Fortnightly Supplement
Online Billing: Savings Oversold?
March 30, 2000
Denise Worhach
- Proponents estimate potential savings over paper bills in the millions of dollars, but getting there depends on winning over the customers.-
Primed by deregulation in the U.S. energy market which produces $300 billion worth of bills per year prospectors plan to pump more and more of those bills through the Internet. They're betting that enough residential customers will choose to pay their monthly utility bills online to make electronic bill presentment and payment (EBPP) a solid investment. Analysts predict the total market for EBPP-related services will reach $500 billion by 2005.
Early partnerships, wildcatters and big name backers such as Yahoo, Citibank, Microsoft Corp. and America Online add fuel to the mad rush for positioning in the booming EBPP marketplace. Pure profits remain elusive for now, but claimholders tout millions of dollars in potential savings on the printing, postage and processing expenses attached to paper bills.
"The energy industry is at an inflection point," says Russell Henn, vice president of utility sales for TransPoint, an e-bill consolidator that aims to be tomorrow's premier billing provider. Alongside banks and credit card companies, several utilities signed on with Transpoint during its 1998 pilot, including Eastern Utilities, Edison Enterprises, Southern California Water and Central Hudson Gas & Electric. Launched commercially in April 1999 as a joint venture between Microsoft and First Data Corp. with Citibank as a minority equity investor, TransPoint had nine utilities up and running through its system by year-end, with more in the pipeline. "We hope to have upwards of 25 to 30 utilities live by mid-2000,"
says Henn.
Although exact numbers vary greatly among experts, most insiders agree that fewer than 10 percent of all utility companies offered residential customers any online payment option in 1999, while more than half seriously considered adding online payment options in the very near future. Holdups in EBPP partly stemmed from the self-imposed freeze on computer system changes due to Y2K concerns. All agree that it's too early to pinpoint the true costs and benefits of EBPP, or when the promised payoffs will come.
"The sooner energy companies find out how to use this medium and find its value," says Henn, "the better off they're going to be in the race to compete with other energy companies."
* Biller Direct or Indirect: One-Stop or Web-Hop *
In November 1999 after spending five months planning, four months developing and three months beta testing Consumers Energy, the principal subsidiary of CMS Energy Corp., welcomed an enthusiastic response to its new online service that lets customers review and pay their natural gas or electric bill through the utility's website. "In the first five weeks, we had almost 6,500 enrollments out of 2.4 million residential customers," says Eric Pape, project manager for business development.
"I expect that within the first 24 months, we'll get 100,000 enrollments," says Pape. The company may hold a sweepstakes someday to draw even more online payees.
"We looked at the demographics of our state well over 50 percent of our customers have PCs at home and over 30 percent are currently online," says Pape, explaining the preliminary research behind his company's decision to offer online billing. "We saw a lot of time-starved, dual-income families who don't have time to sit down and write out checks once a month. They want the convenience of accessing their bills anytime, anywhere."
Pape cites a number of other factors that led Consumers Energy to e-billing in 1999: the popularity of the Internet, recent advances in encryption technology, the growth of the EBPP market, the opportunity to save money through customer-keyed entries and competitive pressures. "We clearly wanted to be on the front end of the curve."
The Michigan energy company then shopped long and hard for the right business model. "We paraded a whole bunch of EBPP folks through and looked at all of the major off-the-shelf software products, searching for a customer-focused solution," recalls Pape. "But they didn't tie in very easily with our existing billing system." Without suitable integration, he says, "they can mess up your existing database and customer record system."
Consumers Energy also contacted consolidators and aggregators that tack on a fee for each transaction, says Pape. Given the big cuts expected in postage costs, initial quotes seemed low enough. "But when we put the numbers to paper, actual transaction charges tripled from front-end discussions."
Consumers Energy installed custom software and went with a biller direct model for now, but Pape doesn't rule out using a middleman someday. "Eventually, customers are going to dictate how and where they pay their bills." He sees a day when they can go to one website to pay any bill. "But there's also going to be customers who will be interested in coming straight to our website for value-added products and services that we may offer in the future."
By comparison, Con Edison Solutions, a subsidiary of Consolidated Edison, found TransPoint's offer extremely attractive, "time-wise and cost-wise," says JoAnn Ryan, vice president of information technology (IT) and operations. "It made it easy for us to get in the business. We went live in November. Thirty customers found us before we even put the word out."
