Xenakis on Technology

Electronic Billing and Payments Save Money

Written by John J. Xenakis for CFO.com, Jan 24, 2001.

It's a killer app, but so far no one's been able to tame it.

At Texas A&M University, 45,000 students use the "Aggie Card," a prepaid debit card with which they purchase goods and services both on and off campus. Each month, students receive, by secure E-mail, a detailed statement of all charges on the card. The concept sounds simple enough -- send out bills and statements by E-mail and, when appropriate, have the customer use his or her mouse to click the "Pay" button to pay the bill from a credit card or checking account.

It's all part of the latest phenomenon in retail banking, Electronic Bill Presentment and Payment, or EBPP. Banks have been eager to promote this service for years, and if it becomes widespread, they and some of their larger business customers could save millions of dollars a year by eliminating the printing, mailing, and handling customer statements and paper checks.

Unfortunately, no large company in the United States has implemented EBPP, says Michael Killen, CEO of consulting firm Killen & Assoc.

"There are about 30,000 good-sized companies in the world, and about one-third of them issue large numbers of monthly bills," he says. "In the near future, all of them will be equipped to send out all their monthly bills electronically, while still issuing some by paper."

However, many retail customers are ambivalent about electronic bill payment. According to a Gartner Group study of 40,000 U.S. households last spring, 50 percent of the 130 million adults who use the Internet do not want to receive their bills over the Internet. Another third aren't sure.

"I see this [EBPP] as very parallel to moving from bank tellers to ATM machines in the 1970s," says Gartner Group analyst Joyce Graff. "There was a lot of resistance to ATM machines, because people enjoyed talking to the pretty girls behind the teller windows. Then people realized that they could get cash on Saturday evenings, and they started preferring ATMs."

In fact, EBPP has taken root in some other forms. For example, Saks Fifth Avenue allows its credit card customers to pay their bills online, but it's not E-mail based. The customer has to go to his or her Web page on the Saks Web site, view the bill, and pay it electronically.

In terms of E-mail bill processing, the Aggie Card application is one of the most advanced, but even it only does only half the job: It presents the statements by E-mail, but since the card is a prepaid debit card, there's no payment by E-mail.

Still, the university is very pleased with the results so far, according to Charles Boatwright, who supervises the Aggie Card program. Texas A&M is particularly pleased with the savings the card generates in handling student payments.

In addition, the university is also happy with the appearance of the E-mail statements. "It has to be pretty," he says, "and it has to be an interactive document. So one of our goals was to send out richly formatted text and have places where students could click on things."

In addition, Boatwright says the university guarantees delivery of student payments. Texas A&M uses an ACI MessagingDirect (http://www.messagingdirect.com) software system that ties the university's student E-mail system into billers' back end accounting software. The system collects billing data, formats the data into an interactive E-mail message and uses public key encryption to guarantee to the recipient that the statement is valid.

Boatwright says the university can guarantee delivery in its closed environment, particularly because he was able to pre-assign E-mail addresses.

"Companies that try to do this [with the general public] are going to have a hard time," he says. Many customers won't have E- mail addresses or have temporary addresses. We wouldn't have implemented this system if we hadn't found a way to guarantee deliverability."

ACI MessagingDirect says its software will guarantee delivery of the payment. The company's major competitor, MicroVault Corp. (http://www.microvault.com) says its software will do the same. However, the two companies are using different standards-based technologies, with the result that MessagingDirect's software provides a larger number of security features, but only customers running certain browsers (and AOL's browsers are not among those) can receive bills by E-mail. On the other hand, MicroVault indicates that its technology works with all browsers.

Implementing either company's solutions has both up front costs and transaction fees. Typical consulting fees for integrating the system into a biller's accounting systems are $100,000 and up.

Both companies charge for use of their software on a transaction basis -- number of bills delivered and paid, with MessagingDirect charging 5 cents to 30 cents per bill, depending on features used, while MicroVault quotes an average of 10 cents per bill. In addition, both companies require at least a $100,000 up front royalty prepayment -- money from which the transaction fees are deducted.

How long will it be before a large utility or telephone company uses E-mail to send bills and receive payments? There are still a number of hurdles to jump, according to Joyce Graff.

"For this to work today, you need some community of interest, such as people trading in auto parts or all the doctors in the same HMO," says Graff. "There's a big leap going from a bounded user community to the general population. I think we're going to get there, but to achieve it you'll have to Internet- enable all those customers, and that's a huge challenge."

Despite the challenges, any company that uses snail mail to send out paper bills and receive paper checks should be seriously looking at this technology, because of the potential savings.

According to Graff, we should look to Europe and Asia for answers. "Everyone's sticking their toes in the water, but it's much farther ahead in Europe than in the U.S.," she says, pointing out that in Europe people can receive and pay bills on their cell phones.

"There are banks in Europe giving away Internet-enabled telephones, just as our banks give away toasters, just to allow for this kind of bill paying," she says. If U.S. banks adopt a similar promotional strategy, the market could take off.

(This is a modified version of an article that originally appeared on Jan 24, 2001 on CFO.com at this location. )