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Tuesday 30 August 2011

Paperless billing-a cost effective and sustainable solution?

“Eco friendly” and “budget friendly” don’t always go hand in hand. But paperless billing is one of those rare measures that checks both boxes – all while keeping customers happy. This is simply because getting a bill to a consumer in a traditional way takes lots of time, effort and money that can be avoided. However, by using modern internet technology, the bill issue time can be reduced, the effort to get the bill out can be lessened and costs can be squeezed or in some cases eliminated.

Lets look a look at some of the specific wins:

Any business of any size or type wins on cost. On the direct or visible cost side, there’s less paper, less envelopes, less ink, less postage. Even though these are often significant in and of themselves there are also big potential cost reductions on the indirect or more hidden side of things...less customer support (handling queries or phone-in payments) and much less time spent on reconciliation. In addition, online bill presentment and payment has been shown to lead to much quicker settlement by the customer-which substantially aids cash-flow for a merchant. All these savings add up.

The customer wins – This includes eliminating or simplifying the tasks of organising bills, querying them and being able to make payments (all being possible safely and securely at a single web site typically with a few clicks). Paper free means more free time for the bill payer, and less to worry about when dealing with paper (including having to put the bill or invoice somewhere safe, finding it when needed and even losing it occasionally).

The environment wins. Paperless billing is a simple but significant step that every business can take with a little focus, effort and determination. Less paper means less use of trees and less transportation (and petrol), reducing a merchant’s carbon footprint. Not all customers will be happy to turn off paper immediately but some will and they will slowly encourage the others to do the same.

So Paperless billing is a worthy goal for all merchants
Whether you’re a large merchant billing tens or hundreds of thousands of customers, or a small business raising a handful of invoices, on-line billing at an aggregation site (such as PaySwyft) is a pain free way to trial the paperless option.

Merchants can raise some or all of their bills online...or test dual billing with late payers and measure the impact on cashflow...or if they prefer, give customers a straight choice: paper or paper free.

Paperless Billing: at a glance:

Merchants are saving money on...
• Printing paper bills
• Fulfilment, postage and franking
• Undeliverable mail
• Chasing late payments
• Handling manual payments
• Archiving paper bills
• Reconciliation/bill matching

Customers are saving time on...
• Checking and paying bills
• Hunting for previous bills
• Checking funds and means to pay
• Writing and posting cheques
• Waiting for a merchant to be open for business
• Talking to customer services
• Worrying over lost cheques and late delivery

Wednesday 10 August 2011

Who Will Win the Online Billing and Payment War?

In the last 2-3 years, large research companies who focus on Internet trends in billing and/or payments, such as Ascent, Aite Group, Billentis, Forrester, Javelin Research, and several others, have suggested that a “war” has broken out to try to win the race to control most of the online billing and payment transactions (at least it seems to have done so in much of the developed world). This war is apparently between 3 parties –The “consolidators”, the large billing merchants themselves (usually called “biller-direct”) and the “aggregators”. In this brief article we will look more closely at this on-line billing and payment “war” and try to assess who seems to be leading or lagging in their efforts to emerge triumphant.

Introduction
The capacity to send an invoice via online means, and to facilitate payment of it electronically, is a relatively recent phenomenon. In reality, this has only been possible for around 10 years or so, and has only become broadly available as fast Internet access has become widespread and Internet banking has been taken up in far greater numbers. However, we need to separate online bill presentment from online payment. Research suggests that true online bill presentment (a digital bill/invoice capable of showing full detail as needed) is used by less than 5% of the adult population in the US for example (and may be as little as 3% in the UK). And as the chart below on preferred payment channels suggests, only 13.2% of the US population (at least in 2008) actually pays bills online (around two-thirds of which is via a bank and the customer’s linked checking account). This may have increased a little in the last couple of years but not by very much.

©Ascent Group: 2008

So, despite the fact that over 80% of the adult population now has Internet access in the US and the UK, there is still huge potential to switch people from sending cheques in the mail, bank drafts, in-person payments and even phone-in payments in the future (a total of around ¾ of all payments). For this reason, there are a wide variety of companies trying to win control of this potentially large and lucrative sector but the strategies for doing so are quite different. Let’s look at each one of what we see to be four different categories with a unique approach.

