When it comes to contending in the electronic bill presentment and payment (EBPP) arena, banks possess a weapon they've lacked in technologybattles of late: a competitive edge. Experts generally agree that banks are in the ultimate position to profit from EBPP initiatives, leaving direct-billing rivals such as the United States Postal Service (USPS) in the dust.
"Banks have the trust with consumers," said Jeanne Capachin, an analyst with Meridien Research. "So they're in a really great position to capitalize on EBPP and extend the franchise. Banks should be in the drivers seat."
Not only that, but in the battle of biller direct versus aggregator, Meridien sees aggregators as the winners, another plus for banks, since financial institutions are playing a larger role in the ASP space. The reason for this advantage: convenience and cost. Although the USPS is developing its own EBPP system, under its model, consumers pay $20 a month after a free six-month trial-too much, in Capachin's view. "Consumers really want to just go to one place," she said, "and they don't want to pay for it."
Other observers concur. "Consumers want to be able to manage their bills all in one location and they want to be able to get that service through a financial service institution," said Murali Chirala, president and cofounder of San Jose, Calif.-based Cyberbills, an ASP that allows customers to view and pay all bills online, regardless of origin.
WAITING FOR ADOPTION
Although banks have the early lead in the EBPP race, by no means is the contest decided. Indeed, questions even remain as to just how big, and important, the EBPP market will become. Despite predictions by some that EBPP would take over the bill pay space by the end of the decade, current figures from TowerGroup estimate that only 29% of all bills will be paid electronically by 2010.
"Analysts had proposed a significant growth in adoption, but the industry didn't see that adoption," said Chirala. "Every year we've seen a revision of those predictions by keeping the numbers the same but moving the years."
There are lots of reasons for the slow acceptance of the technology, not the least of which is that consumers don't stand to benefit nearly as much as billers, and it's customers who ultimately drive adoption. But Chirala and others view the adoption problem from a different perspective: consumers want EBPP now, but it's failed to catch on because banks and other financial institutions have been slow in rolling out the technology.
Either way, circumstances have led to EBPP becoming a classic Catch 22 situation for banks and billers. To increase consumer demand for EBPP, money must be spend on developing systems and marketing efforts. But financial institutions are unlikely to spend money on EBPP since current demand is so low. Today, less than 1% of all bills are currently handled electronically, said Beth Robertson, an analyst at TowerGroup. "It's not a short-term revenue situation right now. It's a long-term positioning strategy."
This dynamic may be about to change. Banks that put off new tech investments until the Y2K scare was safely behind them are becoming concerned about losing business to a multitude of players. That, combined with solutions that enable speedier time to market, could propel EBPP.
"A big issue right now for banks is just the whole evaluation of entry into the business," Robertson said. "There are a number of banks that are beginning to become active, but nobody's a major player because nobody has major market share. It's a lot softer than you would expect at this stage-you've been hearing about EBPP for a number of years, but banks are still figuring out what they want to do."
Yet before banks can fully exploit EBPP, operational issues need to be addressed, including the lack of standards for electronic payment systems. "The biggest challenge is that there is no standard format for bill data," said John Shields, senior vice president of e-business at Patelco Credit Union. "It might take the government, like the Federal Reserve system did with ACH, to set a standard that everyone trusts and can agree on for both bill data and payment transmission."
San Francisco-based Patelco, which initiated an EBPP solution in January, skirted the standards issue by farming its business out to Cyberbills, which was willing to integrate with another Patelco vendor, Xpensewise, a Seattle-based provider of personal expense management software. Other banks are waiting to see what develops from Spectrum-an EBPP hub owned by several large banks (see sidebar on page 42).
Some experts believe standards may not even be necessary, especially for banks that have decided to outsource an EBPP solution. "That's typically how things evolve, into a common standard, but there's no real reason it has to be that way now," said Jack Roney, vice president of investor relations for San Antonio-based BillServ. "We can work with all the technologies that are out there now." BillServ, an EBPP service bureau, offers banks an outsourcing solution with a single point of contact on a pay-per-use basis.
