Can a Third-Party Digital Billing Company Put Big Savings on the Bottom Line?

In a recent article, we broadly confirmed that a general claim of the international billing and payment research companies was true for two companies (one small and one large) and that it is therefore likely to apply more widely. This claim is that on average every organisation spends around 5% of its revenue on issuing invoices and collecting payment for them. Now that we believe this claim to broadly accurate, in this article I want to test the claim of some third-party electronic billing and payments companies that they can make cost savings of up to 50% if their clients adopt a fully digital billing and payment service. At the full 50%, this would mean that up to 2.5% of a given company’s revenue would be saved. And as the large company in our previous article had an annual turnover of £90 million, this would amount to a whopping £2.25 million (and that’s certainly worth having as recurrent additional income).

To properly analyse this situation, we first need a few facts. In the information below therefore are some statistics about the company which we called Beta in the earlier article:

What this chart tells us immediately is that Beta spends slightly more than 5% of its revenue on issuing invoices and getting them paid, with 43% of this £4.62 million cost being on the staffing side and 57% being on the transactional cost side. So, now that we know this, where is the particular scope for savings, taking each of these two headings separately?

A) The Staff side savings potential
By moving to a fully digital billing solution, there is an expectation that many more people will be happy to both get/view their bills or invoices on line and pay them by the same means. However, this is not going to be the case for all customers and even for those who do make the transition, it takes time. For our purposes here we will therefore estimate potential take up after a three year period, at which point, 50% of Beta’s customer base is happy to view their bills online and half of these (or 25%) are happy to pay online. For simplicity we could say that this is a switch of 35% of the customer base to online billing and payment (the other 65% staying with previous practices and methods).

The implications of the above is that Beta cannot cut or redeploy its staff too aggressively, as the majority of customers still need to be serviced in the old way. However, we can nevertheless estimate that staff man-hours necessary to tackle the new workload (and therefore numbers needed) are reduced as follows:

Accounting: The 50% of customers now viewing their bills on line and the 25% paying by online means, allow much easier settlement and reconciliation, with electronic records at every step, less errors and much easier analysis of data (because the digital billing system can be used for the entire customer billing process and not just part of it). As a result, the people handling invoicing and payments could be reduced to a manager plus four accountants at Beta (a reduction in staff of 38%).

Clerical staff: Quite high numbers of clerical staff are needed at Beta to handle the 25% cheque and cash mix, general data entry (with records often being keyed two, three and even four times on occasions) banking and the chasing of invoices when overdue. Because there is also likely to be faster payment in the electronically paying customer base, this reduces the amount of time chasing late payments. In summary, data administration is simplified considerably across the whole system. As a result, the people handling invoicing and payments could be reduced to a manager plus fifteen clerks at Beta (a reduction in staff of 39%).

Call-centre staff: 50% of all Beta’s payments are taken on the phone, where service agents have to find the customer data and invoice, take the payment manually and payment data to a system of some kind. With a fully digital solution being used by 50% of the customer population, and half of these paying on line, the burden on the call-centre is reduced by 25% (as there is no need to contact the call-centre anymore for these customers). In addition, call-centre staff may be able to convert more and more customers to online payment by showing them the digital invoicing and payment system and pointing out that this is available 24/7, 365 days of the year-and not just 9am-5pm call centre hours. As a result, the people handling invoicing and payments could be reduced to a manager plus forty agents at Beta (a reduction in staff of 30%).

All of the above adds up to staff savings (even with a lower overhead recovery now of 40% as there are less offices, desks, computers etc needed) of £730,056.

B) The Transactional cost side savings potential
We have assumed no change in Beta’s business in terms of revenues and overall transactional volumes (and therefore average cost of each transaction). There are, however, two major changes that a digital system is likely to bring:
1. A change in bill presentment costs
2. A change in the mix of payment types being used

Bill presentment costs: Now that 50% of the customers are viewing their bills on line, it is reasonable to assume that they are happy to see paper “turned off”. As Beta were emailing invoices previously this was a preparation cost mainly (on the staff side) but it does allow the opportunity to send statements electronically as well as give customers copy invoices in the new digital system forever as a free service. This means that paper and envelope costs would reduce, as well as the need to store physical paper copies within the Beta organisation or externally (so costs of storage space are reduced also). Perhaps more significantly, the marketing material send in the post by Beta can now be put online for half of the customers (where it is presented without the cost of having to send it out). All up, savings in all of these presentment areas for Beta are estimated to be £481,035 per annum.