TransPoint's main competitor is CheckFree Corp., the leading online billing service provider in the nation, which controlled about 70 percent of the domestic EBPP market in March 1999.
Branded competition heated up in November when AOL, the world leader in interactive service, and Intuit, the leader in electronic finance, launched their own online bill payment service. With minimal preparation, a one-time startup fee and a low transaction fee, customers can easily view, track and pay all their household bills, whether paper or electronic, in one electronic mailbox.
All energy companies should start to offer online billing by using a biller direct model, advises Marian Lewandowski, vice president of professional services at Xenos Group, an EBPP vendor out of Canada that sells software bridges to large billers that want to convert paper documents to electronic versions. In an ideal world, the biller need only implement one solution, with one set of specs, standards and interfaces, says Lewandowski. When approached by a bank or a portal or any of the other myriad amalgamators about reaching out through multiple channels, the biller should dictate the terms of the deal.
"Billers should turn the table," says Lewandowski. "Don't forget. They're doing the consolidator a favor by allowing their customers to go through its channel." He adds that billers generally will be reluctant to hand over its only customer contact to a third party.
"A large utility has to have a biller direct site to support their commercial and industrial customers," counters TransPoint's Henn. "How much extra effort is it to put e-bills out for its residential customers? But the average residential customer prefers a consolidated setup. We're just offering additional distribution and choice."
And, he says, if customers experience problems with their Internet browser, who better to help? Customer service reps from a utility or tech support personnel with a Microsoft background?
Other brokers include PayMyBills.com, Paytrust.com and Utility.com, which bills itself as the Internet's first utility company. Utility.com boldly promises its hands-off approach will cuts costs, thereby allowing it to pass on a 10 percent savings to customers.
Some energy companies even team up with local governments that want to act as consolidators, says Ken Rybka, vice president of product strategies at SPL World Group, an international IT consulting firm. Customers can pay parking tickets, garbage collection, property taxes and utility bills at one website. Rybka predicts, "In the long run, the attraction for the customer will be such value-added service on top of bill presentment." GovWorks.com will even waive transaction fees if customers apply for a credit card or get an auto insurance quote during an online visit.
* E-Bills vs. Paper Statements: Difference is Cost *
"There are no profits in the whole EBPP market right now," states Gunnar Bjorklund, executive vice president of strategy and development at AccuDocs, the largest independent provider of document processing services, which transmits 25 million statements a month and produces one billion images a year. "Right now, we're all in investment mode," says Bjorklund. "But over time, billers will definitely see cost savings."
According to publisher Chartwell, each paper bill costs around $1.25, including stuffing, posting and meter reading expenses. Electronic bills run about $0.40.
"In theory, it costs about 20 cents to create an actual paper statement," says Lisa Weller, senior product marketing manager at YourAccounts.com, the independent EBPP division of DST Systems. "With discounted rates from the U.S. Postal Service, it takes a 28-cent stamp to mail it to your customer. They send it back to you. Then you have to process a check for payment. That, we figure, is about 15 cents per statement," says Weller when asked for a breakdown. "You're looking at 63 cents per household."
By contrast, an online bill costs between 20 cents and 45 cents for presentment and payment processing, says Weller, depending on volume and the number and kind of consolidator and channel agreements, as well as the cost of conversion services.
Xenos Group's Lewandowski estimates even greater savings from EBPP. "There are two areas where there's money to be made the presentment side and the payment side," he explains. "If it costs 90 cents a bill [for both functions] and a customer has 10 million customers, that's approaching $10 million a month." Depending on customer adoption rates, "Savings can be extreme."
* Savings Depends on Adoption: Will Customers Bite? *
"The higher your customer adoption rate, the more you will save," Weller tells clients. "So get your bills out in front of as many different avenues for the consumer as possible."
Right now, in the EBPP industry, consumer adoption curves run 1 percent to 3 percent on average, says Weller. "The tricky part," says Bjorklund, "is that you can see the adoption curve but you can't read the axis right now."
Weller reminds clients, "If you get a 5 percent adoption rate which would be really high you're still printing your 63-cent statements for 95 percent of your customer base." Weller advises clients to develop an effective marketing plan along with EBPP. One of her firm's utility clients, Potomac Electric Power Co. (PEPCO), which turns the lights on in the White House and other parts of the Washington, D.C. area, won national and international acclaim by aggressively pursuing online customers and consequently achieving a 5 percent adoption rate in 1999.