An outsourcing solution like Billserv may be especially attractive to smaller institutions,. "A lot of institutions are spending a lot of money on an EBPP solution, but I think it's short-sighted," said Marc Mehl, president of E Commerce Group, a software company involved in automating payments. "I think more and more of them are going to say, 'Wait a second. The Internet changes so quickly, I don't want to make a huge upfront investment in a static solution.'"
Whether or not a bank outsources, Mehl said, consumer adoption may ultimately lie in a bank's treatment of EBPP. Banks, he said, need to recognize that EBPP should be a part of core customer service. "Very few financial institutions are looking at the Internet as just one more way to deliver the superior customer service they want to deliver. They look at the Internet as a special channel and set up a special Internet department off in the corner."
Banks need to integrate EBPP in the same way they did ATMs, Mehl said. "At first, ATMs were this foreign thing, then banks saw that they made a lot of sense. I think the same thing is true here. Institutions that don't adopt that are going to have a hard time."
That integration needs to encompass the bills themselves, noted Cyberbills' Chirala. "We need to see technology rise to the occasion of handling customer service problems. Today's electronic bills are fairly simplistic HTML documents-there needs to be a lot more interactivity built into these bills, such that customer service becomes easily accessible between the consumer and the biller's electronic bill."
THE RULES OF ATTRACTION
Innovative access to bill data, as well as extra perks for customers who adopt the service, will ultimately drive use of EBPP, experts agree. That may draw some consumers to the biller direct model. "A lot of billers are saying, 'Well I have to do something to distinguish my site.' So they'll provide an incentive or discount to bring traffic directly to their site," Mehl said.
"The big friction we see right now," he continued, "is figuring out whether consumers will go to one site to pay everything or will they want to go to individual billers. Right now, we see customers doing both."
Still, billers may well choose to run their own EBPP system and avoid aggregation. One reason Patelco wanted to integrate its EBPP service with Xpensewise was to take advantage of the aggregator's ability to analyze bill data, Shields said. For example, Xpensewise can check a consumer's telephone bill to see if the consumer is making long-distance calls, and then suggest a cheaper telecom provider. "That is a true value-add to the bill payment space," Shields said.
Another way to draw customers is opening up the playing field to competitors. Consumers want to pay their bills out of multiple accounts across multiple banks, said Cyberbills' Chirala. "Traditional bill pay doesn't offer that service," he added. "You can only pay out of the bank that offers the service."
Meridien's Capachin agreed. "That's a mindset that banks will have to grapple with," she said. "There needs to be an openness."
Banks need to get focused soon, said TowerGroup's Robertson. "There are a number of third parties actively playing in the field right now. Banks need to consider whether they will be disintermediated," she said. "It's not just about a single service-you have to look at the bigger picture and the longer term potential for this."
Raising The Standard
Spectrum, an electronic bill presentment and payment (EBPP) hub, is trying to bring much-needed order to the bill payments industry.
A joint venture of Chase Manhattan, First Union and Wells Fargo, Spectrum has begun processing payments and is seeking to get top banks and billers to use the service. "We believe we'll have seven of the top 10 banks using the switch by the end of the year," said John Perry, chairman and CEO of the Atlanta-based company.
The three owner banks alone represent some 400 million bills a year, which should drive adoption up substantially.
Spectrum converts bills using an enhanced OFX platform along with an IFX switch. Each bank, however, is developing its own method for presenting bills to the consumer.
Spectrum is the shot in the arm EBPP has needed, according to Jeanne Capachin, an analyst with Meridien Research. "Without standards, we think this is all going to die out pretty quickly because it's just not manageable."
"We're just waiting to see how the industry is going to sort itself out," she continued. "We're really afraid of making prognostications about where we see this market going because there are just a lot of variables."