And the Winner Is: Biller-Direct or Consolidator?

Today, nearly 98% of electronic bills are delivered via biller-direct sites, while just 2.3% will be viewed at consolidator locations during 2003. The consolidator model, once viewed as the inevitable future of the market, has demonstrated agonizingly slow growth as a means of presenting bills. Further, many banks and other prospective providers do not even offer the service. At the same time, in the absence of a commitment to electronic bill presentment on the part of many potential consolidators, a large number of billers have pursued the biller-direct model as their sole strategy for the delivery of electronic bills. As a result, the biller-direct model appears to have won, becoming the victor in a struggle that never came to full fruition. However, while facts such as these convince many to declare biller-direct the champion, TowerGroup believes it is premature to declare a winner.

Ultimately, TowerGroup does not believe that a single provider type will win. Bill presentment is only a piece of the story, and online bill payment activity, in fact, reveals some different dynamics than presentment, providing insight into the direction the market is headed. Consumers will dictate how and where they want to receive and pay bills, some finding value at biller-direct sites while others demand consolidated delivery--and consolidated payment--at their e-mailbox or at a single online site. Hybrid models and usage will also be possible. While the pervasiveness of the current model of biller-direct bill delivery will take some time to dissipate, a variety of forces will contribute to the growing use of consolidator sites. Over time, a larger number of consumers will prefer consolidation to viewing and paying just one bill at each biller-direct site.

While consolidated online bill payment services have been offered since the early 1990s, expansion into electronic bill presentment has been more recent, with many consolidators beginning to offer presentment only within the last three years--and many others still offering only online bill payment. (Note that in addition to processors like CheckFree, Metavante, Princeton eCom, and Online Resources, the consolidator market includes banks, brokers, portals, and other organizations. Although presentment has been available to users of many of the processors' platforms for some time, until more recently, only a small portion of organizations had deployed the presentment option.) Yet while many consolidators dallied, big consumer billers began implementing electronic billing programs. Many chose biller-direct delivery in part because the options for consolidated delivery were limited. Additionally, many billers felt that biller-direct was the best approach because it allowed the billing organization to have direct control over its customers' experience. As a result, biller-direct presentment has grown quite rapidly over the last several years.

In contrast to presentment, online bill payment originated primarily as a consolidator practice. It was not until billers began to offer electronic bills at their sites that online bill payment became a common biller-direct practice as well. The main difference between the biller-direct and consolidator offerings is that biller-direct sites offer bill payment services only for their own bills, while consolidators are the primary providers of so-called "pay anyone" functionality. Further, many consolidators that are payment processors (e.g., firms like CheckFree, Metavante, Princeton eCom, banks that do internal processing, etc.) actually provide services to fulfill the bill payment instructions entered at biller-direct sites. Today, consolidator processors issue more than 40% of the payments originated at biller-direct sites. Thus, while biller-direct presentment is causing a surge in bill payment activity at biller sites, consolidators continue to process the lion's share of all online bill payments.

Of course, the relative dominance of the biller-direct and consolidator parties in handling online bill payments can be debated depending on how you look at the issues of origination and processing of payment instructions. Until 2001, the majority of online bill payments were initiated and processed at consolidator sites. But by 2002, the increase in biller-direct billing activity led to a rise in online bill payment initiation at these sites that surpassed the level of consolidators' activity. TowerGroup projects that this dominance will continue for the near-term, with billers controlling the bulk of bill payment originations through 2009. Simultaneously, however, consolidator processors will continue to handle the majority of payment processing activity, and their processing share will continue to climb following a 2003 low. TowerGroup expects that this processing function will be one aspect of value-add that contributes to an overall enhancement of the consolidator position over time (although, notably, not all consolidators perform processing functions).

The use of consolidator platforms will continue to grow for a number of other reasons as well. These factors include some of the tightly interrelated aspects of presentment and payment functionality such as:

* Growth in the number of electronic bills available per household. An increase in electronic bills available to individual households will boost consumer interest in single-point delivery.

* Access to pay anyone functionality. Consumers will increasingly seek consistency in online bill payment practice and full support of all of their bill payment requirements.

* Circumventing technology. Aggregation technology is being increasingly employed to circumvent biller-direct only scenarios and enable consolidated delivery of bills.

* High-value delivery platforms. While many biller-direct sites can and do offer significant value-add to consumers, consolidator platforms are evolving to offer strong value as well. Today's modus operandi for consolidated delivery is to surpass the functionality available in a biller-direct environment.

And the Winner Is?

While absolute bill presentment activity at biller-direct sites will remain higher than consolidator activity well beyond a five-year time horizon, the overall increase in the use of electronic bill presentment services will have a positive effect on the growth of both biller-direct and consolidator sites. As consumers' use of consolidators' sites expands, billers that are new adopters of electronic bill presentment and payment (EBPP) will more readily see the benefit of offering both biller-direct and consolidated delivery to enable their customers to choose either alternative. Ultimately, no one will "lose" as consumers achieve broad adoption of online bill presentment and payment services using the endpoint that best suits their needs.

Elizabeth Robertson is a senior analyst in the Global Payments practice at TowerGroup, a leading research and consulting firm focused exclusively on the global financial services industry. She can be reached at [email protected].