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Are consumers going for electronic billing?

January 27, 1999
Web posted at: 10:39 a.m. EST (1539 GMT)

by Jackie Cohen

(IDG) -- The price of postage just went up a penny. While that doesn't sound like much, it can add up to a small fortune if you have thousands of items to mail each month.

The increase is certainly meaningful to Consolidated Edison. The utility has 3 million customers – which means an additional $30,000 a month in postage costs.

But Con Ed has found a way to soften the blow. The New York-based power company has begun delivering bills to customers via the Web through a pilot test with TransPoint, an electronic bill presentment and payment venture formed by Microsoft and First Data Corp.

Electronic bill presentment allows companies to create an invoice electronically and deliver it on a Web site or via e-mail. The resulting bills are not only more interactive than paper versions, but also faster and cheaper to generate.

Before the online billing opportunity came along, Con Ed would spend 60 cents per bill, including paper, printing and delivery. Factored across the utility's entire customer base, that's $1.8 million a month, or $21.6 million a year, just to tell people how much money they owe. At least theoretically, electronic bill presentment can reduce the cost to just pennies per bill.

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"Our goal is to cut our costs in half," says Dennis Jwor, director of treasury operations at Con Ed. The utility has a long way to go. "There are lots of software and labor costs," he says. "TransPoint provides you with software as part of a service; but then you have to hire an integrator or build the integration in-house. Then there are transaction costs, plus promotion costs."

If the program catches on, the costs will be recouped quickly. The utility only needs to sign up 100,000 customers – and wean them entirely off of paper – to break even. Con Ed expects it won't take too much work to bring that many people on board, based on the success of other electronic payment initiatives. In just one month, for instance, the utility signed up 60,000 people for direct debit from their checking accounts, a service promoted mostly through statement stuffers.

Con Ed is riding a growing trend. Roughly one-fourth of high-volume billers are currently installing online billing solutions, and another 30 percent plan to do so by 2000, according to new research report from the Gartner Group, a Stamford, Conn.-based consulting firm.

The hard part will be getting consumers to play along. Most electronic bill presentment services require that you visit the Web site of the biller, bank or billing vendor – the bills usually aren't transmitted to the consumer. And who really likes to look at bills, let alone go out of their way to find them on the Web?

That has not stopped portals from making a play in the bill presentment business. With 10 million members, Netscape's Netcenter has the greatest muscle of any of the dozens of vendors pushing bill presentment schemes. And the acquisition of Netscape by America Online only strengthens their position over niche presentment vendors.

Still, to lure people into the program will require some ingenuity. "There's a lot of inertia built into paying bills," concedes Ben Horowitz, Netscape's VP of customer relationship applications and the head of the company's new BillerExpert program. "If you don't provide the customer with more things of interest, they're not going to come online just to save you money."

Netscape views online billing as a way to tighten links to customers. For companies like utilities, "their only regular conversation with the customer is the bill," Horowitz says. Making the bill interactive is a way to reach out to customers, as well as target market products to them.

Beta testers see promise in Netscape's bill-paying venture. "In two years, it will cost half of what it costs today to do payment and billing," says Shelly Smith, general manager of Advanced Interactive Solutions, a Regina, Saskatchewan-based Internet service provider owned by Sasktel, the Canadian province's primary telephone company. Online billing is a useful way to reach customers in a vast rural area like Saskatchewan, says Smith.

An added benefit of bill presentment is that it encourages electronic payments, rather than paper checks. When customers view bills online, they're more inclined to pay them electronically, which can be done quickly with the click of a mouse.

Electronic payment offers both cost savings and faster collection. It typically takes about four days for a biller to receive a paper payment. According to CyberCash, an online payment vendor in Reston, Va. Electronic bill payment and presentment can cut that time in half.

The biller can also gain new advertising revenue streams. Not only is there no limit to the number of virtual advertisements that can be included with the bill, but ads can be more dynamic and better targeted. And there are additional marketing and branding benefits: For one thing, electronic bills can be far more easily customized.