1. Consolidators
As the overall chart on the next page illustrates, consolidators are those organizations that seek to show a number of usually large merchant bills, as line items on an Internet web site. As most consolidators are banks, or at least large financial services firms, this is usually an extension of the bank’s internet payment web-site, and allows customers to immediately debit funds from a current/checking account to pay a bill (such as an electricity or telephone bill). It is actually rare for a consolidator to offer other alternative payment options, and it is even rarer for a customer to be able to see a full bill. This means that they can usually only remit a payment for a bill that he or she has received in the mail or by email (so that they can enter the payment information needed).

In recent years, the larger consolidators have penetrated the market well for this relatively basic service. However, they only have limited growth potential with a full presentment facility, which in any case is typically restricted to their own customer base or bank account holders.


2. Biller-Direct
Larger merchants (utilities, mobile phone operators and cable companies, for example) will often allow customers to both see their bill online in a part of the merchant’s web site and pay it (possibly by several means on the debit and credit side). However, to create this functionality for their customers, these merchants have to either build the handling software themselves, or buy it in as a package from a software vendor. This entails up-front capital, time to design and integrate the solution, as well as the effort to train internal staff to use the new system, once built.

From a customer perspective, this approach does afford the benefit of non-standard business hours access and some extra payment flexibility in some cases. However, there are also several drawbacks. These include some very unfriendly sites (buried/hard-to-find information, pop ups, missing detail, etc) and general customer irritation at having to remember each merchant’s site login and password process each time. For this reason, most large merchant biller-direct sites have relatively low levels of customer conversion (5% or less). In addition, the high cost of set-up makes this an unattractive approach for small to medium sized merchants to consider.

3. Consumer Aggregators
Aggregators are typically specialist organizations that have been set up to both present a bill and allow it to be paid online on behalf of a group of usually large merchants. If well-run and focused, consumer aggregators typically have considerable scope for future growth because they can theoretically provide a service for all consumers in the market. However, when consumers are asked to come to a web-site to find all or even most of their bills, only to find that one or two at most are available to them, they may not return. This makes consumer penetration a very long-term affair and assumes that the consumer aggregator finds it possible and even economic to approach all merchants in the market, however small and/or local they may be. In addition to this problem, although there are several consumer aggregator companies, they offer a slightly different range of features and in many cases may not even offer a full or detailed presentment option. This may act to simply confuse the consumer who may not then be prepared to use any of these sites, especially without their merchant encouraging them to use this as the primary channel.

4. Merchant Aggregators
Like consumer aggregators, merchant aggregators are also typically specialist online companies, but they have a different business model. The goal is to provide a service to one particular merchant at a time, and then work with that merchant to encourage consumers to view and pay their bill electronically (and particularly switch away from cash and cheques). To date, this service has been mainly aimed at small to medium sized merchants (rather than the “super-billers”). This means that both the penetration and growth rate has been slow so far. However, there is much scope for considerably greater growth and therefore higher market penetration in the future.

From a consumer perspective, the expectation here is limited to being able to see one given merchant’s full bill online and to be able to pay it by multiple methods. However, over time, more merchants are progressively added, meaning that consumers get to see several bills, from several merchants (some of which may be quite small and/or local) at the same site (with a familiar login and password).

The main challenge for merchant aggregators is acquiring merchants in the first place (which requires marketing and sales effort). Although merchant aggregators can do this in particular market verticals to manage these costs, one strong possibility is that consolidators (who already have many merchants already for payment purposes) may find it worthwhile to partner with the merchant aggregators, who get transactional volume in return for making available a full online presentment option.

Conclusion
As our chart on the previous page indicates, the biller-direct model has already proved to be a slow and expensive path for many large merchants and looks to be the worst current position to be in, if they were to try to win the online billing wars. Consolidators often have a large bill payments consumer population but do not have a cross-market platform to get their beyond their own customer base. Consumer aggregators have the potential to offer a multi-merchant solution, across the entire market, but having recruited many of the “super-billers” are finding it expensive to add the smaller merchants that consumers would want to see on their site in order to return again. Finally, merchant aggregators, although small in market penetration to date, probably have the most potential to offer a truly cross-market solution, which benefits all merchant and their consumers.

