time. A certain amount of consumers still have concerns about moving money over the Internet. As the Internet becomes more a daily fabric of our lives, they will feel more comfortable.”
When that happens, he said, consumers will want to do electronic billing through a bank’s Web site, because “the bank is the institution they can trust when moving their money or handling their money.”
Spectrum’s founders — J.P. Morgan Chase & Co., First Union Corp., and Wells Fargo & Co. — will offer their customers both bill payment and presentment on the Spectrum platform by June, Mr. Perry said. Once they have successfully implemented the system, Spectrum will begin marketing the service to other clients and service providers, he said.
Online banking plus online bill payment offers tremendous customer-retention capability, Mr. Perry said, and retention is critical “for financial institutions that have huge numbers of consumers.”
EBPP is “not just a customer relations tool,” he said, “it’s a tool that definitely affects the bottom line.”
Edward McLaughlin, the chief executive officer of PayTrust Inc., a bill consolidator based in Lawrenceville, N.J., said he sees strong potential for consumer adoption — but only if consumers can get all of their bills in one place.
“We have to be better than their mailbox,” Mr. McLaughlin said, “Present-anything will drive adoption, because consumers don’t have to pay some bills electronically and some through the paper mail. Consumers don’t want to double or triple their work for a task they didn’t want to do in the first place.”
PayTrust, which provides EBPP capabilities for customers of companies including American Express, Citibank, and E-Trade, charges $8.95 a month for 25 transactions and a kind of electronic personal assistant. Paytrust sends an e-mail when a bill comes due or is late, and it can arrange to have bills paid automatically. Consumers can access their bills from home, from work, or while traveling.
Mr. McLaughlin said such services are attractive and exist separately from the additional value that billers may add to their e-bills, like the ability to manipulate data.
Bill Zielke, the vice president of product marketing at Checkfree Corp., disagreed with the idea that the ability to present all bills at a single site is the answer to winning consumer acceptance. As long as bills can be paid in the same place, it does not matter how a consumer gets them, he said.
Adoption has not taken place because not one of the banks, brokerages and portals that present bills to consumers “has spent the first dime to market the service,” Mr. Zielke said.
Checkfree now presents bills from more than 130 billers, and arrangements are being made to present those of 70 others, he said.
Mr. Zielke said the so-called “chicken and egg” theory of low EBPP adoption — that consumers are not using it because not enough billers offer their bills electronically, and vice versa — is not true.
“The reality is the chicken has hatched,” he said. “Billers are up; that’s not the issue. The issue is no one is promoting the service. Education awareness is what is going to drive end use of this service.”
With the consumer market languishing, the most excitement in bill presentment is swirling around business-to-business presentment. A handful of large banks, including Northern Trust, Bank of America, FleetBoston, J.P. Morgan Chase, Wells Fargo, First Union, Citibank, PNC, and KeyBank — are offering electronic billing to their corporate clients.
Corporations handling large numbers of bills every day are better positioned to reap the advantages, Mr. Patel said. The benefits of services like adjudication, online dispute resolution, and better cash management “are obvious, and you don’t have to force-feed them to the consumer.”
Citibank began offering online invoices to its corporate clients in September through Bottomline Technologies Inc., of Portsmouth, N.H. Kay Howard, Citi’s director of e-billing, said corporate customers are expressing “overwhelming interest.”
“It’s not a question of if, it’s a matter of when,” she said.
Electric invoicing shortens the billing cycle by several days in some instances, Ms. Howard said. Online dispute resolution has proven to be a key attraction, since about 40% of items on an invoice on average may be disputed, she said. Businesses can even track certain types of disputes to identify problem areas.
“It’s the dispute-resolution part of B-to-B that you don’t face in B-to-C,” she said. “From the buyer’s point of view, dispute resolution right now is phone tag and fax, which is money and manpower. To the extent we can resolve disputes online it will shorten the billing cycle.”
Ms. Litan estimated that 12% of businesses use B-to-B electronic presentment and payment, but 0.6% do it over the Internet. The rest use direct electronic connections, and most use electronic data interchange (EDI) technology.
Adoption of invoice presentment over the Internet and through direct electronic connections will increase quickly, to about 41% overall by 2004, according to Ms. Litan, because the incentives are too attractive to pass up.
Eric Smith, the chief executive officer of the B-to-B bill consolidator BillingZone LLC, said 2001 is “potentially an important year on the B-to-B side of EBPP. “Big billers and top cash management banks are in a serious buying mode and will begin to commit in a serious way,” Mr. Smith said.
In Chicago, ABN Amro Holding NV has been pilot testing BillingZone’s B-to-B billing service. “There has been a huge surge of interest over the last three months,” said Sarah Billings, first vice president of e-commerce strategy at ABN Amro. “I don’t think adoption will be immediate, but there will be significant growth over the next year in B-to-B e-bill volumes.”
Even the seemingly forlorn consumer side may see a ramp-up of adoption. Ms. Litan predicts that well-designed e-billing applications that offer consumers a good reason to use them will move EBPP to the last phase of the hype curve — the “slope of enlightenment” — at midyear.
Recent GartnerGroup research shows that clear financial incentives are a primary reason for consumers to sign up for e-billing, Ms. Litan said.
“Consumers are attracted to discounts and free service, which consolidators don’t offer,” she said. “The last thing they want is to pay $6 a month; what they want is free service or a $10 coupon, and they are not getting that.”
With nearly half of all high-volume U.S. consumer billers capable of presenting consumer bills over the Internet, and with bill consolidation technologies becoming more user-friendly, GartnerGroup predicts that 40 million consumers will have signed on for electronic billing by 2004. |
