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Electronic paymentput in context
Bill payment, electroniccommerce and exploitation of
electronic products(Deliverable D0.1b)
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COPYRIGHT 2002 TELEMATICA INSTITUUT
PERSONAL USE OF THIS MATERIAL IS PERMITTED . HOWEVER, PERMISSION
TO REPRINT/REPUBLISH THIS MATERIAL FOR ADVERTISING ORPROMOTIONAL
PURPOSES OR FOR CREATING NEW COLLECTIVE WORKS FOR RESALE OR
REDISTRIBUTION TO SERVERS OR LISTS , OR TO REUSE ANYCOPYRIGHTED
COMPONENT OF THIS WORK IN OTHER WORKS MUST BE OBTAINED FROM OR VIA
TELEMATICA INSTITUUT (HTTP://WWW.TELIN.NL).
Colophon
Date : March 4, 2002
Version : 3.0
Change : 2.0 January 24, 2001 Start of update
GigaABP/2000/D1.1
2.6 November 29, 2001 Separated general backgrounds from
payment in specific contexts
2.7 January 10, 2002 Version for (external) review
3.0 March 4, 2002 Final versionProject reference :
GigaABP/2001/D0.1b
TI reference : TI/RS/2001/081
Company reference :
URL : http://gigaabp.telin.nl
Access permissions : Public
Status : Final
Editor : Sander Hille
Company : Telematica Instituut
Author(s) : Sander Hille, Petra van der Stappen
Synopsis:
This document puts electronic payment in the
contexts of bill payment, electronic commerce
and exploitation of electronic products such as
content or electronic services. It takes mainly a
business and functional perspective on this
topic. As illustration we provide examples of
commercial products and services that are
available in the Netherlands to realise
electronic payment in these contexts.
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G I G A A B P / 2 0 0 1 / D 0 . 1 B V
Preface
This document reports on the second part of research on payment
systems that has been
conducted within the context of GigaPort Applications
(http://www.gigaport.nl/), in particular
the Giga Accounting, Billing and Payment project (GigaABP, see
http://gigaaabp.telin.nl).
It contains information on electronic payments systems in three
contexts:
1. Bill payment(Electronic Bill Presentment and Payment
EBPP),
2. Electronic commerce (in particular: web-shops), and
3. Exploitation of electronic products (content, electronic
services).
We take the perspective of a decision maker in a company that
wants to make use ofelectronic payment in any of the three
contexts. We describe the aspects that (s)he should
take into account when deciding upon systems to deploy. Our
focus is on the situation in the
Netherlands, sometimes extended when this may illustrate the
domestic situation in
comparison to other countries. We have tried to keep the
discussions as less technical as
possible, mainly taking a business and functional view on
matters. The material presented
here is extensive but not a complete encyclopaedic work
containing all available commercial
systems. Mentioning and discussion of the latter systems has
been meant as illustration of the
general line of discourse.
The first part of research on payment systems was a survey of
the current Dutch overallpayment system as provided by the
financial sector, i.e. the commercial banks, De
Nederlandsche Bank, Interpay and credit card organsations (see
[HiSt01]). This first part
serves as background for the material presented in this
document.
The document also contains some material that was obtained from
the GigaPort project on
Transaction Services, GigaTS. We would like to thank Wil Janssen
and Petra van der
Stappen for providing this information. Moreover, we would like
to thank Arnold Sneijers and
Ivo Heemskerk (Interpay Nederland, Business Unit e-Commerce) for
valuable discussions on
electronic bill presentment, Roel Stap (TNO FEL e-Business),
Henk Jonkers and Andrew
Tokmakoff (Telematica Instituut) for their contributions in
preparing this document.
Finally we would like to thank the reviewers, Ivo Heemskerk, Wim
Nouwens, Petra van der
Stappen and Andrew Tokmakoff for their valuable suggestions and
comments as reviewers of
earlier versions of this document.
More information with regard to the content of this report or on
the GigaABP project can be
obtained from the project manager, Sander Hille (email:
[email protected], or by phone:
+31-(0)53 4850485). Other reports that resulted from the project
are available at
http://gigaabp.telin.nl (Publications), or through the GigaPort
web site: http://www.gigaport.nl.
Dr. Sander C. Hille
Project manager GigaABP.
