Billing consumers for goods and services has always been a necessary exercise and transaction cost of engaging in credit-based commerce. Traditionally, businesses bill consumers for goods and services by generating and mailing paper bills or invoices. There are many obvious business concerns relative to paper-based billing. Companies utilizing paper-based billing do so at a substantial cost. For example, a company with 100,000 accounts which are billed on a monthly basis may spend over two million dollars a year in paper-based billing expenses. Much of this expense stems from the cost of materials, postage, and manual processing of the paper bills, inserts, and envelopes.
Other significant logistical and business concerns detract from the paper-based billing option. The time delay associated with sending bills and receiving payments via conventional mailing deprive companies of the time value of money and therefore create additional transactional costs. This time delay is particularly troublesome to small billers and non-recurrent billers who tend to rely more heavily on cash flow.
Paper-based billing can also deprive billers of an opportunity to build brand. Although many paper billers include various types of marketing inserts with their bills in an attempt to use the billing activity as an additional opportunity to make favorable brand impressions on the consumer, those materials cannot be targeted as effectively as in an interactive session. For instance, billers do not have significant realistic control over the circumstances under which, or whether, a consumer views particular inserts. Indeed, studies have shown that many consumers disregard such inserts altogether.
The development of the Internet creates new opportunities to transact business electronically, including to conduct the billing presentment and payment process electronically, in an on-line way or otherwise. Some refer to various aspects of the electronic billing process as electronic bill presentment and payment (EBPP). Instead of mailing paper bills, EBPP enables businesses to publish, distribute and/or present bills electronically on web pages. Instead of writing checks and applying stamps, consumers have the opportunity to pay bills by an electronic credit card charge or direct bank draft. The biller benefits by avoiding the cost of generating and mailing paper bills, and by avoiding the payment float occasioned by two-way mail delay and other delays in paper-based remittance. The consumer benefits with the added convenience of conducting transactions online, and the opportunity to pay many or all bills on one site or in one virtual space.
In practice, however, there are significant concerns with conventional approaches to EBPP. For example, in one common approach to EBPP, which is often referred to as the custom development method, billers create a proprietary electronic billing system and link it to a third-party for payment processing. Because custom development is mostly an internal EBPP solution, it gives billers the advantage of tight control over the billing system. However, this type of solution is very costly. Not only is it a technology risk because billers lose the flexibility to adapt to other EBPP standards, but it requires a substantial amount of manpower and infrastructure. Furthermore, such systems innately discourage consumer use or popularity, since the consumer is required to log onto and initiate a session on a separate site for each different bill the consumer wishes to pay.
A second common EBPP approach, which is referred to as the consolidator approach, presents its own set of problems. This method of enabling EBPP trades control of the billing interface and branding opportunity for a reduction in cost, risk, and internal staffing by outsourcing the EBPP to a third party consolidator. Here, the electronic payment processor takes on a lock box function of holding and moving cash during billing and payment. The payment processor performs an aggregation function by presenting multiple billers' statements at a single, consolidating web site. Not only does interposition of the consolidator and its interface between billers and consumers interrupt any existing relationship, but it also precludes exploitation of new biller opportunities to interact with consumers.
In addition to the problems already mentioned, existing EBPP enabling methods have various other disadvantages. For example, they remain an expensive option for most billers who lack sufficient economies of scale necessary to overcome the high fixed cost of implementation. These EBPP methods, which primarily focus on reducing biller costs, also often fail to address the issue of consumer convenience adequately, much less to provide effective incentives for consumer adoption.
Furthermore, conventional EBPP approaches, which seek to implement EBPP on portal interfaces, often require redundant resources supported by multiple entities and consequently waste processing and transport resources. For example, using existing EBPP methods, if a consumer desires to pay AT&T bills electronically at a website such as Yahoo.com., the following occurs. First, the consumer requests that Yahoo.com receive the AT&T bill and send it to the consumer. Then, assuming AT&T partners with an electronic payment facilitator such as CheckFree, Yahoo.com makes a request to CheckFree. Finally, CheckFree initiates the request to AT&T. Because each of these entities are independent, each requires its own resident database and other support functionality. Such conventional portal-supported EBPP approaches provide significant opportunity for improvement.