In a U.S. House subcommittee hearing, the ...
Billing & payment
Sending and paying bills online can reduce paper waste and save a significant amount of money for the billing company.
Sending and paying utility bills is never fun, but the process might be getting a little easier for all parties involved, thanks to an Internet bill delivery and payment system developed by MSFDC, a joint venture between Microsoft Corp. and First Data Corp. Currently, some of the largest billers and bill processors in the country are participating in a pilot program that will allow their customers to receive and pay customized bills over the Internet.
"The Internet is growing by leaps and bounds," said Jan Bennett, vice president of customer service for Arizona Public Service, a Phoenix-based electric company. "More and more homes have access to it. There has also been an increase in Internet commerce."
Online encyclopedias, newspapers and magazines have redefined several paper-based industries. Seeing this rapid change, two years ago, Darren Remington at Microsoft and Chuck White at First Data Corp. realized that there was still another industry that was slow and essentially paper-based: billing.
"There's a lot of bills out there," said Jessica Ostrow, vice president of marketing for MSFDC. And there are. The approximately 100 million households in the U.S. pay, on average, 12 recurring bills each month.
The solution that MSFDC came up with, Internet bill delivery and payment (IBDP), saves time for customers and billers who can pay and handle bills with just a few clicks of a mouse.
Benefits to Billers
Billers using the Englewood, Colorado-based service should reap significant cost savings. If a water utility sends a bill over the Internet, it saves on printing, paper, postage and payment processing costs. Billers pay MSFDC a fee, roughly equivalent to the cost of postage, to deliver an electronic version of a bill or statement to their customers. For no additional cost, MSFDC also returns the payment and remittance information, like a bill stub, to the biller or the biller's bank. Since consumers can check on a payment's or bill's status on the Internet at any time, costly customer service calls also can be reduced.
Sending out bills and handling remittance information can be expensive for a biller. The variable cost of billing and handling remittances for many standard bills range from $.75 to $1, according to Ostrow. In addition, handling just one exception can cost up to $10 in additional labor and communications expense. According to Ostrow, if, for example, a customer does not write his account number on his check, the check becomes an exception for a biller, and sometimes it must be sent back, which is "very expensive."
Depending on a biller's size and current bill volumes, MSFDC estimates a savings of 20 to 40 percent of the biller's current variable billing and remittance costs with IBDP. Billers can expect to pay about $.30 to $.33 per bill for all steps of the billing process, according to Ostrow.
"It will be a real cost-saver for us," Bennett said. "The cost of printing and mailing bills is going up all the time. It saves money for us, for banks and for consumers."
In addition, MSFDC said that paperless billing and payment mean less chance for human error, which reduces overhead for handling mistakes and calls to customer service representatives. Payment decisions are executed online with a few keystrokes or clicks of a mouse. Accurate remittance information is automatically created and electronically returned.
"There's a lot less paper and it's an easier way to track payments," said Janet Gloyd, administrator of customer programs and services at Nevada Power Co., a Las Vegas-based utility.
When calls to customer service are made, both consumers and representatives have the same online view of an e-bill. MSFDC maintains payment records for both billers and consumers so payment history is immediately available to both parties. In addition, "SilkNet" software creates customized forms for every bill that consumers can directly e-mail to a biller's customer service department if they have questions or concerns.
"Billers need a better marketing relationship with their customers," Ostrow said. It seems IBDP is a step in that direction. According to Ostrow, simply by being part of the Internet, billers can interact with their customers on a much greater basis. With each e-bill, billers can promote and cross-sell related products and services to different customer segments using online advertising. Online advertising can also link consumers to more information from the advertiser.
"It's an extremely cost-effective way to advertise," said Bennett. Arizona Public Service will use IBDP as a consumer education tool as the industry becomes deregulated.
In addition, by retaining full control of the bill's image and design, billers can build and sustain brand equity. MSFDC gives each biller software "which allows them to create a very rich and interactive e-bill," Ostrow said. Logos and color schemes can be used to support the biller's identity. Since bill design software is based on Internet standards, design is easy to adapt or change. Special announcements can be inserted quickly and easily. Electric companies like Texas Utility use their e-bills to offer advice on how to save energy and broadcast news that is relevant to their consumers, such as using electricity during Texan heat waves. BFI customers can order new garbage cans or recycling bins while paying their garbage bills.