Payment costs: In the new world, a fully digital presentment and payment solution is likely to half Beta’s volume of cheques and eliminate the use of cash completely (even though the option to pay by cash may still be available to customers in some solutions –such as the one offered by PaySwyft). On line bill payment however goes up to become 15% of the total mix (with the other 10% coming from credit and debit card payments that used to go through the Beta call-centre). This adds a transactional cost of £0.50 per invoice to Beta, or £116,379 per annum, but it is more than offset by savings elsewhere. The greatest of these is in the float costs of the business. Because online payments are known to get to customers quicker and lead to faster payment, cash flow is accelerated and days outstanding are reduced (in Beta’s case from 45 days to 38 days (a drop of 22%). This contributes a total of £123,288 in annual savings to Beta. In addition, the often linked costs of having to handle bounced cheques, chasing debt and writing off unpaid invoices, diminishes considerably, adding another annual saving of £387,931.

If we add all the transactional side potential savings up, the total is £924,908

Summary
So, on the staff side we have estimated total savings of £730,056 and on the transactional cost side estimated total savings of £924,908. This makes a grand total of £1.652 million in savings per annum (recurrently) or 1.84% of revenue. Hence, the claim that a good digital billing system can save a company 50% of its costs (or in this case 2.5% of revenues) is not quite met here. However, with the potential to add more savings over future years as more and more customers switch to the new online system it would get very close to the 50% target and make the switch to digital billing still seem like a very good idea.

To make the above figures easier to see at a glance, a summary of all of the above is presented in the table below:

Sending Bills and collecting payment from customers costs every organisation 5% of Revenue on average!-can this really be correct?

According to several leading research companies who look at international billing and payment issues on an ongoing basis, (including perhaps the leader in the field of billing research -Billentis) they say, that on average, the overall cost of sending out a bill or invoice and then collecting payment from the customer, is anywhere from £4 to £17 per invoice. Unfortunately, apart from the fact that this is a pretty big range, it tends to create an unnecessary defensiveness in organisations (and often in the finance department in particular) who understandably become very keen to point out that they spend nowhere near that kind of money on such a mundane and clerical activity (although they will often fail to include many of the indirect and hidden costs of the process). Another recently published general statistic, however, could be much more useful and may make a few divisional heads and even CEO’s sit up and think about the efficiency and effectiveness of their billing and payments practices for the first time. This is the statement that on average, an organisation spends 5% of its revenue on issuing its invoices and in collecting payments from customers. In this article, we will explore this claim and see if it reflects reality for both small and large organisations. To do this we will look at the figures based on two real UK businesses.

First and foremost let’s deal with the “on average” part of the 5% of revenue claim. What is being done here is to look at many organisations of many sizes and types and simply working out the median or middle value in a range of numbers. In this case the median cost of billing and collecting payment in proportion to total revenues is 5%. Of course, this means that they are some companies that may be higher or lower than this but statistically, we can say that around two-thirds of all companies would fall into this average of 4%.

The Small Company
The first company (let’s call them Alpha) employs 26 people, has a turnover of £5 million in total revenues per annum. This is earned by selling goods and services at an average of £500 on average each time. Hence their total bills in a year are 12,000 or 1,000 per month. There are two broad cost categories that we now need to look at –staff and transaction costs.

On the staff side, Alpha have one accountant (on a salary of £45,000 per annum, three clerical admin people (at a salary of £21,000 each) and two people answering the phones (at a salary of £17,500 each). Hence, the all up payroll for this group of people is £143,000. The three clerical admin people devote all of their time to billing and payments but the accountant and customer service people devote only 50% of their time to this activity. Hence, we can say the cost of the people’s time which is devoted to billing and payments is £103,000. However, the company has staff overhead costs of 40% (cost of offices, equipment, training etc) which brings this cost up to a total of £144,200.

