WHAT’S NEXT IN THE WORLD OF E-BILLS AND E-PAYMENTS?
By Adam Hoffman
Since the very first electronic payment was transmitted through the ether world more than 30 years ago, businesses have been steadily shrinking the stacks of paper that once dominated the back offices of their payables and receivables departments.
Adam Hoffman North America Product Manager for Electronic Receivables, Citi
On the receivables side, much of this paper reduction results from consumers heartily embracing web-based banking and payment options. In fact, today more than half of all consumer bill payments in the U.S. are paid electronically, an amount that is expected to grow by another 7% by next year.
B2B e-invoices and e-payments: Reigning in DSO and receivables processing costs
When it comes to business-to-business (B2B) payments, companies in general have been less willing than consumers to access and pay their bills electronically.
Even though almost all B2B invoices that are executed electronically are paid electronically, they still only represent 43% of all business-to-business payments. Among companies, unlike consumers, adoption is heavily dependent on buyerseller collaboration, business relationships and clearly defined benefits for both parties. Plus, companies must integrate e-billing and e-payment technologies with legacy systems and processes, something that comes with varying degrees of complexity.
Over the years, large buyers have adopted e-procurement networks while many large suppliers have adopted Financial Electronic Data Interchange (FEDI) technologies to achieve cost and operational efficiencies with their major trading partners. However, smaller trading partners whose volumes do not justify investing in FEDI are typically left behind.
To move these smaller buyers from manual to electronic methods, businesses can deploy web-based solutions that couple electronic invoice presentment and ACH payment capabilities.
Citi® Present and Pay for Business, for example, provides billers with a customized online portal where they can post invoices and their buyers can pay them. Organizations can use it as their sole electronic invoice presentment and payment (EIPP) solution or as a complement to FEDI processes. Citi’s platform, which processes more than $4.8 billion in payments annually, also allows users to handle disputes online.
Billers that have implemented Present and Pay were able to, on average, trim their days sales outstanding by ten days, reduce paper invoice collection and presentment by 18%, and slash dispute rates by 45% — all of this in addition to eliminating costly manual processes, large volumes of paper consumption and postage expenses.
C2B e-payments: Similar goals, different challenges
The motives for converting invoices and payments to electronic processes are similar for both B2B and C2B transactions. However, the challenges are different.
It’s true that web-savvy consumers have made a big shift toward electronic payments and the green movement has made headway in its cries to eliminate unnecessary paper consumption. Even though more than 50% of all consumer payments are now made electronically, less than 20% of their invoices are delivered electronically. Even individuals who expect their bills to be available electronically find it hard to abandon familiar paper invoices. Nearly 90% of consumers still prefer to receive printed statements and bills through the mail, even when they can access or receive them electronically.
This phenomenon leaves the business community searching for ways to make e-billing more attractive so that they can reduce the more than $21 billion spent annually, in the U.S. alone, on printing, handling and mailing invoices to individual consumers.
An estimated 26 billion recurring bills and statements are delivered via the postal service and paid via traditional payment methods each year.
These bills are generated by high volume billers, such as educational institutions, government agencies and utility, insurance and telecommunications companies. These companies recognize e-billing’s potential but say their biggest hurdles are implementation requirements, including internal cross-functional coordination, and breaking consumers’ paper habits.
Fortunately, there are cost-effective and relatively easy-to-implement solutions for overcoming these obstacles for the two commonly used electronic bill presentment and payment models (EBPP) models: biller direct and consolidation.
Consumer payments via biller direct model
Under the biller direct model a company makes its bills available via its website and encourages its customers to view and pay their bills directly from the site. Customers receive alerts, typically via e-mail, when new bills are available and are usually provided a link to a secure site where they can review bill details and initiate payments.
More robust direct biller models, such as Citi® Present and Pay for Consumers, allow companies to integrate online bill presentment with payment capture via multiple channels, including the web, telephone (via interactive voice response or customer service representatives) and mobile device. They also provide the option to collect payments via multiple payment methods, including credit and debit cards, for example, in addition to checking accounts.
For sellers, other plusses include daily payment file transmissions that ensure proper posting to their company’s A/R system and real-time reports that provide transaction details. Citi handles, on behalf of the biller, customer enrollment, data translation and formatting, website design and setup, and marketing support, in addition to payment initiation and remittance processing.
From cost and operating perspectives the benefits of EBPP are clear. The cost per transaction is significantly lower than the $0.50 to $0.90 for a paper counterpart. Companies typically receive funds in one or two days compared to five to seven days for paper payments, and electronic payments yield fewer payment inquiries and lower delinquency rates.
Consumers also enjoy distinct advantages, including being able to execute payments with a few keystrokes, getting immediate payment confirmation and having more control over the timing of their payments.
When billing companies accept payments by credit or debit cards, customers enrolled in points programs can also accumulate points.
However, the direct biller model also has a downside for many consumers: They must visit multiple websites to view and pay bills from different companies. That’s where the consolidation model comes in.
Consolidation: Creating a one-stop solution for consumers
With the consolidation model, bills from multiple billers are aggregated at a central website, providing consumers with a single-stop for paying multiple billers. This model has been slow to take off for a number of reasons. For banks, the cost of implementing and maintaining connections with third-party processors has been high. In addition, in most cases, banks must actually pay a per item fee to display bills on their site. With low bank participation, billers have been hesitant to participate as well.
But all of that is changing. The Electronic Payments Association, NACHA, The Clearing House (TCH) and a number of major billers have created a breakthrough electronic alternative to the only universal bill distribution system in the U.S. today, the U.S. postal service.
NACHA’s EBIDS platform, which has been piloted over the last two years, takes the consolidation model to a new level, creating interoperable and secure universal standards and technology for presenting and paying bills online.
Widely used ACH formats and rules enable banks, billers and e-billing providers alike to standardize EBPP transactions. Businesses can present bills in a standard format through multiple banks, giving their customers the ability to view and pay their bills through the online banking site of their choice. Billers also receive authorized payments from multiple banks in a universal format through the ACH network.
For consumers, the bill-paying experience takes place on their familiar home banking site. There, they can register for e-billing with multiple billers through a directory of participating businesses and also schedule payments to them. Unlike conventional home banking offerings, EBIDS-enabled banking portals let individuals see bill details, not just pay them.
Best of all, businesses can achieve multi-bank presentment and payment capabilities through one-time master integration with The Clearing House. In addition, ACH credit payments are received with remittance, which accelerates funds availability and reconciliation.
Key to EBPP success: Options
Given the seismic shifts in consumer preferences in recent years, all signs indicate that they will continue to abandon their checkbooks and adopt electronic payment methods. It also is reasonable to expect that when presented with easier, more convenient options for accessing and paying their bills electronically, that a majority of consumers will migrate away from paper bills and statements as well.
Over the near term, however, businesses need to provide billing options and offer consumers the flexibility to pay and communicate with them over their preferred online or traditional channel.
In addition, as companies strive to reduce costs and enhance customer satisfaction, they must create strategic plans for seizing evolving online billing opportunities, such as new consolidator models and shifts in consumer preferences.
For more information, please visit www.transactionservices.citi.com