Will an “iTunes” Type of Web site for ebilling Ever Come into Being?

Last month an interesting article was published on a blog which made a very useful reference to on line music, and iTunes in particular, in relation to ebilling. In his article the author suggested that if we thought about bills in music terms:
• CDs (and the artists that produce them) are like paper bills;
• Listening to music online is like logging in to a portal to view and pay your bill; and
• Downloading a song (file) to your chosen device from iTunes is like receiving your bill as a file (attachment) to your PC, tablet, iPhone, Android, Blackberry etc.

This article rather strangely goes on to conclude that all music and bills should be delivered by email attachment so that customers can open it/them on all their different listening or reading devices.

Despite that fact that this article seems to get a little lost quite quickly, it does draw a useful general analogy and it is therefore worth looking at the core question that it hints at but never answers-will an iTunes type of web site for ebilling ever come into being (and how of course)?

First and foremost let’s get the comparisons right here:
• Songs (or “albums” of songs) should be compared to bills in general
• Artists should be compared to merchants (and some of both are very large and some are tiny)
• Record companies should be compared to banks
• Music listeners should be compared to customers or bill payers
• CD’s (or Vinyl) should be compared to paper-delivered bills
• Online Audio type files (MP3’s, WAVs etc) should be compared to online emails with attachments
• An online store (like iTunes) should be compared to an online bill-payment portal

You’ll notice that we do not yet talk about a delivery device like a smart phone or tablet in the above table-we’ll cover this later.

The Music Scene
If we look back at recent history, up until as little as 10 years ago, the music industry had been operating in similar fashion for decades. Artists produced songs and approached record companies to back them. If they were successful, the record company would help getting the song(s) to market on vinyl as a single or a long play record, getting the songs played on radio and elsewhere so that people would buy what they liked in main street record stores. Innovation in the music industry was very slow to come. Vinyl eventually became CD’s and radio went slowly from analogue to digital. However, the biggest changes were in listening devices, which became increasingly portable. This was led by Sony’s “Walkman” in 1979-the first step towards MP3 players which led to the huge industry paradigm shift-the iPod-introduced in late 2001 (and the new iTunes music store two years later in 2003).

When Apple arrived on the music scene the portable MP3 scene was ripe for change to something simpler and more appealing to customers. In this sense, the iPod, iTouch and finally the iphone and iPad all became the simplest and most user-friendly way to listen to music (both on a live streaming basis and recorded). As a result, the music industry has been almost completely transformed commercially and listeners (or at least those with a 3G/4G connection and/or access to the Internet) have more choice and convenience than they ever had before.

The Billing Scene
So how does this compare to the billing sector? Like music, billing has operating in similar ways for decades. Bills (the song comparison) have been and still are delivered mostly in very traditional ways, especially by small and medium sized merchants (the artist comparison). This is by paper in the mail as the simplest format (a bit like the vinyl single) or by mail with a plain PDF attachment (the CD comparison). In some cases, the email with attachment may be a little more dynamic and sophisticated and can collect signatures for example (used in the B2B billing world). This is more comparable to the MP3 or wav files in the music world.

Although a dominant player like Apple and a site like iTunes has yet to “explode” in the billing world, we are getting very close to it happening now. For some years, online bill payment has been available at a merchant’s web site, although this does make for some inconvenience for customers when they need to pay a lot of bills (or listen to a lot of songs from different artists at different record companies). Online bill payment has also been available at bank sites for many years now and has become quite well-used by the same people who took quickly to Internet banking. Unfortunately, full digital presentment is not normally available via this channel, so both of these valuable innovations are comparable to the “Walkman”-they have taken us some of the way but there is room for improvement.

