What do Postal Price Rises Really Mean for Billing Costs?

It was recently announced that a first-class stamp in the UK will rise in price from 46p to 60p (a 30% increase) and a second-class stamp will go up from 36p to 50p (a 39% increase). This reflects a worldwide trend in postal prices increasing dramatically (as less and less letters are sent in the mail and therefore make the post office burden so much harder to cover) and causing those businesses which bill their customers in the mail to have to bear the extra costs. For a larger biller (perhaps doing 50,000 bills a month) this adds £84,000 p.a and for a small business (doing say 2,500 bills a month) it adds £4,200.

These are significant relative costs in a channel that already presents additional challenges for merchants over other options. This includes the need to have to print and fold invoices and have to stuff them into envelopes, wait the 2-3 days until they are delivered (excepting a small percentage that never reach the customer’s given address!) and even get lost somewhere along the delivery route (and therefore have to be resent). Postal delays, go-slows and strikes can also impact significantly on businesses, and none of these factors does anything to help critical cash-flow (assuming that the customer does not lose their paper invoice and manages to pay on time).

So, what can businesses do about yet more costs that have to be absorbed in these difficult economic times? The obvious answer is to ask customers to accept an online invoice and cut out paper and envelopes and all mail costs completely. In the above two examples this not only removes the respective £300,000 and £15,000 annual postal costs completely, but by the time you add in the extra internal costs of printing, folding, stuffing, and envelopes probably saves twice as much-or around £600,000 and £30,000.

Unfortunately, if the above step of switching to ebilling were easy, every business of any size or type would be doing it. In reality, the inhibitors have historically been many including the often immediately prohibitive need to spend up-front capital on ebilling software (and pay annually to maintain it). In addition, the introduction of a new online billing system typically disrupts normal operations for months (often costing significant time and money) in order to transition to the new approach (not forgetting that customers also have to be converted to use the new system too). This all assumes that you have the customer email addresses to which you can send the bills or invoices of course. In the past, these kind of inhibitors have added too much cost and/or hassle for most businesses and they have no choice but to stay with their traditional way of doing things-until now that is.

In recent years, third-party online ebilling portals like PaySwyft for example, have been developed which overcome many of the problems described above. First and foremost this kind of portal offers almost an immediate opportunity to send full digital invoices to customers (often within days of signing up to use this “cloud-based” service) and on a pay-as-you-go basis, meaning there is no need for any capital outlay or annual software maintenance costs. And because every merchant has a unique merchant number or ID, customers can go to the portal to pay a bill without a business having to know their email address. Customers can then pay instantly, or register at the site (which means that a business progressively “scrapes” the email address for customers (who will often want to use their email or SMS alerts to remind them when bills are due). This means that customers can be weaned slowly but surely away from paper over time, as they become increasingly comfortable that all their bills are stored, emailable and printable whenever they like, and they can therefore safely turn off the paper bill they get in the mail. Best of all, the business not only starts to save the cost of sending paper bills and the postage costs but gains the added advantage of having a fully integrated set of payment options (often greater in diversity than they offered previously) that are now available (such as every credit card for instance). This aids cash-flow, lessens calls to the business to pay by phone and massively helps bill and payment reconciliation.

Summary
The transition to online billing is always a challenge but by using a portal-based system hosted in the cloud, it is many times easier than it was and can almost immediately start to save substantial time and cost. And now that postal expensive are going up so significantly, all businesses have even more reason to therefore consider making the change now.

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.

Are PDF Invoices better or worse than old-fashioned paper invoices?

A recent study published by AIIM on progress towards the paperless office makes interesting reading as it relates to current billing practices. The study is worth taking note of because apart from AIIM being a credible non-profit research business which has been around for almost 70 years, as the chart below indicates it was a very large survey of companies of almost all sizes. In addition, the study went to companies in multiple sectors all over the world (although around 50% of the companies were in the US).

What the Study Showed
As we all know, the capability to exchange PDF files as e-mail attachments is said to have reduced the volume of paperwork traded between companies and small businesses considerably. However, this study says that the reduction is minimal at best, but quite possibly creates more paperwork than it saves.

In specific terms, the study revealed the following facts about PDF as invoices
• Over three-quarters of people surveyed say one of the first things they do with a PDF-based invoice… is print it out.
• From the 77% of the 395 respondents that print out their invoices, 16% scan the invoices right back into the system for use as……PDF attachments.
• 10% of people print out their PDF invoices multiple times.
• 10% of people say they print out at least one copy for archival purposes.

