Channel Partners

April 1, 1999

7 Min Read
A Road Map for Internet Billing

Posted: 04/1999

A Road Map for Internet Billing
Part Three of Three
By Richard K. Crone

When the numbers are
evaluated objectively, as was done in parts one and two of this three-part series, the
biller-controlled channels for Internet bill presentment and payment (IBPP), such as
direct-at-the-biller’s-own-website, offer the greatest revenue and cost-reduction
opportunities in the shortest possible time. This points to a deployment strategy of first
implementing the biller-controlled channels, and making the distribution of bills through
other IBPP channels a "consumer-defined option." Let’s see how this plays out
for billers and their banks.

Billers, Watch That First Step

As we discussed, each individual bill payer ultimately will decide which IBPP channel
is most convenient. Thus, a biller eventually will have to support them all. The channel
that a biller selects to get going with IBPP will make all the difference down the
road–not just from a return-on-investment (ROI) perspective–but from the marketing,
customer care and cash management perspectives as well.

The most important thing for a biller to remember is that it must control enrollment to
maximize the IBPP customer care, revenue and cost-reduction opportunities, regardless of
where the bill is presented. When a biller enrolls a consumer, rather than a home-banking
service or third-party concentrator, the biller has the opportunity to gather valuable
information about customer preferences and demographics–invaluable information for
crafting effective customer care, marketing, online sales and customer loyalty-building
programs. It also provides the biller with the opportunity to register a customer for
payment options without reliance on third parties. In addition, a biller also should
control the settlement process by placing the electronic payment lockbox on the
electronically presented bill. This way, regardless of which channel a consumer selects to
render payment, the lockbox on the bill will bring the payment back to the biller and thus
further reduce inbound float while garnering another source of marketing–packed trackable

Establishing an initial IBPP presence at its own website enables a biller both to
directly enroll its customers and control the payment process, no matter where customers
eventually may elect to view and pay their bills electronically.

Once a biller’s direct website IBPP capability is launched, billers then can follow the
lead of Hollywood movie producers who know how to derive maximum value from their content.
Before a movie first plays, theatergoers are lured to the snack bar to enable theater
owners to make their profits–rather like electronically presented bills lure consumers to
a biller’s website where they can be engaged in one-to-one marketing dialogues. After the
producer has raked in the theater revenues, a hit movie generally is rolled out to
pay-for-view cable or satellite, followed by "premium" movie channels, followed
by airlines and, then, videocassettes. Finally, the widest possible audience gets to see
it on broadcast television. Reverse this process, or any part of it, and the producer
starts leaving a great amount of money on the table.

A biller looking to maximize ROI, brand awareness, cross-selling opportunities and
advertising revenues can follow the same type of progression, starting with its own
website. The next step could be biller-controlled e-mail, followed by browser subscription
and, then, by shared links. Once these biller-direct channels are deployed, a biller can
address the home-banking channels where ROI and marketing opportunities are considerably
diluted, but where some customer segments will insist on going.

No matter how many channels a biller opens up for its customers’ convenience, they
still can be brought to the biller’s own website for enrollment and payment registration.
And by leading first with biller-direct, the biller is assured of having registered the
early IBPP adopters, who may prove to be among a biller’s more affluent and perhaps
profitable customers.

Bankers Align Strategies

In IBPP, the bank is a biller’s support staff and its partner. Billers are in the best
position to promote, enroll, authenticate and register their customers for IBPP services.
But to help "their" billers gain maximum advantage from IBPP, banks also should
work behind the scenes in supporting billers in the same way they do with direct debit
programs by letting the biller embed payment on its bill regardless of the electronic
viewing and payment channel. This not only enables payments to flow immediately back to
the biller, but also helps banks protect their overall payment franchise from nonbanks.

Graph: Biller-Controlled Channels Have the Greatest Return on Investment in
Shortest Time Period

Banks need to remember their own experiences in deploying earlier electronic
distribution channels. With automatic teller machines (ATMs), supply created demand and
the bank registered the customer. Then came home banking, which only truly took off when
the Internet allowed customers to go straight to the bank’s site and avoid third parties
when viewing the bank’s content. Finally, there is direct debit, in which payment follows
the bill. Banks need to marshal this experience on behalf of their billers today to craft
strategies that enable:

  • Content holders to register consumers;

  • Billers to control content and posting; and

  • Payment to follow the bill.

To do this, banks need to reconcile their retail and wholesale objectives in regard to
home banking and IBPP. As we’ve discussed, retail banks are only resellers of home
banking. A nonbank is typically behind the scenes performing the enrollment and processing
functions. Thus, retail home banking is cost-driven. Wholesale banks, on the other hand,
are suppliers of cash management services and thus are revenue-driven. From the biller’s
perspective, when they are dealing with the wholesale side of the bank, they are dealing
with the original equipment manufacturer (OEM), not a middleman or reseller of
home-banking services. By dealing with the OEM, a biller has greater control over the
quality of service (QoS) and functionality as well as bargaining position. A wholesale
bank can make money by serving one big account well, while a retail bank has to serve a
multitude of customers to turn a profit from a delivery channel such as home banking.

The problem is, there hasn’t been a multitude of home-banking users. There are perhaps
5 million households at best. And of those that take advantage of home banking on the
Internet, almost all of them use it merely to check their account balances, or perhaps to
move money around–not to pay bills. IBPP can bring many more consumers into the
home-banking fold, but should home banking be the channel through which banks attempt to
drive IBPP and thus serve their major billers? Probably not.

Graph: Maximize Customer Contact and Revenue Opportunities by Strategically
"Timing" the Release of Your Content in Each Channel

Wholesale banking needs to drive IBPP, not retail banking. It is the biller-controlled
channels that best leverage wholesale banking’s strengths. This is because biller-direct
channels, such as direct-at-the-biller’s-own-website or e-mail, leverage the highly
profitable cash management services that wholesale banks provide to major billers today.
For example, direct debits (the lowest-cost forms of remittance) typically are processed
in-house, not by third parties. The biller interfaces with the consumer, and the bank
interfaces with the biller–a simple two-party model with no third-party intermediation.
Transfer this to the biller’s own website–with the consumers paying bills at their own
pace via electronic check–and you have an equally simple two-party model with an equally
low-cost form of remittance.

Banks need to encourage billers to lead with biller-direct channels where they can
enroll their own consumers and control their own content and posting. This will protect
banking’s payment franchise while maximizing billers’ returns. Then, to capture shares in
what will be a rapidly expanding IBPP market, banks can extend payment services to all
channels. The retail side can target traditional home-banking customers by supporting home
banking-controlled models such as thin and thick concentration. The wholesale side of the
bank, meanwhile, can focus on using supporting biller-direct models to woo the huge number
of consumers presently utilizing direct-debit bill-paying services, along with targeting
those consumers using financial management software packages but not currently going

Embedding Payment on the Bill

For banks to follow this two-pronged banking strategy, and for billers to address all
IBPP channels profitably, banks must support their billers in electronically embedding
payment capabilities on their electronically presented bills. This way, no matter where a
bill is presented and paid, the payment will come back to the biller for processing at its
bank. By embedding payment on a bill before it is rendered at third-party sites, such as
thick concentrators, the biller can avoid many of the cost disadvantages associated with
home banking-controlled channels. Billers also benefit by their ability to leverage their
combined electronic funds transfer (EFT) requests with their wholesale bank while
optimizing settlement schedules to obtain the best possible availability of funds–a major
cash management and customer care value-add.

Richard K. Crone is vice president and general manager for CyberCash Inc., Oakland,
Calif. He can be reached at [email protected].

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