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G I G A A B P / 2 0 0 1 / D 0 . 1 B VII
Table of Contents
1 Introduction 11
1.1 Document scope 11
1.2 Related project research and information 13
1.3 Document structure 14
2 Payment over public communication networks 17
2.1 The issues 17
2.1.1 Trust 17
2.1.2 Cross-border payments 18
2.1.3 Direct payment 182.2 Misconceptions on Internet payment
19
2.3 The roles of mobile communication in payment 20
2.3.1 Payment terminal in the physical world 21
2.3.2 Payment terminal in the virtual world 22
2.3.3 Direct payment channel 22
2.4 Merging of payment flows 23
3 Overview of bill presentment and bill payment 25
3.1 Introduction 25
3.2 A functional reference model for billing and bill payment
263.3 Differences between B2C and B2B billing 26
3.4 Instruments for bill payment 27
3.5 Bill distribution and presentment: print and mail services
28
3.6 Developments in bill presentment and bill payment 28
3.6.1 A digital acceptgiro 29
3.6.2 Electronic Bill Presentment (e-Billing) 30
3.6.3 Bill consolidation and payment services 30
4 Electronic Bill Presentment and Payment 33
4.1 Introduction 334.2 The impact of cultural aspects 33
4.3 Models for EBP 34
4.4 US players 37
4.5 Dutch providers of EBP solutions and services 38
4.5.1 Anachron: Pulse Suite 38
4.5.2 Bluem 39
4.5.3 TNT Post Group: Privver 39
4.5.4 Intrum Justitia 39
4.6 Standards 40
4.6.1 Open Financial Exchange (OFX) 404.6.2 GOLD message
standard 41
4.6.3 Interactive Financial Exchange (IFX) 42
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4.7 Examples of Electronic Bill Presentment systems 42
4.7.1 BillCast (Avolent) 42
4.7.2 WorkOut (Alysis) 434.7.3 Oracles Bill Presentment and
Payment Solution 44
4.8 Trends and developments 44
5 Payment in e-commerce context 47
5.1 Issues in the virtual world 47
5.1.1 Direct payment 47
5.1.2 International reach 48
5.2 Examples of dedicated account-based systems 48
5.2.1 PayPal 48
5.2.2 Jalda-based Safetrader 495.3 Example of international
collection: GlobalCollect 50
5.4 Generic system architecture 51
5.5 Payment Service Providers (PSPs) 53
5.5.1 Bibit Internet Payment Services 54
5.5.2 NetGiro 55
5.5.3 TWYP - The Way You Pay 56
6 Electronic wallets: shopping and payment assistants 57
6.1 Introduction 57
6.2 Basic wallet functions 586.3 Product examples 58
6.3.1 ABN-AMROs e-Wallet 59
6.3.2 Microsoft Passport 59
6.3.3 Novells Digitalme 60
6.3.4 Xiring: the Wireless Wallet concept 60
6.4 Wallet standards and frameworks 61
6.4.1 Electronic Commerce Modelling Language (ECML) 61
6.4.2 Java Wallet 62
6.5 The future of e-wallets 63
7 Adaptation of real world payment instruments 65
7.1 Introduction 65
7.2 Credit cards 65
7.2.1 Secure Socket Layer (SSL) 66
7.2.2 Secure Electronic Transactions (SET) 67
7.2.3 I-Pay Interpays Dutch SET payment platform 68
7.2.4 The Three Domain Model (3D SET) 69
7.2.5 Virtual Credit Cards 69
7.3 Debit cards 70
7.3.1 Rabo Direct Betalen 707.3.2 On-line use of Maestro 71
7.4 Card-based electronic money 71
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7.4.1 Proton on Internet 72
7.4.2 Chip-Secure Electronic Transaction (C-SET) 72
7.5 Trends and developments 73
8 Exploitation of electronic products 75
8.1 Introduction 75
8.2 Characteristics 75
8.3 Potential payment scenarios 76
8.3.1 Example: ISP Trivnets WiSP 77
8.3.2 Example: Access network operator 79
8.3.3 Example: ISP and Network operator KPNs SwitchPoint 79
8.4 Total solutions for content-exploitation 80
8.4.1 Magex 808.4.2 Qpass 81
8.4.3 NetBill 81
8.5 Network-based electronic money schemes 82
8.6 Evaluation of discussed payment systems 84
9 Micropayment systems 85
9.1 Introduction 85
9.2 The problems to solve 85
9.3 Potential players 86
9.4 Commercially available micropayment systems 879.4.1
NewGenPays Micropayment solution (former IBM) 88
9.4.2 Millicent (Compaq) a token-based system 90
9.5 Micropayment standards and standardisation efforts 91
9.5.1 A Common Markup for micropayment per-fee-links 91
9.5.2 (Draft) Micro Payment Transfer Protocol (MPTP) 92
9.6 The future of micropayment systems 93
10 Conclusions 95
10.1 Coverage of on-line payment transactions 95
10.2 Cultural impact 9510.3 Introduction of new payment services
and instruments 96
10.4 Telco-finance integration 96
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1 Introduction
The Internet offers new business opportunities. New electronic
products and services can be
delivered. In order to get the services operational, substantial
investments in technology and
marketing must be made by those who endeavour in this new
business. These companies
require return on investments. The sooner, the better. The
crucial question is how to realise
(financial) return.
First there is the question of selecting the appropriate
exploitation strategy and business
model. Various types exist and may look promising. However, an
important issue in many
cases may be the level of support provided by ICT systems for
these strategies and models.