The chart relating to this data is shown below:

What is happening to Invoices?
Although many of the larger companies in the survey seem to be pressing to have all-electronic billing and payment systems, it seems that we are still a long way from this ideal (perhaps as few as 2-3% of companies have a fully digital system which includes no printing and only digital storage systems). However, many businesses are at least trying to save on postage and paper costs by sending invoices as PDF files, or as faxes. However, even here the invoices are often printed out as paper, sometimes at both ends, which almost completes defeats the object. Such practices obviously do not generally result in a reduction of paper within the receiving business in particular. As we saw from the statistics earlier in total, 77% of respondents are likely to print at least one copy of a PDF invoice, and 16% admit to printing it out and then scanning it in for capture, as do 31% receiving a faxed invoice.

Are new more “intelligent” PDF’s the answer?
Most respondents to the AIIM survey were referring to the basic PDF files generated by their Acrobat software, which are obviously less feature-rich than intelligent PDFs have become in recent years with functionality such as XML files being included with all the relevant invoices and embedded payment buttons and even digital signature capture systems. Although this is undoubtedly an improvement, the adoption of these more function-rich PDFs has been very slow and in most cases has had little impact on the rate at which companies of all sizes continue to print out and scan invoices. This is partly because, a PDF is still regarded as paper in real terms-it may be electronic but it is not easy to digitize in ways that are useful for data transfer and exchange. Full digitalization is therefore the goal of many organizations and this is why scanning remains popular. In this regard, when asked what the biggest drivers are for scanning, responses were mainly about data-exchange, availability and flexibility (as the chart below from the survey indicates).

So what are the implications?
PDF’s are very convenient as a way to send documents electronically but far less so when it is an invoice. The speed of the sending process is better than physical mailing but so many people are printing it out anyway, it is far short of being the “path to digitization” that companies of all sizes want or need. Fully digital invoices seem to be a much more attractive option and when an invoice can be presented in full in third-party cloud-based portals such as those such at PaySwyft, any company gets all of this immediately.

What is Likely to Occur in the Payments and Online Billing Landscape in the Next Few Years?

Although it is always extremely difficult to make predictions about an industry which changes as fast as online payments (including online bill presentment) there are always a few “clues, trends and patterns” around to draw upon. As a result and as it’s close to the start of a new year, in this article we will seek to make a few predictions about what is likely to happen in the near future. To do this we will use a number of key headings that are often seen to be important in this industry.

The general changes that we can expect
In broad terms, the payments landscape (which is still very paper or physical form-based in so many ways) will continue to switch inexorably to an online environment at many levels with “barcode type” paper to replace physical monetary exchange products like cheques and cash in the next few years and possibly even Card (debit, credit and pre-paid) in the more distant future. The market will increasingly use smart phone and PC tablet as a channel, although the infrastructure required to support this will take as long as 20 years to make the full transition.

Online person-to-person or P2P payments will increase using mobile devices or social network sites as the initiation point. In the early days of this transition, bank account details will need to be known but accessing and using cleared funds (as the way customers want to interact will each) will see more new players emerging outside of the traditional banking community.

While banks are competing with each other for market share, new players entirely are likely to be able to capture payment market share away from their base, by better satisfying the needs of market. PayPal, Google & Apple are good examples of this or it may be entirely new companies that are yet to become well-known.

The cultural shift to perform everyday functions on-line is still in its infancy. While on-line shopping is growing exponentially, other behaviour will move more towards online. For example, full digital bill presentment and payment services.

So, if that’s the general scene, let’s look at what might happen under a few specific headings

TIMELINESS & CHOICE
Customers want to choose when they pay, day or night, 24/7, 365 days of the year and whether to pay ‘just in time’ or in real time. Customers want very wide payment type options and the ability to choose which option best suits each payment activity.

In many cases, recipients of funds prefer real-time or same-day settlement. Surety of settlement in real time will be critical in most cases.

ACCESSIBILITY
Customers want to access the same payment options regardless of the channel by which they pay. For example, this may be the same payment choice regardless of whether they are in a store, at an on-line store or paying a bill.

Merchants will increasingly prefer to receive funds from the same payment options, regardless of channel, to reduce vendor management and improve internal efficiencies.

EASE OF USE
Customer like payment types that are easy to use and one they understand and trust. Mobile, PC tablet & social network usage is making the introduction of new payment processes easier to manage and educate the market, but present other challenges for the payment industry as a whole.

EASE OF INTEGRATION WITH OTHER PROCESSES
Online payments will grow steadily and will ultimately dominate the payment landscape. However, capability and capacity to integrate with internal computer systems will be a barrier that will need to be overcome. Seamless integration with Point-of-Sale systems, on-line store, ERP, inventory systems and billing engines will be a critical factor.