The private “cloud-based” bill presentment and payment portal is a much newer innovation in the last 2-3 years, and is much closer to being the billing “paradigm shift” we talked about earlier. In this system, customers can see bills from a given merchant (an artist in music terms) and subscribe to get all the bills they send (or songs they release). Because this is non-merchant owned or bank owned (the equivalent of sometimes cutting out the record companies), customers can see many merchants (or artists), and thus have the capacity to ultimately start to see all of their bills in one place. Naturally, paying bills is never a fun activity like listening to music but the quicker and more easily you can deal with them the better (and you can get back to what you like doing much more speedily). Having all your bills in one online place (with free back and storage and easy retrieval whenever you need access) is the equivalent of getting all of their songs in one playbook-just as iTunes allows now. Customers can then keep these bills (or songs) permanently stored in one place and revisit them whenever they like. These bills are all fully digital and do not have multiple file formats that have to be tackled (much as Apple made MP3, WAV and other music file formats an irrelevance to the listener).

Perhaps most importantly, customers can access their bills at the portal from any device that is connected to the Internet by some means-a computer, a smart phone, a tablet etc. And because this is all digital, customers can use all of the currently available and evolving technology that is available such as bookmarking, flexible sorting (like assembling playlists) and using SMS alerts for example (to prompt the customer when there is a bill to pay or a credit card to update, just as you would when a new song or album by an artist has been released). Of course this is not to exclude other ways of getting a bill in any other format that may be wanted-you can still send an email or a PDF or even print them if you like.

Summary
We are not suggesting that bills are anywhere near as much fun to ‘access’ as music and you will of course listen to the same song a lot more than you will use the same bill. However, we think the broad analogy here is a useful one. Our general conclusion is that the online bill presentment and payment portal is already here and like iTunes will transform the bill payment sector over the next few years just as Apple did. There are a few innovative companies that are competing to be the “big gorilla” at the moment but it is inevitable that one of these will emerge soon as the dominant player in this space. A few early adopters (the merchants or artists as they would be in the music scene) already understand this and are quickly getting on board. For these merchants this is a relatively painless transition, with no capital outlay and they can be in the online bill presentment and payment space almost immediately to reap the benefits.

Will Mobile Devices Soon be the Dominant Channel for Payment Transactions?

In the last 9-12 months, those of us in the financial services industry might be forgiven for thinking that the main issues to face and gain advantage from in the near future is going to be who will win the lion’s share of the mobile market when it comes to payment transactions. This arises because of the huge rise in smart phone sales all over the world in the last few years and in more recent times, the fast growth of tablet computer devices (both of which create great mobility for customers). While both of these innovations are certainly exciting and possibly “game-changing” in this article, we will briefly explore whether they will soon really become the dominant payment channel of choice, as many people seem to believe they will. We will therefore look at arguments for and against this prediction.

The arguments for the case
Without doubt, along with wireless access internet innovation, smart phones are a transformational technology. This technology allows individuals to perform many everyday tasks that previously were done via traditional telephony or even on paper in some instances. The same can be said for the newer but just as ground-breaking tablet computers. The added value here is that the larger screen format allows what was previously done mainly on a personal computer in one location to be done almost anywhere because of the high level of portability and touch screen convenience. As we all know, very soon even aeroplanes will allow the use of both smart phones and tablets via the internet (and the last bastion of true peace from cell phones and computers will disappear).

Of course the two “gorilla issues” here are the use of NFC or Near Field Communication technology which allows the smart phone to become a credit or debit card, and the linked facility of a smart phone as an electronic or digital wallet, capable of storing value and therefore having the capacity to readily make may payment transactions including person-to-person payments.

NFC has a short range of about 1.5 inches. This makes it a good choice for secure transactions, such as contactless credit card payments. Smart phones can therefore “tap and go” using infrastructure already in place for credit card systems such as MasterCard’s PayPass program or Visa’s payWave.

Smart phones can now also replace customer loyalty cards, not only by storing retail store credit card information, but also automatically select the right customer loyalty card information for a given consumer purchase.

The “digital wallet” concept could extend to coupons and other offers. Consumers can now download coupons from a web site, which they exchange by having their phone swiped at the point of purchase. The retailers benefit from being able to track who their coupons are sent to and how they are used.