The second issue therefore is to select systems, strategy and
model in such a way that thecompany retains flexibility towards
future developments with regard to all three: changes in
systems, strategy or business model.
There are however two functions that are needed in any case: (1)
measurement of the sales
figures or individual usage (meteringand accounting) and (2) the
settlement of financial
claims that the service provider holds on the service user or a
third party that result from
usage sessions or online order transactions (billingandpayment).
Money must change hands
somehow.
1.1 Document scope
The main objective of the research within the GigaABP project is
providing insight into the
divers ways in which the commercial exploitation of
network-based services could be realised.
This document focuses on the second main function: billing and
payment, in a business-to-
consumer (B2C) setting. These functions, complemented with the
delivery of goods and
services for which the consumer is paying, realise the
settlement phase of a B2C transaction
(see Figure 1). We do not consider the Business-to-Business
(billing and payment)
relationship between the merchant or service provider and his
supplier(s). Moreover, we do
consider only situations in which monetary value is exchanged
for the goods and services.
The support of barter, i.e. the exchange of products (goods or
services) for other products, isbeyond our scope.
Delivery:
Goods and services
Transfer:
Money
Consumer
Merchant,
Service
Provider
SupplierBeyondscope
B2B
B2C transaction
Figure 1: The Business-to-Consumer setting
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12 G I G A P O R T
Various factors influence which payment systems and services are
available or which players
are involved in the transfer of monetary value, in the full
payment transaction process. One
factor is the international extent of the economic transaction.
If goods, services and moneyneed to cross national borders, then
typically different players, processes and systems are
encountered than in a national (domestic) setting. Legislation
and regulations vary over
countries. In this document we focus on a domestic setting, on
the Netherlands. The
consumers and merchants or service providers are located in the
Netherlands. We treat the
services and systems that they have at their disposal for
effecting payments over public
electronic communication networks. These generally differ from
those provided in other
European countries, the US or other parts of the world.
A second factor is the contextin which payment transactions (the
transfer of money) take
place, i.e. the type of economic transactions in which they are
used. We identify threefundamental contexts (see also Figure
2):
1. Bill payment,
Typically used when there is a trust relationship between
consumer and vendor, often on a
long-term basis. The average transaction value ranges from about
15 upwards to very
large amounts. Bill payment is often used to aggregate small
value amounts.
2. Electronic commerce,
By which we mean here the selling of physical goods or services
through electronic
communication channels. The trust-relationship between consumer
and vendor may be
less established than in the bill payment context because of
occasional buyers contacting
the vendor though the indirect communication channels, such as
phone, email or the Web.The transaction value in this type of
transactions ranges somewhere between 5 and
500. Vendors may require direct payment, before delivery takes
place.
3. Exploitation of electronic goods and services,
That is, a context in which intangible, electronic products are
sold and directly distributed
through electronic communication networks with hardly any human
activity involved in the
selling and delivery process, if at all (unattended
points-of-sale). The transaction value in
this context will be low, in the range of approximately 0.10 to
5.
Transactionvalue
Invoice
Bills
B2C B2B
15 0
Physical goods
Books
CDs/DVDs
Clothing
500 5
Digital products
Content
Electronic services
0.10
Utilities Telecom
Per item, direct,
short term
relationship
Subscription, post-paid,
long(er) term
relationship
Figure 2: Payment contexts: What are we paying for on-line?
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14 G I G A P O R T
financial exploitation that has been developed in the project
[JBHS01]1. In [JBHS01],
examples have been worked-out: a webshop, a video-on-demand
service and payment for
electronic services through billing and pre-paid systems of a
mobile network operator.
Other research activities in the project, including those that
resulted in this document, are
related to this architecture (see Figure 4):
Metering and reporting of application usage,see [JST+01],
Demonstrator implementation,for demonstration purposes, and for
obtaining hands-on experience, see [ToWi00] and
[Wibb01].
Commercial exploitation support
Usage dataacquisition
Informationprovisioning
FinancialSettlement
Data & processmanagement
accounting
data
charging
data
usage
data reconciliation
data
payment
indication
provider
info
payment
initi tiation
bil l
meter
input
user info
Functional reference model
[JBHS01]
describes
This doc
Backgrounds
on the Dutchpayment system
Payment invarious contexts
e.g. Internet, mobile
e-billing
Aspects
covered
[HiSt01]
Approaches tometering, report
mechanisms;
implementations
[JST+01]
describes
Demonstrator
implementation
[ToWi00] [Wibb01]
Project report: see references
Figure 4: Overview of research activities in GigaABP, delivered
reports, and their relations
References to related research outside the GigaABP project are
included in the text. We
would like to point the reader however to [ECP00] (or its
planned up-date) with regard toelectronic payment systems in the
Netherlands for e-commerce and [JSB+00] where
electronic payment is considered in the context of on-line
transaction services. [Webe98]
provides a technical overview of various electronic payment
systems (internationally).