Cloud-based technology will assist in keeping capital outlay lower and at manageable levels while providing high speed access to the payment instruments and associated internal systems.

RELIABILITY
The new payment instruments and channels that arise will need to be ever more reliable. Traditional payment providers can still play a huge role in ensuring that high quality standards and suitable interoperability is maintained ensure the instrument can be trusted.

Convenience can sometimes trump reliability, but both having both is likely to be a winning combination.

PRICING
New payment instruments will have to be cost effective is all cases and this will start to happen slowly.

What is blurring the price aspect is merchants will try to demand low transactional costs even when real demonstrable value is being added. For example, instant bank transfer provides significantly more benefits to both a consumer and a merchant and yet the expectation would be that this should be priced the same as, or even lower than, the transactional cost to write a paper-based cheque.

Another example is that presenting an electronic invoice with a wide range of payment options would be significantly more cost effective than a biller managing their own bill collection, even though individual transaction pricing by payment type may be more expensive in that particular silo.

SECURITY AND ROBUSTNESS
Similar to the reliability heading, secure and robust payment instruments will be increasingly essential, although convenience and ease-of-use are considerations that will often dilute how secure and robust the new instrument has to be in practice.

INTEROPERABILITY
All online digital Payment systems will have a much higher degree of interoperability with other systems than they do now. This will apply to the movement of money (where necessary) and more particularly to data transmission. The intelligent design of this data transition process (nationally and internationally) will be done by at least one large player outside current financial services sector or by a new market entrant.

RISK MANAGEMENT
Much richer risk management tools will be available and these will have sophisticated algorithms that track all payment patterns and provide risk attenuation or control options at every level. This is likely to be a new software-based market entrant.

Summary
No-one has a “crystal-ball” to predict the future, but the online payments space is changing rapidly around us. It will be interesting to see whether, we are still heading in the general direction that this article suggests in 12 months time and whether some of the forecasts are starting to come true or not.

Should an organization design its own online billing solution?

Although there is a lot of third-party online billing/invoicing solutions available in the market these days, none of these can be entirely tailored to any one organization’s needs. For this reason, it must be worth spending a little time looking at whether a billing solution can be developed or built with internal accounting staff and IT people. This would mean that an exact specification could be put forward and, if it was executed to plan, this could be integrated with other internal systems. Once the system was up and running, customers would “flock” to it and the cost of sending out paper bills in the mail would reduce considerably. This would all have the potential to save a lot of money-wouldn’t it? In this brief blog post, let’s look at the six major issues that need to be considered in choosing to go down this path.

Before we look at these six issues, let’s briefly consider an organization’s motivation to undertake a project such as this. The typical logic of most companies is “After an order, we interact with customers today by sending out a paper bill, but it is expensive. Putting that ‘piece of paper’ on our own web site will be cheaper and we can still directly interact with our customers via our web site”. Hence, the internal business case might be “We invoice 100,000 customers a year and our current cost to bill by paper is £15 each time or £1.5 million. As the cost of doing billing via our web site will be £10 (including new internal operating expenses), or a 35%/£0.5 million saving an internal capital build cost of £0.5 to £1 million would be justified.” Where this model is flawed is that research tells us that only 4-6% of customers pay at any Biller’s site (for a lot of reasons that we have covered in other blog posts). This means the real cost per invoice ends up being higher than issuing paper and no ROI is achieved. Under these circumstances, a project is on very shaky ground before it starts. However, despite these problems, let’s assume that an organization stills wants to go ahead. What are the issues to think about?

The first issue to consider is can the organization build an application of sufficient scope and quality? After all, few companies would try to build spreadsheet or word processing software from “scratch” these days. These are usually far cheaper and superior to anything that could be developed in house. In general, widely available software designed for mass market consumption is considerably superior to applications developed in house, primarily because of the economies of scale that can be achieved. An online billing solution would not be any different in this regard? In other words, any in-house solution would probably lack the security, features and reporting capabilities needed and would not be as robust, stable or as user-friendly as a professionally developed application built by specialists in that field.

The second big issue to consider is the overall interface design of your potential online billing system.On the surface, an in-house solution provides the greatest scope to design this interface to suit all corporate requirements. However, third-party apps have changed greatly in recent years and allow almost as much customization and any one organization is likely to need. In addition, a third-party app (if well chosen) is likely to have designed in easy payment reconciliation and settlement (to the organization’s accounting system and even their bank –by electronic bill-matching means). This is often missed by in-house system builds or just adds major development costs to the project, thereby making the return on investment much worse than planned.