Customization is definitely on the drawing board for AIS. In addition to using BillerExpress to invoice its own customers, AIS plans to resell the service to small businesses in Saskatchewan. AIS is pitching BillerExpress to 20 companies too small to afford their own online billing solutions.

Online bill presentment makes sense, not just for consumers, but also for business-to-business transactions. "Forty percent of checks written in the U.S. each year come from corporate disbursement accounts," says Richard Crone, VP and general manager of CyberCash, which couples its electronic bill payment service with the presentment offerings from other companies.

Bill presentment software and services are increasingly coming from large vendors rather than niche providers. Oracle, for instance, recently jumped into the fray with its Internet Bill and Pay program. While most of the presentment players make an effort to integrate online billing with accounts-payable and -receivable systems, Oracle has an obvious advantage: Many companies already use Oracle's market-leading database software to track billing-related information. Both Electronic Data Systems and CheckFree are installing Oracle's software in their data centers to beef up their own products.

With a strong growth forecast, players have rushed into the market. At least 22 companies provide bill presentment, payment and remittance processing. Throw in home banking vendors that support bill payment, and the number of players nearly triples.

While online billing made its debut in financial services, vendors are having better luck selling directly to merchants, rather than relying on banks to provide these services. However, that hasn't cooled the interest of banks, which see presentment as a way to retain their hold on the payments business, a sector that continues to be bombarded by new, "nonbank" competitors.

Banc One, of Columbus, Ohio, is preparing to add billing to its Web site. The bank would sell bill presentment with various corporate services, explains Ginger Moses, an Internet product manager at the bank. With the addition of the billing service, businesses will be able to get payroll and invoicing chores accomplished with a single vendor. Banc One is offering the service through Integrion Financial Network, a Philadelphia-based consortium owned by a group of banks and CheckFree, of Columbus, Ohio.

Despite all this activity, the market so far is largely theoretical. The average consumer receives six to 12 paper bills per month, according to a survey conducted by E.M. Lady & Associates, a Sherman Oaks, Calif.-based market research firm, on behalf of Home Financial Network, a home banking vendor based in Westport, Conn.

Larry Martinez, senior industry director at Oracle, notes that "10 percent of online households have shown a propensity to see bills electronically. There's enough of a market there to grow."

Early adopters for online billing have been utilities and online services. A recent poll of 300 consumers by E.M. Lady & Associates found that 55 percent would like to receive electronic bills from utilities and 51 percent would like to get them from online services.

The biggest generators of paper bills are the automotive industry and the health care industry, which each generate 18 percent of all bills, according to Gary Craft, an analyst at BancBoston Robertson Stephens. Utility companies account for 15 percent, he reports, while housing-related bills rank next, at 12 percent.

PERCENT WHO PREFER ELECTRONIC BILLS
Utilities	55%
Online Services	51%
Insurance	51%
Mortgage/Rent	49%
Car Loans	45%
Gasoline Cards	43%
Department Stores	41%
Health Clubs	38%
Medical Bills	35%

One utility, NUI, of Bedminster, N.J., sees electronic bill presentment as a way to enhance customer relationships and cut costs. The utility estimates its paper billing costs to be $1 to $2 per invoice.

Of NUI's 370,000 customers, approximately 13,000, or 4 percent, participate in the company's alternative payment program, which includes online billing. "It doesn't matter how they pay; it's a matter of us getting rid of the paper – both invoices and checks," says Randi Mathios, manager of corporate development at NUI.

NUI gets its systems from Princeton Telecom, of Princeton, N.J. The NUI program bundles together direct debit, telephone and Internet bill-paying options. So far, only NUI's largest customers receive bills via e-mail, with summary bill detail available on the utility's Web site. By the third quarter of this year, however, NUI plans to expand the program to include smaller customers.

Utilities larger than NUI – along with ISPs – are better candidates for online billing because of their large customer bases and the potential for cutting costs. But regardless of the size of the biller, the real challenge isn't technical – it's convincing consumers to look at bills online.

Bills, bills, bills!

A recent survey found that consumers would prefer to receive electronic bills for utilities, online services and insurance.

Source: E.M. Lady & Associates, on behalf of Home Financial Network