1.3 Document structure
The rest of this document is structured as follows:
1
A reader interested in the development of this model over time
may consult the subsequent versions of the model in[JHTW00],
[JHTW01a], [JHTW01b]. [JBHS01] contains the final version.
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Chapter 2 provides a general overview of payment over public
communication networks. It
highlights differences with payment in the physical world, at
points-of-sale, in situations where
buyer and vendor know each other. It discusses issues and
misconceptions with regard topayment over Internet. It treats
mobile payment from a high-level.
Chapters 3 and 4 continue with treating the context of bill
payment. Chapter 3 serves as an in-
depth introduction to Chapter 4 on Electronic Bill Presentment
and Payment (EBPP). In the
latter chapter we discuss various models for EBPP (Section 4.3)
and examples of commercial
providers of such services in the Netherlands (Section 4.5). We
pay attention to the
differences between the US and European market for EBPP.
Chapters 5, 6 and 7 discuss the context of electronic commerce,
in particular the integration
of web-shops with Internet payment systems and the provisioning
of outsourcing and value-adding services by Payment Service
Providers (Chapter 5, Section 5.4 and Section 5.5
respectively). Chapter 5 thus concentrates on merchant support.
In contrast, Chapter 6
considers support for consumers in e-commerce transactions:
electronic wallets. In Chapter 7
the bridge between the merchant side (cash register) and
customer side (electronic wallet) is
laid by discussing payment instruments that can be used for
on-line electronic payment
transactions, in the context of e-commerce. We discuss credit
cards, debit cards and card-
based electronic money.
Chapter 8 and 9 continue the discussion by considering the third
payment context:
exploitation of electronic products (content, services). Chapter
8 concentrates on the specificcharacteristics of this context that
are relevant to payment (Section 8.2). Next it discusses
various scenarios for payment for such products by means of
examples (Section 8.3).
Network-based electronic money is briefly discussed. Chapter 9
treats micropayment
systems.
Chapter 10 ends the document with overall conclusions.
For the readers convenience we have included a list explaining
acronyms at the end of the
document, as well as an index of key words.
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2 Payment over public communication networks
2.1 The issues
Initiating and executing payment over public communication
networks poses various
challenges to the systems and operators of these systems, as
well as challenges to human
factors as trust, security and fraud prevention and detection,
and also to the organisation of
business processes. Various aspects will be treated throughout
this document. Let us
highlight a few in the following.
2.1.1 Trust
When payment is executed over public communication networks,
there is a physical
separation between buyer and vendor, between consumer and
service provider. The two
cannot see each other. It is hard to establish an indication
that the buyer is trustable, or that
the vendor will deliver the ordered products. It is hard to
establish a trust relationship similar to
the one at the physical point of sale, where the two parties can
see one another.
Buyer and vendor not only need to trust each other, they also
need to trust the payment
instrument used to effectuate the money transfer. Considering
payment over
telecommunication networks, they should trust the technology
that implements a particular
electronic payment system and the operator(s) of that payment
system.
Various companies and organisations have put quite some effort
in creating and using new
technology that enables the establishment of the two types of
trust relationships just
mentioned. One can think of the development of Public Key
Infrastructure (PKI), quality
certificates for on-line merchants like the Webtrader-initiative
of the Dutch consumer
organisation Consumentenbond and new authentication mechanisms
introduced by banks
(e.g. ABN-AMROs e.dentifier, Rabobanks random calculator and
Postbanks mobile banking
initiative).
Trust is not only a matter of technology. On the contrary, trust
is a human attribute, which ishard to establish, differs among
people and should be carefully managed. Branding is a
marketing instrument that plays an important role in creating
and maintaining adequate trust
relationships. Technology can help in creating trust, but is not
the main instrument for doing
so. As trust is a human attribute, technology is able to create
trust only if the target group of
users of the technology is able to understand the level of
security that the technology is
providing.
For example, consider the situation of a payment system operator
that requires a pre-paid
deposit on a special account, like e.g. PayPal (see Section
5.2.1). Apart perhaps from early
adopters, users need top trust the organisation and its business
operation in order to deposita (substantial) amount of money in
such an account. If there are not sufficient legal
guarantees as to what happens to these deposits in case of
bankruptcy of the operator, then
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18 G I G A P O R T
this may influence the trust users will have in the system.
Offering adequate service to the
customers is yet another means to establish a trust
relationship.
2.1.2 Cross-border payments
Focussing on Internet as a public communication network and
electronic commerce and
service provisioning over Internet, we arrive at the next issue:
cross-border payments. Internet
is a globalinitiative. Companies involved in commercial
activities over Internet should
therefore consider the possibility of consumers from any
location in the world, willing to
consume their products. It is a strategic and individual
decision whether to accept all
customers (based upon trust). If a company decides to also
accept foreign customers,
payment for products will involve cross-border payments.