On the transaction cost side, 40% of the 12,000 bills are paid by cheque, 10% by BACS, 30% by phone (half by debit card and half by credit card), and 20% by cash. For cheques the bank charge fees of £1,200 (£0.25 pence times 4,800 cheques). For BACS, a charge is made of 15 pence per transaction (so £0.15*12000*0.1 or £180). For cash handling the bank charges a flat annual fee of £500 for all cash deposits of this size. For cost of transactions by phone, on the debit side the company pays £0.35 pence per transaction or £630 and on the credit side 2.5% of each transaction value (£500*0.025*1800 transactions or £22,500). Finally, we have to worry about how long it takes to get paid (and the cost of borrowing money to operate and allow for possibly late payments). Given that this small company has average invoice days outstanding of forty, they have to cover this £500 for 40 days or just under 11% of the year. As Alpha is paying interest at 5%, this means the cost to fund the necessary float is £26,027.

There are also a few direct invoicing costs for Alpha to bear including printing invoices, paper, envelopes, stamps and even marketing material (to also design and print). This adds up to a total of £0.90 per invoice (the stamp alone being half of this). We therefore have a total annual cost of £10,800. This makes the grand total on the transactional side of things £61,837. If we total all of the above, we now have a grand total billing and collection cost of £206,037. As a % of the £5 million in revenues this is 4.12% (or what would be £17.17 per invoice).

The Large Company
The second company (lets call them Beta), employs 525 people, has a turnover of £90 million in total revenues per annum. This is earned by selling goods and services at an average of £58 each time. Hence, their total bills in a year are 1,551,725 or 129,310 per month on average. Once again, there are two broad cost categories that we now need to look at –staff and transaction costs.

On the staff side, Beta have a team of eight accountants (on an average salary of £48,000 per annum each, thirty-two clerical admin people doing bookkeeping, settlement and reconciliation (at a salary of £23,500 each) and a call-centre with sixty people answering the phones (at a salary of £18,500 each on average). Hence, the all up payroll for this group of people is £2,214,000. The Beta company does not keep detailed records but estimates that billing and collecting payments occupies about 60% of the time of this whole team. Hence, the cost of the people’s time, which is devoted to billing and payments is £1,347,600. However, the company has staff overhead costs of 45% (cost of offices, equipment, training etc) which brings this cost up to a total of £ £1,954,020.

On the transaction cost side, 20% of the 1,323,530 bills are paid by cheque, 20% by BACS, 50% by phone (half by debit card and half by credit card), 5% by cash and 5% via Beta’s Internet bank site portal. For cheques the bank charges fees of £52,941 (£0.20 pence times 264,706 cheques). For BACS, a charge is made of 12 pence per transaction (so £0.12*264,706 or £31,765). For cash handling the bank charges a flat annual fee of £15,000 for all cash deposits of this size. For cost of transactions by phone, on the debit side the company pays £0.30 pence per transaction or £99,265 and on the credit side 1.8% of each transaction value (£58*0.018*330,883). transactions or £405,000). Finally, we have to worry about how long it takes to get paid (and the cost of borrowing money to operate and allow for possibly late payments. This company has average invoice days outstanding of 45, they have to cover this £68 for each transaction for 45 days or 12.3% of the year. As the Beta company is paying interest at 5%, this means the cost to fund the necessary float is £553,500.

There are also a few direct invoicing costs for Beta to bear including sending invoices (which Beta does via email not paper unless it is requested by a customer), monthly mailed statements and accompanying marketing material (to also print and design). This is a total of £0.40 per invoice. We therefore have a total annual cost of £620,690. This makes the grand total on the transactional side of things £1,860,054.

If we total all of the above (all staff plus all transaction costs), we now have a grand total billing and collection cost of £ £3,814,074. As a % of the £90 million in revenues this is 4.24%. (or £2.46 per invoice).

Summary
Although the data from these two very different sized companies cannot in any way constitute a statistically significant result, it is nonetheless quite remarkable that both costs of invoicing and collection are so close. At 4.12% and 4.24% respectively they are also only a little less than the 5% average claim made by the research companies. In fact, it is a reasonable assumption that a few more “hidden costs” still need to be added to both sides here (which may completely close the gap). For example, the small company Alpha added no costs for the senior managers (GM and CFO) who both spend some of their time in payment matters, nor for the extra bank charges for bounced cheques, debt collection and writing off-unpaid invoices (issues also not included for Beta). And, in the large company, there were some system and invoice storage costs that were excluded. This may well have made both % numbers even closer to the 5% figure and possibly slightly higher.

