EXECUTIVE SUMMARY

The benefits of electronic bill presentment and payment (EBPP) are undeniable. Although its promises have been promoted for a decade, it has finally reached critical mass in the market with the number of electronic bill payments surpassing checks. However, the technical and financial effort required for a biller to implement an in-house EBPP solution can be both challenging and expensive. As an added liability, billers are concerned about the possibility of slow customer adoption rates and the extended time it may take to recoup their investments. Alternatively, billers can outsource their EBPP needs to a consolidator, but they place themselves at the risk of losing personal contact with their customers or losing the customers themselves. An innovative alternative presented in this whitepaper is for billers to outsource their needs to an EBPP managed service provider (MSP). An EBPP MSP can provide the economies of scale, breadth of features and the security safeguards of a consolidator yet deliver the billers value and brand identity to the customer all without a huge up-front investment. As an added benefit, a unified customer enrolment campaign can be facilitated by extending and reinforcing existing customer communications. If desired, the EBPP function can be systematically and transparently transitioned to in-house operations at a later time, as customer adoption accelerates and the volume of payment transactions grows.

Introduction For nearly every business, the simple act of collecting payments from consumers is actually quite complex. Organizations want to make it easy and convenient for customers to pay, so they offer multiple choices of payment types and channels. Customers can mail a check, phone in a credit card number, pay in person with cash, directly debit a bank account, and more. However, making it easy for the consumer often makes it more complexand costly for the business. To further complicate the situation, there are several major trends that are changing the face of consumer bill payment. For example, a full two-thirds of all bills are expected to be paid electronically by 2012up 20 percent from 2007with most of the growth destined for Web and phone applications. This kind of seismic shift in customer behaviour will have a significant impact on your companys payment processing operations, and will necessitate careful planning to properly address. Current Market Trends With the increasing shift in bill payments from a mailer to e-mailer, it is necessary for a company to develop several models for the revenue collection using internet gateways. Before defining some of the models, it is necessary to look out the trends in the market for bill payments from customers side. 1) Trend 1: Mail-In Payments Are Declining Rapidly It is estimated that the volume of checks paid in the United States peaked around 1995 at 49.5 billion and steadily declined to 30.6 billion in 2006. This downward trend is expected to continue. In contrast, there were 62.7 billion electronic payments in 2006, accounting for 67 percent of all non-cash paymentsup from a 54 percent share in 2003. The trends for consumer-to-business (C2B) bill payments are in lock-step with the overall payment trends. According to the financial industry research, consumers have heartily embraced the switch from paper to electronic payments. By 2012, 64 percent of consumer bill payments will be electronic, up from 49 percent in 2008.

Source: Aite Group. 2) Trend 2: Biller Direct Is Becoming the Preferred Payment Method As mentioned earlier, many consumers are putting away their cheque books and embracing electronic payment methods. Increasingly, these electronic payments are going directly to the biller, mostly through biller web sites or via interactive voice response (IVR) systems (a payment model known as biller direct). As predicted that the biller directs share of consumer bill payments will be 31 percent by 2012, and billing consolidators share of the payments will be about half that at a 15 percent share.

And its not just Web-based payments on the rise. It also estimated that phone-initiated bill payment volume will double over a five-year period to reach over 300 million transactions by 2012. In surveys, consumers cite numerous reasons for their preference for direct payment methods, including faster posting of payment, certainty of payment and convenience. Biller direct gives consumers greater control over when a payment is made as well as confirmation that it has been completed. Consumers rapid adoption of biller direct payments has been no fluke. Many billers have consciously hastened this transition. For example, paper invoices often prominently display Web addresses and phone numbers where consumers can pay bills. Direct-mail campaigns encourage people to save time, avoid late fees and enjoy other conveniences by paying online or over the phone. As a result, consumers have heeded the advice, putting their cheque books, pens and stamps in the drawer and heading to the computer or phone instead. For the biller, of course, a vast increase in direct payments has its own set of implications some of which are good, and others that create new challenges. On the plus side, for example, billers have an opportunity to interact directly with customers, typically over the Web or via telephone. This presents an opening to up-sell or cross-sell additional products and services to customers, and to draw them into more forms of self-service such as account management and online customer support. In addition, a well-designed Web site reinforces your branding, leaving a positive impression on customers each time they visit. And now with new Web 2.0 technologies, the Web site can deliver a highly personalized and interactive experience for customers, further influencing their desire to return. Another big advantage of more customers using biller-direct Web site is the opportunity for e-presentment of the billing statements. Web-savvy customers who already pay bills via the Internetparticularly those in the 18-to-35-year age bracketare much more likely to accept the billers offer of e-bills versus a printed and mailed statement. This is good news for billers who want to reduce expenditures on paper-based processes and get more customers to migrate to electronic bill presentment and payment (EBPP) systems. 3) Trend 3: Cards Are the Fastest Growing Payment Type As per the survey, card payments, both credit and debit, are forecasted to grow at over 15 percent annually between 2008 and 2012, reaching nearly 17 percent of all bill payments.
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This growth will be driven by consumers who prefer card transactions due to convenience and rewards program incentives, as well as by an increasing number of billers electing to accept cards as a payment type to satisfy consumer demand. Reductions in interchange fees in key verticals such as utilities are also leading to the increase in card acceptance.