There are essentially three types of solutions for cross-border
payment:
International bank transfer,which is costly and cannot be
initiated on-line (See [HiSt01] for more details on cross-
border bank transfers).
Credit cards,which are less costly, have a substantial
penetration in various countries, and are quite
effective in conducting online payment transactions (see Section
7.2). Large consumer
groups are principally excluded from their usage however (youth,
lower incomes), and
those that can use them may not trust these instruments for use
on-line.
International collection services,which let consumers pay using
their domestic payment instruments (e.g. cash, domestic
bank transfer), often at delivery (see Section 5.3). Their
support for on-line payment is
limited, if possible at all.
The variation in cross-border payment systems can be improved,
as well as the efficiency of
available systems. It may be for this reason that cross-border
payments currently attract quite
some attention from banks and firms outside the financial
sector. The latter see an opportunity
in offering easy-to-use instruments and payment services that
are more efficient than those
offered by the financial sector.
2.1.3 Direct payment
Guarantees for payment and for product delivery are closely
connected to trust. The
higher the level of trust between buyer and vendor, the lower
their need for guarantees. One
way of circumventing the offering of extensive guarantees is
reducing the time frame in which
the full economic transaction takes place (recall Figure 1). If
the exchange of product and
goods immediately follows each other or is even concurrent
(pay-as-you-play), then the
financial risks are smaller, and they are shared.
Direct payment, i.e. payment with immediate finality and
immediate feed-back to both buyerand vendor, would be a solution
for circumventing guarantees or costly trust-enabling
technology. However, direct payment is hard to realise on a
large national or even
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international scale, when making use of the overall payment
system as provided by the
financial sector. The very nature of the processing, clearing
and settlement system in this
sector currently prohibits this (cf. [HiSt01]).
The only way in which direct payment can be realised at the
moment is by using dedicated
closed payment systems, like pre-paid accounts at mobile
operators, at banks (as in Rabo
Direct Betalen, see Section 7.3.1) or at special Internet
Payment Providers (as in the Jalda
model, see Section 5.2.2). This approach inevitably reduces the
reach of such systems.
Large, internationally operating telecom operators such as
Vodafone could play a role here
however, exploiting further their reach in communication
services. Thus they could play a role
in cross-border payments as well.
It should be kept in mind however, that consumers typically have
most of their purchasingpower, their money, on bank accounts. Trust
is then an important issue (again) to incite them
to transfer funds from these accounts to the dedicated accounts
in control of the operators of
direct payment systems. It is still an open question whether
consumers are willing to do so.
Moreover, reloading the account directly when its balance
reaches zero still requires direct
on-line payment systems, although the trust situation in this
case is expected to be better than
on the open global Internet.
2.2 Misconceptions on Internet payment
We start with a discussion of a number of commonly heard
assertions with regard to Internetpayments that require some
moderation, because they are not always true. We based this
discussion on [Bhl01], Section 2.1.
1. Internet payments can evolve independently from the banks
retail payment systems
This statement is not true. As will become clear from examples
we present below, Internet
payment systems rely on bank retail payment systems at some
phase, e.g. for making a
deposit in the case of account-based systems. Thus,
understanding the financial sectors
overall payment system is a prerequisite for a proper treatment
of Internet (and mobile)
payments. [HiSt01] provides a detailed discussion of the Dutch
bank payment system.
2. E-commerce requires Internet-specific payment systems
This statement does not hold in general. Some e-commerce
applications, like selling content
or on-line games, may require small-value payments (or even
micropayments), which cannot
be handled by current electronic retail payment systems. Often
this will concern selling and
delivery of electronic information goods. However, if e-commerce
is understood as selling
physical goods over an electronic channel (e.g. Mail
Order/Telephone Order MOTO or
Internet), then often traditional electronic and even
non-electronic payment systems are
sufficient. These systems may be even more popular than
electronic (Internet) payment
systems. Take for example the popularity of the acceptgiro in
the Netherlands for settlementof ordering and delivery of physical
goods at web shops.
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Retailers of physical goods that sell over the Internet and
serve an international market, may
use Internet payment systems to facilitate cross-border payment,
which is still a bottleneck for
international retail (e-) commerce. However, such retailers will
often set-up an internationaldistribution network as well,
including accounts at various national banks. Thus they reduce
the issue of cross-border payments to domestic payments. Various
payment service providers
emerge that support localisation both on Internet, e.g. Bibit
Internet Payment Services and
NetGiro (see Section 5.5.1and 5.5.2 respectively) and in the
physical world, e.g. GlobalCollect
(see Section 5.3).
3. Security is a fundamental problem for Internet commerce and
payment systems
This is almost true. It is not security however that should be
discussed, but the riskthat each
party involved in a commerce transaction is willing to run.
Having established an amount of
risk that is agreeable by both parties, this will have
implications for both security measures
that need to be taken, as well as for payment systems that are
appropriate in such a situation.