In the final analysis, this is just the data from two individual companies. However, they seem to provide a useful general justification to the claim and serve as a basis for calculating the actual figures for almost any business. This may be especially useful ahead of talking with online digital bill presentment and payment companies that often claim that they can reduce these costs by up to 50%-if this is true, what a great way to lift revenues by up to 2.5%!

Are emailed invoices just as good as digital ones?

Most people now believe that electronic invoicing offers significant advantages over paper-based processes (saving direct costs like printing an invoice, stamping an envelope and sending it in the mail etc and saving indirect costs such as lost invoices, late and missing cheques in the mail and often much more difficult reconciliation). However, there is not always agreement on what the term “electronic invoicing” actually means and in this brief article we will look at two very different kinds of e-invoicing-emailed invoices and digital invoices. These are often perceived to be similar and/or equivalent methods but, as we will see, they are actually quite different.

Emailed invoices
Sending an invoice via email is usually done these days by attaching the invoice as an Adobe PDF document. This allows the invoice to be sent cheaply and quickly to the recipient who can use a free product (Adobe Acrobat Reader) to open and view it. The simple idea here is that once the customer has reviewed the document (and even saved it to his or her hard drive) he or she can then pay it. In theory (especially in Business to Consumer or B2C markets) the invoice is not only sent out quickly (and at much lower costs than traditional invoicing methods) but means that the customer can send back a cheque or phone in a credit card payment within hours or just a few days (and well ahead of the latest date he or should could technically pay) thereby helping to accelerate merchant cash-flow. Unfortunately, although this works in some situations, the process is rarely this smooth and a number of problems can occur.

Firstly, the merchant needs to have a customer’s email address to be able to send a PDF. Secondly, the PDF is still a flat document which most customers will not only have to open, but will often print and put in a pile to deal with later, when they are ready (just like receiving the paper-based invoice in the mail). This means that the customer may wait as long as they did before to pay the invoice (assuming they do not lose their printed piece of paper in the meantime having deleted their original email). In addition to all of this, an emailed PDF does not encourage the customer to pay by electronic means any more than an invoice arriving in the mail does. Research suggests that customers actually often like to have the option to pay online by debit or credit card for example and can often only do so by calling the merchant (and having to spend time and effort, and within the hours of business operated by the call-centre). Finally, in Business to Business (or B2B) invoicing, the emailed PDF presents a whole new layer of challenges as these often require a digital signature. PDF technology is now much better at allowing digital signatures to be securely added to invoices when they are sent in the mail. However, the process is by no means simple and presents many logistical issues, particularly when multiple approval signatures are required.

Digital invoices
A digital invoice is available at a web site. Sometimes this is embedded in part of a merchant’s web site or it is “hosted” on a third-party web site (to which customers can go directly or can be redirected from a link on a merchant’s web site). In most cases, the digital invoice rendering process is even quicker than emailed invoices, as there is no need to generate a PDF and attach it to an email address. In addition, although a customer may be notified that a new invoice is available via email, it is not necessary to have an email address (as the customer can be notified about the web address by normal physical mail and then subscribe to the web site service to be later notified by either email or even their mobile phone –via SMS). In practice this means that digital invoices will often collect or “scrape” new email addresses from customers progressively.

Perhaps most importantly, a digital invoice is viewed in a truly online way (and does not require printing (as it can be easily stored and retrieved permanently or resent by a merchant at almost no extra cost). This means that not only can the customer view the invoice (in as much detail as they wish) but they can use many online features to both deal with the invoice (save it, schedule it for later payment or send it on for viewing or approval to another person) or even just pay it immediately of course. And if they do choose to pay it immediately, they typically get to do so via their debit card if they want to use their current bank account or by a variety of credit card options (and in some cases even by cash by printing out a voucher and taking it to a local newsagent or local store that takes cash payments). This is therefore much more likely to accelerate merchant cash-flow than in the emailed invoice situation and means that the payment is much easier to reconcile (as less difficult to reconcile cheques or phone-based payments are being made). Finally, the invoice recipient (whether it is a B2C one or B2B one) can elect to pay a bill 24/7 as the bill presentment and payment web site is truly “open-all-hours”.

Conclusion
Emailed invoices are superior to traditional invoices sent in the mail. However, they fall far short of full digital invoices, which offer many additional benefits (which translate into much greater time and cost saving for the merchant). These two approaches are therefore far from equivalent and a merchant can realise considerable advantages by upgrading from an emailed invoice to a full digital one.