If you add in the benefits of smart phone tickets (for trains, buses an car parking for example) and the use of phone-based barcodes (as infrastructure allows) we can quickly see how this technology will dramatically change the consumer purchase experience in many areas (especially at the retail level) and help many merchants to gain efficiencies and save costs.

The arguments against the case
In considering the arguments against the proposition that mobile technology is soon going to be the dominant channel for payments, it is worth establishing a few facts about smart phones and tablets. Firstly, there were around 450 million smart phones sold around the world in 2011. As there are about 5.5 Billion mobiles phones in total (which means that around 80% of the world population own one) smart phones represent about 8% of the total-a number expected to go to 12% within 5 years and 20% in 10 years-meaning around 1.2 billion smart phones will be owned by 2022.

As far as tablet computers are concerned, there were around 75 million of them sold in 2011 (compared to 440 million PC sales), with predictions of at least 250 million in 5 years and 750 million with 10 years (although these figures are much more speculative of course). As a percentage of all computers (there are around 1.3 billion computers in use in total in 2011), this means that tablets represent about 4% of the market today, predicted to grow to 7% in 5 years and 15% in 10 years. The reason that % growth of tablets is much slower proportionally than smart phones by the way is that PCs have a much longer life, with companies and individuals holding on to them for 4-5 years or longer before upgrading or changing.

Given the above, it is difficult to see how mobile technology can quickly become the dominant channel for payment, even before we consider other issues. At best in 5 years time only 12% and 7% of consumers (with each technology respectively) will be able to pay on their tablets and smart phones (and only if they wish to of course). This is higher in the younger age groups naturally and is still a lot of transactional volume but not dominant by any means.

To add to the above, about 75% of all payments transactions today take place “offline”. In other words, bills are sent out by physical mail or email (with PDF attachments) and are still paid over the counter with cash and debit/credit cards and by cheques in the mail or by phone or voice over IP. Larger payments are made via internet banking via direct debit and by businesses via bank payment systems such as wire transfer for instance. It is hard to see any of these processes changing quickly, especially in the B2B space, although cheque volumes will continue to decline at the expenses of electronic payment for both consumers and businesses.

Perhaps the other major disadvantage of mobile technology is one of available infrastructure. All smart phones and tablets create much greater accessibility but are only useful when they are connected. 3G and 4G is expensive today for large data packets and access to the Internet relies on old-world “hubs”-most of which rely on old copper-wire systems. NFC technology is perhaps less encumbered as it is more like “Bluetooth” but it still needs a device with which to communicate, and in a payment situation this means that every retailer needs a reading device. Installing such devices is happening of course but it will take time and will only penetrate those market verticals where it makes sense.

So what does it all mean?
Now that we have all of the above figures and facts on both the plus and minus side what does all this mean for payments? Well, its obvious that the times are changing and in the consumer world we will see very fast rises in payments being made not only online in years to come (at the expense of more traditional methods) but a large proportion of these will be made on smart phones and tablet computers, especially in the under 30 population. However, as a proportion of the total transactional volume it is likely to be much slower than the media hype suggests. This is because retail (where much of the take-up will occur, makes up only 10% of the consumer transactional volume. Consumers themselves, of course, are typically only half of the total market transactional volume and less than a quarter of the payment value. The rest is taken up by Government and Business and both of these are likely to take many years to adopt mobile technology into mainstream payment systems-perhaps 15-20 years. For this reason, and the fact that we continue to leverage old system payment “rails”, we can conclude that mobile devices are interesting and growing as a payment option but will be far from dominant for a few years yet. Smart phones (with NFC technology) are therefore likely to slowly replace the “bricks and mortar” retail market (helping customers to migrate from a plastic card to a mobile device). And as both smart phones and tablets are effectively mobile enabled PC’s that will make all forms of payments easier and increase/accelerate on-line payment activity this will be a good thing for both merchants and consumers when it comes to the ease with which future payments can be made.