Moreover, a joint study performed by central banks has revealed,
that the level of security of
Internet payment systems could be at the same level as that for
existing payment instruments,
provided the designers and implementers take the necessary
precautions ([LGKV00, p.44],
[BIS96]).
4. Credit cards are an insecure payment instrument on the
Internet
This is not entirely true. Cardholder authentication is
relatively weakly secured: only a sixteendigit card number, expiry
date and (in some cases) a Card Validation Code (CVC; see
Section
7.2) are required. The most risky factor for loosing this data
to criminals is not the network
(Internet) but the merchant2. Note however, that credit card
transactions at POS in the
physical world create a risk of loosing the valuable card number
and expiry date as well: these
numbers, and the cardholders name, are also present on the
printed receipt from the POS
terminal. The Internet transaction protocols SET and its weaker
form 3D SET have been
designed to hide this valuable data for the merchant.
2.3 The roles of mobile communication in payment
We identify three major roles that mobile communication networks
and devices can play in
payment:
1. the mobile device as a payment terminal in the physical
world,
where the device replaces the terminals for electronic funds
transfer at points-of-sale
(EFTPOS).
2. the mobile device as a payment terminal in the virtual
world,
for the payment of electronic service delivered over a channel
different from the mobile
network (like Internet, cable).
2
According to discussions at the Telco-Finance Integration
workshop preceding the IIR Conference NextGeneration Billing
Systems, December 2000, in Rome. It is hard to obtain exact figures
on credit card fraud.
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3. the mobile network as a direct payment channel,
for electronic content and services consumed on the mobile
device.
2.3.1 Payment terminal in the physical world
In order to fulfil the first role, terminals need to be able to
interface with existing payment
instruments for retail transactions at points-of-sale, such as
debit cards, credit card and smart
cards containing electronic money. Conceptually, there are two
options: (1) use an external
multi-purpose card reader, or (2) integrate a card reader into
the mobile device. The first
option comes within range of realisation through the development
of a European standard for
card readers, FINREAD, see [HiSt01] for details. The second
conceptual option has been
rejected by the mobile phone manufacturing industry. According
to [Mobe01, p.18] the major
phone manufacturers (e.g. Nokia, Ericsson and Siemens) have
indicated that they will notproduce dual slot phones. One of the
suggested reasons is that the integration of a card
reader into phones puts too many limitations on phone design and
size. In this way the
discussion whether there will be dual-slot (i.e. with reader) or
dual-chip phones has been
finished in favour of dual-chip phones.
Another possibility would be using the mobile phone or more
generally the mobile device
as the platform for a secure electronic wallet that contains
payment instrument details, such
as card numbers. It is an issue however, who is in control of
what part of the device. The SIM
(for communication) in a mobile phone is provided and owned by
the network operator. The
wallet could reside on a separate chip in the mobile phone under
the control of the issuingfinancial institution(s), provided the
mobile phone manufacturers are willing to produce dual-
chip phones. If such functionality is incorporated into the SIM
(as Postbank has done in its
mobile banking application in co-operation with Telfort and
Siemens), the financial institutions
need to have various bi-lateral agreements with the mobile
network operators.
Example: refuelling a car using the mobile phone
Nedap, KPN Mobile and BP are currently running a pilot in the
Netherlands with Nedaps
Mobile Pay mobile phone payment system. The pilot started in
October 2001 with 1500 users
and three BP petrol stations, in co-operation with KPN Mobile.
The mobile phone (GSM) is
used for refuelling a car3, i.e. for identifying and
authenticating the customer of the petrol
station.
The customer has to dial a special number and enter the number
of the petrol pump and a
PIN code on his mobile phone. After successful authentication
the filling station is authorised
to provide fuel. The charge is collected from the customers bank
account by means of direct
debit. The customer can get a statement of his transactions via
the Internet.4
3
According to De Volkskrant, Experiment met tanken betalen via
mobieltje, October 20, 2001, Economysupplement.4
See also http://www.bp.nl/
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now, the assortment is close to that on the Internet. When Bibit
has handled the payment, it
signals the shop that delivery can go ahead. First retailer to
use the system is hot-
orange.com, who has offered WAP payment from June 2000.
2.4 Merging of payment flows
The consumer seems to be surrounded by providers that offer the
basic services in western
life, such as gas, electricity, water, cable television,
Internet and telecommunication of various
types (e.g. PSTN, ISDN, GSM, GPRS, ), financial, insurance,
governmental and municipal
services, etcetera. During the past few years in the
Netherlands, many of these providers
have joined forces with regard to billing and payment
collection, e.g. cable television and
municipality in collecting charges and taxes.