"We plan to use the Internet to our best advantage," Gloyd said. Nevada Power Co. will offer various products and services online, including Green Power, a renewable energy program.
"It's important to maintain customer relations," Ostrow said.
The Pilot Program
Currently, the MSFDC Internet bill delivery and payment program is in a pilot phase, with at least 28 biller pilot partners, six financial institution pilot partners and 17 Systems Integrators partners participating. The consumers involved are a closed audience, typically employees of the pilot participants. Each biller has about 50­p100 consumers in their pilot.
"It will initially be available to employees," said Gloyd. "But I know this is going to flow perfectly."
According to several reports, there are many more consumers who could and will be using a service such as IBDP in the future. In 1997, an estimated 4.5 million online households performed online banking, according to Jupiter Communications. That number is expected to jump to 13 million by 2000. In addition, according to the On-Line Banking Report, the percentage of online banking households that also pay bills online is expected to grow from 33 percent in 1997 to 60 percent by 2000, resulting in a growth rate in online bill payment of more than 80 percent per year.
Pilot partners are installing software, recruiting pilot customers, testing connectivity to MSFDC, designing electronic bills and service Web sites, and establishing operating procedures. All biller pilot partners receive a free biller pilot kit that includes MSFDC software called the Biller Integration System (BIS), a sample template for presenting their bills, translator information, a list of Systems Integrators they can work with, specifications, and operations and customer service plans.
MSFDC states that the program will be commercially available to consumers by the end of 1998.
"This will be an evolving service over time," Ostrow said. "This is just phase one of the ballgame."
What is Internet Bill Delivery and Payment?
Even though for the past two to three years customers could use personal finance management software to pay their bills instead of writing a check and dropping it in the mail, these systems did not lend added convenience to billers, who still received paper checks delivered from the consumer's banks. However, IBDP offers the entire process online (i.e., from presenting bills to consumers to delivering payments to billers).
IBDP sends bills, statements and invoices via the Internet to any computer or Web-enabled TV and, through the direction of the recipient, returns the payment and remittance information to the biller or designated lockbox.
How does this occur? Using the BIS, the biller designs bills or statements that would have been printed on paper and then connects to the MSFDC Service Center in Englewood. The Service Center is the central component of IBDP, serving as the clearinghouse of all presented bills, as well as remittance and payment instructions. The Service Center communicates with billers, financial institutions and consumers, and is specifically designed for access security and high performance. The Service Center acts as the operations and customer support headquarters.
To help billers connect to the MSFDC Service Center, a Systems Integrator Program has been established. Systems Integrators are companies such as Price Waterhouse and Unisys that have expertise with a variety of systems, industries and software to make integrating IBDP easier for billers and financial institutions. They provide trained third parties who can help both billers and banks integrate this service into their existing businesses. Products and services that Systems Integrators offer to billers and financial institutions include consulting, development, integration, Web-based design, support and on-going maintenance.
Once billers are connected, the MSFDC Service Center consolidates bills from many billers so consumers can find all their bills in one place. Usually this happens at a consumer's financial institution's Web site, to which the Service Center is linked.
This makes sense, given customers' habits and expectations. Customers are used to receiving all their bills in one place: their mailbox. If they are going to pay bills on-line, they do not want to go to one site to receive a water bill, another site to get a credit card bill, another site for the phone bill, and on and on. Since when it is time to pay bills customers reach for their checkbooks, a logical place to post e-bills is at their bank's Web site.
In order to make its Web site more useful and attractive to its customers, a financial institution can display account balances along with bill payment status. When consumers access their bank's Web sites, they can review bills and make payments using funds from a checking, savings or cash management account. Payments are sent to the Service Center until 5 p.m. on business days, allowing extra time for consumers who might have missed the mailman. Consumers whose banks do not participate in the service can pay their bills at an MSFDC Web site.