The factors that help shape choice in the online payment world

There are now many payments types or channels available to both merchants and customers (cash, cheque, credit card, debit card, pre-paid card, direct debit, Internet direct bank transfer, e-wallet transfer etc). However, they all present different advantages and disadvantages, and these may be quite different for a consumer versus a merchant. However, by drawing together a range of international literature about payment systems and how they are used by people and organizations of all kinds, six attributes of payment products appear to be most relevant to the choices that are made of both merchants and their customers alike*. These six factors are:
• capability
• cost
• convenience
• coverage
• confidence and
• confidentiality

Let’s look at each of these in a little more detail.

Capability
Capability refers to the functional ability to actually use a particular payment type or channel. For example, capability in cash transactions (the oldest and most ubiquitous of payment types) relates to a person or an organization being in a position to hand over a payment (having cash in an acceptable denomination/currency) and then receive the payment (also in an acceptable denomination/currency of course). This becomes a threshold issue in non-cash payments, which often involve technical issues such as the establishment of a means of communicating over distance, ability to verify the parties in a payment transaction, and many other factors.

Cost
All payment systems involve some costs (including cash). Both consumers and merchants are likely to seek to use lower cost payments if they can. This is especially the case if they can readily know what the use of each payment will cost them (sometimes this is transparent and sometimes it is not of course). The cost of a payment is not always spread evenly between the parties. Vendors of payment products will often seek to make some approaches appear to be no-cost or low-cost to the customer-but this may or may not be true. The cost structures of payment methods also differ; some have a fixed transaction charge while others are proportional to the size of the transaction.

Convenience
Convenience refers to the ease of use or “user-friendliness” of a payment method. A need for registration before using the payment method, or the speed of payment (for example, the time taken to approve a payment) can be factors affecting convenience. Consumers generally view cash as convenient to carry for small purchases at the point-of-sale. This means that to be competitive with cash, electronic payments systems have to offer a high level of convenience (hence all the current interest in mobile phone usage for payments). Businesses however typically have a very different perspective on convenience to that of consumers. They are likely to seek payment products and services that fit reasonably well into their broader processes and systems.

Coverage
Coverage refers to how widely a payment method or system is accepted by merchants and other recipients of payments, such as businesses receiving payments from suppliers. An important objective for all payment types and channels is therefore clearly to be widely accessible to merchants, traders, consumers and other users without high-entry or ongoing costs. Similarly, consumers should encounter as few barriers as possible in undertaking transactions using the chosen system.

Confidence
This refers to a customer’s belief that a payment will be successfully executed and completed, and that the value of a payment method will be respected. Confidence rises where arrangements are secure and value does not ‘leak’. The confidence that consumers have in a payment method also depends on the associated payment channel. For example, online payments with credit cards differ from offline payments, in that the card is not physically provided by the customer and the merchant does not obtain a signed confirmation from the customer. Some card schemes provide a system of cardholder authentication, usually through provision of name, credit card number and expiration date. To prevent illegitimate interception, this information is typically encrypted so as to increase levels of confidence in the payment system.

Confidentiality
As a payment type only cash maintains payer and/or payee confidentiality. Non-cash payments often involve the collection of information that becomes valuable. Users of payment systems are often concerned about the collection and use of this often personal information, and its potential release to other parties, if not properly secured. For example, in general, credit card payments are made via an identifiable account, resulting in the loss of anonymity. This means that some individuals are uncomfortable or unhappy about using payment types or channels which cannot reasonably protect their personal information (and may increase the risk of theft or fraud).

Summary
Payment type or channel choices are complex for both a given consumer or merchant. However, in this article we have described six factors which seem to be most influential in the decision-making process. Although these factors all stand alone, they are not necessarily independent of one another of course. In other words, the boundaries between factors are often blurred of “fuzzy”.

In addition, it is also worth noting that any one of these factors can be primary, depending on a given individual or organizational perspective. For some consumers and/or merchants therefore, cost and convenience may be first and second (with other factors making little difference). However, for other consumers and/or merchants, capability, coverage and confidentiality may all have equal significance, for instance.

In the next article, we will explore this subject further from the merchant’s perspective.

*The report by the Australian Government called “Exploration of future Electronic Payments” was extremely useful in assembling and describing the factors in more detail.

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

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.

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.