The third issue to consider is the need to protect an organization’s customers when using the new online billing solution. At a basic level this means bearing the additional cost to purchase a Secure Socket Layer or SSL certificate and to develop a payment plug-in, which necessitates a proper software development cycle (including specification design, build, test and installation). This potential cost alone can finance years of service from an online invoicing application service provider. In addition, as soon as the organization is processing credit or debit cards online, they may need to be PCI compliant (and bear the cost of maintaining this and being audited to meet bank standards). Direct debit mandates (if they are to be made available) are a further cost in this area that need to be taken into account, as these have high admin costs associated with them.

The fourth issue to consider is the immediate and tangible additional costs that are likely to be incurred with an in-house developed solution. A typical online application development project would likely have at least some of the following tasks, if not more: Needs analysis assessment; Application interface design; Database design; Technology assessment, costing and procurement; Server and security setup; Application build and Testing; Trial Rollout; ALPHA and BETA Testing; Full Production Rollout; Ongoing Support and Maintenance etc. Whether these tasks are done internally or out-sourced, projects of this nature will take many months (and possible more than a year) to complete and result in costs of many tens of thousands depending on the complexity of the application and the security level required. For a large organization this may even run into hundreds of thousands or even millions. This is a large capital cost that may not get a real return on the investment for many years.

Quite apart form the direct costs there are also the indirect costs to consider, because many application development project costs are hidden. The use of internal resources to stop working on other projects or tasks or even give up their “normal” job for a while is one example of a hidden cost that often goes unaccounted for. Every hour a development team member spend developing a new billing system, they could be focusing on an organization’s core business activities. In addition, if project development team members are not experienced in online invoice application development, there will be a high learning cost added to the project, and increase the chance the project will be delayed or even fail completely.

The fifth issue to consider is system-side issues. In other words, an in-house billing system (which is likely to be available 24/7) will inevitably have system costs that can easily be overlooked when initial specifications are done by an organization. There is the cost of the space and setup required for a secure and sufficiently large and secured server. This hosting environment will need careful protection (in maintenance terms and against hacking) proper virus protection and firewalls. In addition, back-ups will typically need much more care than other applications that may be running in the organization.

Last but not least such a project must consider the overall risks that are involved. Recent research suggests that over 35% of all technology projects fail in large and sophisticated companies (who have well-trained IT departments). Although this means that almost 65% succeed, this is not to say that even they were not over time or over budget before they “succeeded” of course. If an organization is therefore not a “large and sophisticated company”, chances are a new online application development project is at even greater risk of failing and/or being late/going over budget.

Conclusion
It is clear that developing an in-house online billing and payment system is a highly time sensitive, high cost and high risk undertaking. Some organizations may be tempted to start the process but may lack the expertise to specify it properly, build it to plan, run it cost effectively and maintain it well (and with the necessary level of security, compliance and control).

With all of these issues to consider, as well as the fact that third-party systems are now so well-developed (and in many cases available on a pay-as-you-go basis) this looks to be an easy decision, especially when given serious thought. In answer therefore to the question we asked at the outset- Should an organization design its own online billing solution? We think the answer is simply No (or at least only if it thinks it can overcome all of the obstacles mentioned above).

How many bills or invoices are sent out each year and to whom are they sent?

Electronic billing has been around in one form or another for over a decade now but according to the Swiss billing research firm Billentis, the penetration of e-bills versus traditional bills remains relatively weak. They estimate the proportion of e-bills to be anywhere between 4% and 9% of the total invoices sent out, but even this range applies only in relatively large businesses (and is increasingly invisible in medium and small businesses), making the overall take up perhaps nearer half of these figures. Furthermore, the proportional take-up of e-billing varies greatly in the two major parts of the market-the Business to Consumer or B2C market, and the Business to Business or B2B market. In this brief article, the aim will therefore be to try to quantify the relative size of the billing market, or perhaps more simply to determine just how many individual bills or invoices are sent out each year and to whom they are sent.

The table below illustrates the typically billing flows, in percentage terms, in these two major market sectors (B2C and B2B) and according to whether a company is large, medium-sized or small.

Although bills can be sent from one consumer to another (C2C), this is a relatively small market (estimated to be less than 1% of all bills). The two large sectors are therefore between businesses and their consumers (B2C) and between businesses (B2B). The B2C and B2B market is close to 50/50 but the B2C market is slightly larger in transactions but quite a lot smaller in terms of transactional value. Let’s look at these two markets in a little more detail individually.