Customers do not have to write down or change any information created by the biller. Electronic remittance information, similar to a clean bill stub, is returned to the biller. Finally, payments are routed to the biller or a designated lockbox.
Though MSFDC does not guarantee on-time delivery of payments, it transfers them to billers quickly without holding funds. Since billers have different policies and procedures for accepting and recognizing payments, customers are responsible for understanding the biller's policies. Problems resulting from a failure of MSFDC to deliver a payment according to set performance standards that could cause late fees will be resolved by MSFDC dealing directly with the biller.
"If payment is delayed, MSFDC incurs liability," Ostrow summarized.
With news stories about crime occurring over the Internet filling newspapers and television everyday, consumers might hesitate about choosing electronic billing due to the lack of security they associate with the process. On the Internet the fear is that anyone might be able to gain access to their financial information.
However, for the most part, consumers who use Internet billing do not have to worry.
"It's a very secure system," Ostrow said. Access to bill data will require a password and no financial data of any kind will travel over the Internet in the clear, according to MSFDC. A user must have a browser that supports 40-bit secure sockets layer (SSL) encryption. Users also can choose 128-bit encryption and MSFDC will support banks requiring that level of security. The service complies with the Open Financial Exchange (OFX), a widely accepted specification for secured Internet transactions.
IBDP's set-up also eases customer's fears about Internet security.
"Most customers feel more comfortable going to their bank's Web site," Ostrow said. "Customers feel they have the highest level of security there."
In addition, MSFDC has established a set of Information Privacy Principles to govern the daily operations of IBDP. For example, MSFDC states that it does not collect more personal or private information about its consumers than is necessary to administer the billing service. It also states that it will not share any personal or private information collected with any third parties, except to comply with certain legal and regulatory processes.
"My guess is there's a lot of people looking for a service like this," Bennett said. "I can't wait to use it myself."
He estimates that out of the 800,000 customers Arizona Public Service covers, approximately three percent, or 20,000, will use IBDP. Bennett states that APS will work hard to get more customers involved in IBDP. The company will market IBDP with special promotions and paper bill inserts.
Gloyd estimates that two to three percent of Nevada Power Co.'s 500,000 customers will use IBDP, but expects that number to increase. NPC will use advertisements sent with paper bills and newspaper ads to market IBDP to its customers.
Ostrow feels strongly about the customer appeal of IBDP. "This is one of the first applications I think my mom and dad will use on the Internet," she said. "It gives value to our time online."
Online Bill Presentation and Payment Options
Other online payment options are being offered by utilities directly to their customers. Both CyberCash, Inc., Redwood City, California, and CheckFree Corp., Atlanta, Georgia, offer a variation of Internet bill delivery and payment that makes this possible.
CyberCash's PayNow is a secure electronic check service implemented at the biller's own Web site. Making a payment using PayNow is an easy process. At the biller's Web site, the customer enters a pre-assigned user ID and password to review the billing information. A click on the "PayNow button" pays the balance due, or the amount they wish to pay. All financial information that passes over the Internet in this system is secured through encryption technology. These payments are then linked directly to the biller's bank and accounting systems. For billers to get bill presentment capabilities on their Web site, they may work with one of CyberCash's partners, choose their own partner or build their own bill presentment vehicle.
CheckFree's E-Bill is built around an open architecture that allows billers to send E-Bills from their existing systems without any special hardware to purchase or software to support. In addition, this system gives billers the option of creating and housing HTML bills in-house or outsourcing bill creation to a service bureau. Electronic bills are presented to the customers in color with graphics, logos and full billing detail. This single site bill presentment permits bill-paying customers to go directly to a financial institution's Web site to receive and pay all of their bills and have their bank accounts updated automatically.
Other providers specialize in one area of the online process. International Billing Services, El Dorado Hills, California, is a statement processor that will convert a biller's paper bill data into electronic statements and deliver them through any major bill delivery system. IBS takes care of data integration, statement presentment, inserts, payment processing and accounts receivable updates. Its Direct Access online monitoring system allows billers to track all statements through the process so they know when a statement has been created and when a consumer has viewed it and paid.