Each of the mentioned providers with recurring customer contact
can seek the opportunity to
offer their customer contact as a contact opportunity to other
(on-line) service providers or
vendors. They can start to act as an intermediary with regard to
billing and payment between
buyers and vendors. The payment flows of service providers with
recurring frequent customer
contact can merge with those failing such an opportunity. They
first need to be aware,
however, of the credit risk that accompanies such an
approach.
Development: Open Service Access (OSA) Parlay platform
The Parlay Group6, which is an open multi-vendor consortium of
ICT companies including
(among many others) Alcatel, Compaq, Cisco Systems, Ericsson,
IBM and Lucent
Technologies, is developing a platform for Open Service Access.
That is, developing
Application Programming Interfaces (APIs) that enable
applications to operate across multiple
networking platform environments. One of the developed APIs
enables the reservation and
capture of funds in e.g. pre-paid accounts, and charging to the
cost of a telecom billing
system (e.g. see [ETSI01]). Note that this applies to new
applications or services provided by
third parties that leverage (or operate over) the mobile
network.
6
See http://www.parlay.org
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3 Overview of bill presentment and bill payment
3.1 Introduction
The bill or invoice represents a financial claim of a company on
a customer. It is associated
with a payment that is due. The latter part distinguishes a bill
from a statement or notice: a bill
must be paid within the prescribed time period, or other (legal)
measures will be taken in order
to establish payment.
Bill/Invoice7:
An electronic or paper document sent to a customer associated
with a payment
due.
Statement/Notice:
An electronic or paper document sent to a customer/agent that
does not have a
payment due associated with it.
A bill shouldbe paid in time is probably a better wording: late
payment is part of a countrys
payment culture and varies over countries (see Figure 5).
According to the European
Payment Surveythat was executed for Intrum Justitia8, the main
causes for late payment are
(1) intentional delay as a cheap means of obtaining credit
(supplier credit, in 35% of the
considered cases), (2) financial difficulties of the debtor
(33%), and (3) administrativeinefficiency (e.g. errors; 16%).
Another cause of late payment is disputes over the bill (5%).
The first and second main cause for late payment cannot be
addressed by means of billing
technology, because they depend on the way firms do business. A
reduction of supplier credit
is harder to achieve: it requires a change in attitude. The
others can.
Source:European Payment Survey(1995, NOP for Intrum
Justitia.www.intrum.com )
Figure 5: Late payment in Europe
7
From Glossary of Terminology of eBilling.org:
http://www.ebilling.org/glossary/default.htm8
See http://www.intrum.com
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A well-designed and executed billing process may reduce both the
number of disputes and
administrative errors. The latter can be achieved by limiting
the number of human interactions
in the bill payment process, e.g. the act of copying payment
details from the bill to an inputfacility of a financial management
system or e-banking application. The number of disputes
that result in late payment can for example be reduced by
offering various Customer (Self-)
Care services.
3.2 A functional reference model for billing and bill
payment
Figure 6 presents a functional model for the financial
settlement of economic transactions by
means of billing and bill payment. It is based upon [JBHS01].
Billing consists of the
preparation of the bill, tailored to the customer by adding
personal information or providing
special discounts, and the bill presentment function that
realises that the payer will receiveand review the bill. Sent bills
and incoming payments are matched in the reconciliation
function. This is a highly important function. Much inefficiency
in the billing and bill payment
process is created by exception handling in the reconciliation
function, because often this
requires manual labour. Payers could for example have made a
mistake in copying the
appropriate payment references.
Financial Settlement
Bill
paymentReconciliation
payment
initiation
to account
& processmanagement
charging
data
billing info
payment
info
bill
payment
indication
Billing
Billpresentment
Billpreparation billing
databill
Payers
financialhandling
Authorisation
Function Input Output Information duplication
Legend:
Figure 6: Functional reference model for billing and bill
payment (after [JBHS01]).
The Payers financial handling function may be simple, e.g.
placing a physical signature, but
can also be complicated: the administrative functions and
policies within a company that deal
with accounts payable. The precise content of this function is
beyond our scope. For the
discussion in this document it suffices that the function
results in payment authorisation and
initiation, based upon the bill as input.
3.3 Differences between B2C and B2B billing
Billing, or invoicing, faces different requirements in the
business-to-consumer market than inthe business-to-business market.
Legislation and regulations differ in these two markets, for
example with regard to tax handling (e.g. Value Added Tax VAT).
In the Netherlands tax
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regulations regarding B2B invoices are much stricter than those
for B2C bills. However, the
regulations (for B2B and B2C) vary over various European
countries, thereby complicating
international bill ing. The European Union is currently
considering harmonisation of theseregulations among its member
states.
Also the complexity of the administrative processes differs
substantially, together with the
relative number of disputes over received bills. In B2B
situations there is much more need for
exception handling. It is estimated that 40% of B2B billing
requires resolution or adjustment
[Mari00]. Moreover, in a B2B setting bill processing may cross
various intra-organisational
boundaries, and may cross the hands of multiple employees as
well. Authorisation of
payments is typically confined to a small number of employees
however, which complicates
the interaction between the payers financial handling function
(Figure 6) and bil l presentment
and payment. Consumers do not have a complex financial
administration in general. Thismakes bill processing much
easier.