The trend toward using credit and debit cards for bill payment has numerous implications for billers in terms of how they balance consumers desire for payment type choice versus the higher cost of accepting card payments. While corporations certainly want to provide choice that does not suggest that all payments are created equal. The chart below compares the cost per item of various transaction types. Its clear that billers have a lot to gain from driving customers to ACH-based online payments. 4) Trend 4: Growth in the Number of under banked Households Needing Alternative Payment Channels The underbanked population is large and growing, especially among immigrants. According to the Center for Financial Services Innovation (CFSI), the underbanked population has 40 million households, for a total of 106 million people. This includes the unbanked population, which the Federal Reserve Board estimates to be in the range of 12 million households. Not surprisingly, cash is the dominant method of payment among the underbanked: Prepaid debit cards are a payment device that offers great promise to both the biller and the underbanked customer. Using these cards, consumers can pay bills, make retail purchases and get cash from ATM networks. The growing category of general purpose reloadable (GPR) cards targeted at the underbanked population enables users to direct deposit paychecks onto
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the card or visit retail/ATM locations to load cash. The cost of accepting a prepaid debit card payment is usually less than accepting a money order or cash payment, and bills are paid more quicklyhelping the customer to avoid late fees. At the same time, consumers who use prepaid cards do not need to secure a traditional banking relationship or get approval for a deposit account for revolving credit.

Source: CFSI Online Collection Process With the growing trend of e-payment schemes and use of prepaid/credit cards for payment of bills, it is necessary for a telecom operator to provide a viable and easily usable interface for the customers so that the model implemented is profitable for the operator and easily accessible for the customers. As mentioned earlier, the use of Electronic Bill Presentment and Payment (EBPP) is increasing; there is a possibility for a telecom operator to have a one to one customer relationship. Taking into the account the above considerations, various models for EBPP can be used for customer enhancement and revenue collection process. Benefits of EBPP for Billers The primary benefits of EBPP to a biller are two-fold reducing costs while improving customer satisfaction and retention. Even as the benefi ts may be obvious, the factors contributing to success may be less apparent. To better understand these benefi ts, lets take a closer look at each of the following: Operational cost savings Theres no argument that handling paper bills is expensive: the outbound cost of paper, printing, collation and postage; the time consuming and labor intensive inbound process extracting payments from envelopes, entering payment data,