The B2C market
As the above chart shows, large businesses send out the greatest proportion of B2C bills (43.3% of all bills). Medium sized companies send out only 5% and small or micro companies only 1.7%. In the UK as an example, the estimated total volume of bills is around 5 billion per annum. This means that large companies with more than 250 employees send out 2.165 billion bills. Given that the UK adult working population is around 26 million, this means that each consumer gets 80 bills a year on average, from a large organisation of one form or another or around 7 bills a month. They get a further 1.5 bills from medium and small companies, making an average of 8.5 bills a month in total.

As a different example, in the US, the estimated total volume of bills is around 42 billion per annum. This means that large companies with more than 250 employees send out 18.18 billion bills. Given that the US adult working population is around 130 million, this means that each consumer gets 140 bills a year on average from a large organisation of one form or another or around 11.5 bills a month. They get a further 2.5 bills from medium and small companies, making an average of 13 bills a month in total. The higher average consumer bill volume versus the UK may be explainable by two major factors. Illegal workers in the US are not counted in the adult working population figures and the US has Federal and State based system businesses, making for less truly national “super-billers”. For example, in a large utility may bill a large % of the UK population for its gas and electricity needs (a task that may involve a hundred utilities in the US). This makes the average bill volume artificially higher than it may be in reality, perhaps by as much as 15%.

In terms of value, there are no accurate figures relating to the average bill size or amount. However, it is estimated that the average “ticket” in the B2C market is around £65 to £75 (or $75-$95 in the US).

The B2B market
As the above chart also shows, large businesses send out the largest proportion of B2B bills (11.6% of all bills) to other large companies but medium sized companies (employing 50 to 249 employees) send out almost as many at 10% and even small companies account for 7.5% of the total. However, the picture is complicated further by the additional B2B billing that is done between Large, medium and small companies. Hence, in aggregate, large companies send out 15.8% of all bills (11.6%+1.7%+2.5%).

Once again using the UK as an example, this equates to 790 million bills. In the US this would be 6.64 billion bills. Just to complete the picture, medium companies in aggregate send out 18.3% of all bills and small companies in aggregate send out 15.9%. Although this makes the B2B transactional volumes very similar, in aggregate the medium sized companies send out proportionally the most bills.

In terms of value, accurate figures relating to the average bill size or amount are even harder to come by, as companies have very high variations from very low amounts (such as £15 0r £25 for example) to very high amounts (running to thousands or hundreds of thousands in some cases). In addition, there are no formal records kept in terms of average B2B invoice amounts. However, it is broadly estimated that the average “ticket” in the B2B market is around £1500-£2,000 (or $1250-$2500 in the US).

The penetration of ebilling
Once again, definitive figures are difficult to find when it comes to the penetration of ebilling. However, in the B2C market, it is large companies that have made the most progress, led by utilities and telecommunication/mobile phone companies typically. Here, the estimates are that penetration has been in the range 7-9% in Europe, and a little less (6-8% in the US). In medium companies, these numbers are reported to be less than a third of these figures or only 2-3% penetration and in small companies, considerably less than 1%. This leaves a lot of upside potential to switch to ebilling of one form or another across all three organisational size levels.

In the B2B market, it is apparent that accounting software and separate specialist billing software has made some significant inroads into large companies. However, this has largely translated into accounting system driven invoices (or email based invoices with PDF attachments, which are but fully digital bills of course) and as often as not, this has therefore become an additional channel to paper-based invoices, with many organisations reluctant to eliminate physical invoices too quickly. There are also many additional complexities in the B2B market when it comes to billing. This includes integration with purchase order systems, dealing with credit noting, bill line-item dispute handling and multiple decision-maker issues for bill sign-off. This is not to mention the accurate and legal handling of taxation issues. All of this means that the decision to take up ebilling in the B2B space usually involves quite high up-front capital expenditure (on new or changed software), long integration times, changed internal processes and the need to cover monthly fees (e.g. software maintenance and per user etc). There are alternatives to this approach but as yet, interest and take up has been very low.

Summary
A lot of bills are sent out every year in any country with a reasonably well-developed economy. However, it is important to understand that the B2C and B2B markets are very different in terms of transactional volumes, average “ticket” sizes and needs. It is also important to recognise that volumes vary greatly in large, medium and small companies, and their relative interest in making their invoicing practices more efficient will often be very different. This means that the potential for electronic billing take-up is still very high (perhaps as much as 95% of all bills are still not fully digital) but the route to increase overall levels of ebilling take-up needs to be carefully planned for each market segment, in order to be successful.