During the next ten years, advancements in electronic bill presentment and payment (EBPP) software and delivery infrastructure, as well as the integration of financial management and online transaction tools, will make electronic billing more ubiquitous and functional for its potential users. At the same time, the EBPP market will begin to extend with enhancements to technology, expanded Internet usage, and established business practices and fee structures. These factors will both expand market readiness and contribute to an acceleration in service availability.
Financial service institutions (FSIs) will play a major role in the EBPP market's growth because they can serve as key providers to their consumer and corporate customers while also employing the technology to reduce their own billing and statementing costs. In 2001, TowerGroup found that just 1% of all US depository institutions (including credit unions and community banks) offered some form of EBPP servicing. But, nearly a third of the top 50 commercial banks had an EBPP offering in place, as did many investment firms and credit card issuers.
By 2005, the percentage of US depository institutions engaged in EBPP is expected to rise to 7%, as larger institutions invest an annual average of 20% to 25% of total information technology (IT) expenditures on EBPP initiatives and smaller banks actively move to outsourcing alternatives. Globally, TowerGroup anticipates that institutions' IT investments for EBPP will rise to a total of more than $10 billion by 2005. While these investments will represent a near-term addition to cost structure, FSIs can also anticipate revenue gains and cost savings over the longer term as more bills and their corresponding payments are converted from paper to electronic formats.
The extent of each FSI's involvement and investment in EBPP will be affected by the role(s) it chooses to play in the market. These roles affect the types and mix of solutions that a FSI will choose to implement and include FSIs acting as a:
CSP. As a Customer Service Provider (or Consumer Service Provider) (CSP), FSIs supply the interface that consumer or business customers use to receive bills and initiate bill payments. In a banking environment, this service is typically tied closely to the Web-banking platform to enable a user to have broad access to financial information and transaction functionality. As a natural extension of many institutions' existing online bill payment services, CSP offerings are currently the most common of the EBPP servicing roles held by FSIs. Today, more than 90% of US banks involved in EBPP offer CSP capabilities.
BSP. As a Biller Service Provider (BSP), a FSI provides services to enable its corporate customers to electronify and deliver bills to consumer and/or business customers. FSIs acting as BSPs typically have referral or reseller agreements in which the FSI provides value-added services, such as EBPP software/service implementation or integration services, electronic lockbox, payment services, or integration with other FSI product lines. A FSI may also provide direct BSP servicing, in which case it must invest in or develop the software to support producing electronic bills for its customers. Close to a fifth of the US banks that currently offer EBPP have BSP capabilities. By converting corporate customers to EBPP, FSIs can also ultimately benefit other business and retail customers by increasing the number and mix of electronic bills.
Biller. As substantial issuers of credit cards, mortgages, automobile and other loans, as well as statements, FSIs themselves also function as significant billers. This year a small portion of US banks-just over 10% of those with EBPP initiatives-have begun to turn their own bills and/or statements into electronic format. This will prove an important initiative for exposing corporate and consumer customers to EBPP and reducing the internal cost basis for billing and statementing activities.
Switch Participant. FSIs can also take part in EBPP as a participant in a switch service used to move electronic bill and payment transactions between the appropriate parties. This role will be enhanced as institutions refine their CSP, BSP, or biller strategies and, as a result, need to initiate or receive EBPP transactions from other providers. More than any other role, participating in a switch is currently a strategic move for FSIs because the volume levels required to support significant activity have not yet been acheived.
Payments Provider. FSIs also participate in EBPP as payments service providers to both the initiators and recipients of transactions. This is the central role that makes banks' involvement in electronic bill presentment both logical and important. Whether a bank has a presentment strategy in place or not, it may be involved in the payments transactions that are a part of EBPP. Leveraging this activity to a more comprehensive role positions banks to remain the central financial services providers to their customers.
Today's adoption and revenue numbers do not tell the complete story about where EBPP is headed and why or how FSIs should be involved. But both adoption and revenue opportunities will come. By 2005, TowerGroup estimates that 10% of US consumer bills and 8% of US business bills will be both presented and paid electronically. TowerGroup also anticipates substantial revenue opportunities for banks: full conversion of retail activity to electronic presentment and payment could net US banks an estimated $1.4 billion at today's activity levels.
To take advantage of this growing opportunity, FSIs should build upon their established position in the market with strategic investments in EBPP. As reviewed above, there are many viable and valuable approaches that institutions can consider. Over the longer term, these investments will serve FSIs from a revenue perspective while meeting the changing needs of corporate and consumer customers. The involvement of FSIs in EBPP will also both demonstrate the expected viability of the service and position institutions to challenge competitors that have been the first movers in building EBPP share and activity. A focus on the development of optimal delivery channels, relationships, and strategies will position financial services institutions as a critical force in EBPP adoption and utilization over the coming decade.
About the Author: Beth Robertson, a senior analyst with the e-Banking practice at the research and advisory firm TowerGroup, has been covering EBPP since the mid-1990s. A permanently certified cash manager (CCM), Ms. Robertson has nearly 20 years of experience in the financial services industry with expertise in online financial services, payment systems, remittance processing, and treasury management services. More information on TowerGroup is available at www.towergroup.com.