reconciling the collected payments and physically making deposits. Besides automating the publishing and distribution of bills, EBPP also enables electronic payment of transactions, which eliminates these arduous aspects of bill processing. Reductions in customer support costs Customer support calls are expensive, and most often billing-related, with industry estimates ranging as high as 70%. Past attempts to lower customer support costs through automation have used voice response systems for incoming customer calls. However, these systems tend to frustrate the customer with a bewildering array of verbal menu options and with an insufficient amount of useful billing information. As a result, the customer often ends up in a person-to-person dialog with a customer support representative (CSR) anyway, sometimes after a lengthy and aggravating wait. This level of human interaction is often necessary and justifyed, but it is expensive for billers to provide and maintain. In contrast, a good EBPP solution will enable customers to review and access their billing information online. Because they can obtain much of the needed information themselves, customers are as much as 40% less likely to make customer service calls. If a customer service call is necessary, the CSR can view the same bill statement and payment information as the customer. This reduces costs by shortening the time it takes to resolve a customers issue. Improved customer service Customer self-service is a core element of EBPP, enabling customers to view bills and make payments at their convenience. The ability to securely access billing and payment information in a familiar format at any time, from anywhere, does more than make the bill payment process easier and faster for the average consumer it reinforces customer loyalty. Some of the EBPP models The EBPP market can be broken into two distinct models. These models are well established and are commonly referred to as Consolidator and Biller-direct. Consolidator Model In a Consolidator Model, the customers bills are collected from multiple billers and aggregated at a central Web site, often operated by a bank or an independent financial service provider. The customer securely accesses the site to view and pay their bills. The main advantage to a consumer is that they can pay all their bills at once instead of visiting one
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billers Web site after another. Another advantage to the Consolidator Model is that the consumer doesnt have to memorize passwords for multiple biller sites. Plus, some consolidator sites can even accept online instructions to make paper-based payments to companies that dont currently accept electronic payments. There are three variations of the Consolidator Model Thick, Thin and Personal. Thick consolidators and thin consolidators operate scalable, resilient and secure information and payment processing infrastructures. Due to their size and the volume of payments they process, Consolidator infrastructures are expensive to build and maintain. To be profitable, they usually have to limit the number of features they can offer a consumer and the amount of integration they can provide to any individual biller. A Personal Consolidator, described in greater detail below, is actually a software application that runs on a consumers computer and virtually aggregates individual billers Web sites. Biller-direct Model Today, the majority of electronic bill payments are made at biller-direct sites. As the name implies, the customer goes directly to each billers Web site where bills are presented for viewing and payment. Since no intermediaries are involved, the customer has complete and unhindered access to levels of billing detail and historical information that a consolidator typically would be unable to provide. There are other reasons why the biller-direct model remains the most popular form of EBPP, despite requiring the customer to visit individual bill payment sites. Foremost, presentation of the customers bill on their Web site in the same familiar format as its paper-based counterpart goes a long way in making the customer feel at ease about paying the bill online. Second, the full range of the billers value-added services and marketing promotions are available, which reinforces the billers brand identity. This is an important consideration because cross-selling complementary products and services is a key element to improving customer satisfaction and reducing customer churn. Improved collection model Biller-direct Managed Services Provider (MSP) Model A new hybrid model for EBPP is now emerging that combines some of the best features and benefits of the Consolidator and Biller-direct Models. In this model a managed service
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provider (MSP) specializing in EBPP services hosts the billers EBPP site. While this model may have some similarities to the Thick Consolidator Model, there are also some very important differences. If we see the similarities, like a thick consolidator, the MSP maintains a large, secure data center and hosts billing information for multiple billers. In addition, the MSP is responsible for establishing and maintaining connections to the financial networks that process electronic payments. This is highly advantageous to the biller, which isnt required to go through a rigorous, time consuming certification process. Instead, the biller simply provides their bank routing numbers to the MSP, which will deposit payments directly into their accounts. Now lets take a look at the differences. EBPP consolidators use standardized processes and formats to facilitate the presentment of billing and payment information from different billers. A biller-direct MSP also uses standardized processes but with an important distinction. Its processes are optimized to facilitate the preservation of the billers brand identity and the services offered to their customers. In effect, the biller-direct MSP is a transparent intermediary, never getting in the way of the relationship between the biller and their customer. For example, when the customer goes to a billers EBPP site hosted by the MSP, the customer sees their bills in the billers preferred format. Generally, the online version of the bill looks identical to its paper-based counterpart. The information used to create the online bill may reside at the MSPs secured facility, or it may be stored at the billers site but transformed and presented by the MSP on behalf of the biller. Regardless of the process used, the customer can transparently access their billing detail and historical information in realtime. Just as important, if the customer needs to speak to a customer service representative to resolve a billing issue, the representative will be viewing exactly the same information as the customer. Another big difference is who handles the processing of the payments to the biller. Some EBPP consolidators accept payments from customers on behalf of the biller, wait for the payment to clear, subtract their fees and then deposit the balance into the billers account. Conversely, a biller-direct MSP generally routes collected payments from customers directly into the billers accounts. Obviously, the cash flow implication of the two models is a major consideration when a biller is deciding which model to implement.

EBPP Service Delivery Options Providing a dependable and effective EBPP solution requires the integration of a wide variety of platforms, applications and service components within a highly secured and sustainable operations facility. Many billers have already made significant investments into their backend systems, which have been optimized for the production and distribution of paper-based bills and the receipt and processing of their corresponding paper-based payments. However, implementation of an in-house, biller-direct EBPP solution will also require the development of: Web site front-end for EBPP Email handler for bill presentment and customer correspondence Web and email integration into existing back-end environments Software to parse and decode bill and statement data print streams Automated clearinghouse (ACH) software to electronically debit consumer accounts Interfaces with external payment processors to support card-based payment transactions Lockbox software to update the billers internal accounts receivable files Security mechanisms for authenticating customers and encrypting sensitive information Conclusion The payment landscape is complex and changing rapidly. Channel volumes are shifting. Technology turnover is hastening. Laws and regulations are adding complexity to the payments process. Overall economic pressures are squeezing budgets and increasing risk. After a decade of unrealized promise, electronic bill presentment and payment (EBPP) has become a market reality. Its benefits are undeniable, and it is now on its way to becoming a commodity that billers are expected to provide. What will differentiate a billers EBPP solution is its ease of use, the range of its features and benefits and its proven availability and security. However, the technical and financial effort required for a biller to implement an inhouse EBPP solution can be challenging and expensive. As an added dynamic, billers are justifiably concerned about the possibility of slow customer adoption rates and the extended time it may take to recoup their investments.

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Due to economies of scale, the MSP can cost-effectively maintain the levels of security and uptime mandated by the most demanding financial institutions and payment processors. Plus, since the cost of their infrastructure is amortized across multiple billers, the MSP can provide a low cost of entry for a biller, even if their initial customer adoption rate is low. As customer adoption grows, the cost to the biller scales proportionately. If desired, the EBPP function can be systematically and transparently transitioned to in-house operations at a later time, as customer adoption accelerates and the volume of payment transactions grows.

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