"It sounds like schooling time, if you think you can turn off your paper bills in three months," adds Weller.
Rather than setting a 100 percent take-up rate as an immediate goal, says Lewandowski, billers should aim lower.
He says, "In the financial services industry, 20 percent of a bank's customers provide 80 percent of its profits." Likewise, utilities should recruit high-value customers in the first wave of e-bill marketing, then plan to pick up more in the second and third waves. "There are ways to attract customers to electronic statements, either through incentives or disincentives. And there will always be those who will never take statements electronically."
To drive up adoption rates, "TransPoint plans a major consumer marketing push towards the end of this first quarter," says Henn. "We're going to consumers to educate them about electronic billing and what possibilities are out there, emphasizing convenience and security."
"When will adoption rates reach 50 percent or greater?" asks Weller. "That is the Holy Grail. That's what every industry analyst asks everywhere. Not one of them has come up with an answer."
* Promised Payoff: Do Savings Pan Out? *
Bjorklund of AccuDocs advises energy companies that want to offer online billing options, "Slow down. Very few people have really thought through the complexity of computer systems integration behind EBPP. Although the payment process is relatively straightforward, billers must recognize that all the legacy systems, and all the functionality that they spent 20 years building, have to interact with these EBPP solutions whether in-house, hosted or outsourced."
Bjorklund warns, "Avoid rushing straight to a quick solution. There are a lot of trip wires out there. EBPP is not a cake walk. Think through how to best leverage existing systems and the best tools to use."
A slew of entities stand ready and willing to help address integration issues for a price. Enablers include billing service bureaus, application service providers and data stream conversion consultants.
"This is not a typical IT project," says Lewandowski. "Flexibility and customer choice are king."
Ryan of Con Ed Solutions says, "We view this as part of our overall business strategy, just one more innovative energy-management service we offer, like lighting programs or plant modernization."
Experts and insiders agree that EBPP should involve all corners of the enterprise, but expect few major changes in today's highly automated back office.
Henn warns against using some "pay anyone" services that fail to support current accounting practices. "They might give a biller a lump sum [payment] along with a list of 3,000 customers who paid electronically, without enough detail or the exact dollar amount assigned to each." TransPoint and some other consolidators resolve that issue by zipping each payment straight through a client's accounts receivable/cash receipts section, giving the biller a clean remittance without exceptions.
"With paper bills, any exception on the remittance side such as a missing bill stub or an incorrect check amount can result in somebody spending 15 to 20 minutes to figure out how to apply the cash to the right account." With EBPP, whether handled directly by the biller or through a consolidator, every amount is pre-coded or hard-wired, which can cause a significant reduction in remittance errors, adds Henn.
* True Value: Beyond Dollars and Cents *
Insiders insist the true value of online billing lies in the opportunity for full-blown customer care.
For instance, says SPL's Rybka, value-added services can include online analysis tools on energy usage. As the EBPP market matures, both residential and commercial customers may find such information simplifies shopping for better retailers or rates for natural gas and electricity.
"Deregulation begins a whole new era of what you have to communicate to your customer," adds Weller of YourAccounts.com. "Different states have different requirements. In California, paper bills can run 15 pages." Rather than kill a forest, she says, "you could put it online and modify it quickly and easily."
"It's a lot cheaper to handle routine interactions on the Internet," Henn points out. Billers easily can post frequently asked questions, for instance. Industry studies show that each inquiry to a customer call center costs between $2 and $10, so a reduction in calls could be another measure of success.
EBPP also presents new marketing possibilities.
"We have a lot more freedom on the electronic side," says Ryan. Con Ed Solutions plans to use banner ads and bill messages to "talk" to customers.
Pape of Consumers Energy also sees plenty of opportunities to cross-sell or upsell online. "We might say, 'Here's your bill for your gas service. Maybe you'd like to sign up for our appliance service protection program. If you're interested, click here.'"
EBPP may pump up self-provisioning opportunities as well, says Pape. "Without talking to an employee when moving [residences], customers ought to be able to go on the Internet and say, 'Turn off the energy for me at Main Street and turn it on for me on Apple Street."
As Pape notes, EBPP's potential value for customers makes it "the first step towards the next generation of customer care." [End]
Denise Worhach is a freelance business and technology writer based in Austin, Texas.
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