In the final analysis, it is, of course, extremely difficult to predict who is likely to emerge victorious in such a competitive space, especially where the financial stakes of wining or losing are so high. However, if the merchant aggregators can gain enough momentum, perhaps by partnering with the consolidator banks, they seem to be in the best position to win the online billing war at this particular time-we will watch the next couple few years with interest.

Monday 1 August 2011

Are you ready to take electronic payments of all kinds?

One of the most talked about topics in the electronic payment space for companies of all sizes is, “how can we have our customers pay through the web?” As the payments industry continues to evolve and more and more individuals are comfortable using the web, as well as their smart phones to make a payment, all businesses have a tremendous opportunity to speed up their receivables process while lowering costs and improving efficiencies. The question however then becomes “what is the best way to go about this?”

There are several choices available to a merchant to start to accept payments via the web, including building an online shopping cart themselves (writing the software), buying a third-party piece of software to do this (such as Basware or Tieto), adding a third-party payment system (such as AcceptPay or PayPal for example) or using an aggregator service (such as PaySwyft for example).

Whatever option is finally selected, there are several issues for a merchant to think about:
•Branding/Marketing issues
•Website Availability
•Customer Service
•PCI-Compliance
•Costs/fees

Branding/Marketing Issues
Any business will need to decide how much marketing control they want to have over the look and feel of the payment page or pages. In some companies, this may not matter very much and a generic payment site may be fit for purpose. However, if a brand is important or even if a company wants to maintain a very similar look and feel (including use of logos etc) then an internally built or a purchased software solution is likely to give a merchant the most customization potential. However, third-party sites may have some customization potential and have the added advantage of fast set up and faster speed of processing.

Website Monitoring and Availability
A critical component to any company’s desire to add web payments is ensuring that the payment website is consistently monitored and available for use. A couple of typical metrics measured and monitored are response time and website availability or uptime. Clearly an internally built system or purchased piece of software will need to be well-built and well-supported to be available as needed. However, most third-party web site solution providers should be able to easily provide these availability metrics to any business that wants to offer web payments.

Customer Service
Many considerations need to be fleshed out when deciding on what type of customer service is needed for your customers. For example, is the system going to be user-friendly to all people who may be interested in using it? do you need 24/7, 365 days a year availability? Do you require international payments? or can your system quickly find a payment transaction when needed (and can it communicate easily with the customer –via online means, when necessary)?

PCI-Compliance issues
As with accepting credit or debit card payments in person (or via a phone call), any merchant accepting credit cards as a payment type must ensure that they are in compliance with the Payment Card Industry (PCI) Security Standards Council’s rules. The PCI Security Standards Council offers comprehensive standards and supporting materials to enhance payment card data security. The PCI Data Security Standard includes requirements for security management, policies, procedures, network architecture, software design and other critical protective measures. With an internal or purchased solution PCI compliance has to be handled directly.

External payment system providers clearly need to have a very good understanding of the requirements and be able to both help the merchant on best practices for securing credit card data, or in some cases handle this on the merchant’s behalf. This means that tasks such as tokenization and encryption etc are handled by the third-party helping the merchant to better manage the risk of charge-backs, identity theft and other abuses. Once again, providers will have very different approaches and it is worth discussing these in detail.

Costs/Fees
One other issue to think about when accepting credit or debit card payments through the web is costs or fees. Many businesses that operate on low margins could see those margins deteriorate even more as credit or debit card fees (direct and indirect) would add an additional (and perhaps unnecessary) layer of cost.

Although fees are payable to process payments with an internally developed or software based solution, third-party providers can also charge a courtesy or convenience fee. Merchants need to be aware that a convenience fee is not allowed as a method of just passing on credit or debit card processing charges. According to the Merchant Council, “Surcharging customers for paying with a credit card is considered discrimination based on payment type. A convenience fee is a charge for offering customers another payment option that is separate and in addition to standard payment methods.” All fees therefore need to be carefully scrutinized ahead of time so that there are no surprises when a monthly transactional statement is sent.

Conclusion
In the final analysis, as payment channels and options on the web expand, and more and more customers become comfortable with the whole process of paying electronically, offering payment capability via the Internet will become more standard for most businesses. However, there are several possible strategies available to achieve this and several important areas of consideration to take into account. In this article we have briefly explored five of these, namely: Branding/Marketing issues, Website Availability, Customer Service, PCI-Compliance issues and finally Costs/fees.