The importance of the distinction between B2B and B2C is further
stressed by the use of
different terminology. In the literature the term bill mainly
refers to the B2C setting while
invoiceindicates a B2B setting. See for example [CEBP01] and
[Mari00]. It should be noted
that this subtle distinction may be less apparent in product
offerings by commercial service
providers or system vendors.
3.4 Instruments for bill payment
Currently in the Netherlands there are three common ways for
paying paper bills: (1) by
means of credit transfer between bank accounts, (2) by means of
acceptgiro (now euro-
acceptgiro) and (3) by means of direct debit.9 In the B2C market
segment, acceptgiro and
direct debit are particularly popular. The acceptgiro is
convenient in situations where there is a
one-time customer relationship or when the merchant or service
provider is willing to give the
customer the initiative for starting the payment transaction. In
a periodic, recurring customer
relationship direct debit is often used. It is also used in
situations where the vendor prefers to
keep the initiative in payment initiation. Banks prefer the use
of direct debit as it is the
cheapest instrument for bill payment.
Both acceptgiro and direct debit have the advantage over bank
transfers as they reduce the
number of administrative errors. The first because of the
pre-printed payment information that
it contains; the second because the process of sending the
collection requests to Interpay can
be automated. Credit transfer between bank accounts is more
costly in the end than
acceptgiro or direct debit, because reconciliationmay be
complicated by incomplete or
missing payment information, like payment reference or an
incorrect amount.
The bill payment instruments differ further in transactions
costs (for the biller), in the payers
convenience, payment finality and who initiates and controls the
payment process. In the first
9
The payment instruments are discussed in detail in [HiSt01].
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two methods the payer initiates and controls payment. In the
last the biller initiates payment,
while bi ller and payer have shared control: the payer has the
so-called Right of Reversal
within a time frame depending of the type of direct debit used
(see [HiSt01] for details, Table 1provides an overview). Of these
three methods, only the acceptgiro is directly linked to bill
presentment, since often the acceptgiro is physically attached
to the paper bill.
Table 1: Comparison of payment methods for physical bills
Payment
method:
Payment
initiator:
Control: Payment
finality:
Payers
convenience:
Credit transfer Payer Payer After processing Low
Acceptgiro Payer Payer After processing Medium
Direct debit Biller Shared After 5-30 days High
3.5 Bill distribution and presentment: print and mail
services
Firms that frequently send out large mailings or many invoices
in short time periods often
outsource these activities at providers of so-calledprint and
mail services. Examples of such
large volume recurring billers are telecom and utilities, banks
(account overviews) and charity
organisations. The providers of print and mail services have the
equipment to print large
volumes of paper, prepare the mailings, add promotional
material, et cetera. They often also
print acceptgiros, which are attached to the bill and sent to
the payer.
There are several hundreds of print and mail service providers
active in the Netherlands. PTTPost Print & Mail, part of the
TNT Post Group is one of them. Another is AddComm Direct
B.V., which has a long-term strategic partnership with Bluem, a
Dutch provider of Electronic
Bill Presentment solutions (see Section 4.5.2).
3.6 Developments in bill presentment and bill payment
Recall that a billing approach to the financial settlement of
economic transactions creates the
problem of late payment (Section 3.1), mainly because of the
attitude of companies (supplier
credit is easy and cheap), but also because of administrative
errors and disputes over the
bill. The central problem is that billing moves the initiative
for payment initiation to the payer
instead of the biller. The payer waits till he finds it
convenient to pay. The payer makes
mistakes in the payment information that is attached to the
payment order, or the payer waits
with payment until the dispute has been settled.
Thus late payment may be reduced by using a payment instrument
for bill payment that
leaves the initiative with the biller: direct debit. Changing
from acceptgiro to using direct debit
also creates a cost reduction for large volume, recurring
billers. In fact, printing acceptgiros is
subject to precise conditions (set and verified by Interpay and
Postbank) in order to establish
efficient automated processing. Specialist knowledge and high
quality equipment is needed.
Therefore it is more costly than normal printing.
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When using direct debit a statement is still sent. Therefore it
is then only a small step to
perform electronic presentment of this statement. The number of
administrative errors can
also be reduced by means of direct debit. Currently banks are
also looking at the possibility ofusing digital signatures for
signing electronic mandates for direct debit (cf. [HiSt01]),
on-line.
In that way direct debit becomes more convenient for on-line
payment of bills as well.
3.6.1 A digital acceptgiro
Direct debit seems to be the ultimate solution for bill payment.
However, many consumers
seem to value the concept of the acceptgiro as well, which gives
the consumer the initiative of
payment initiation, thereby keeping them in control. The
acceptgiro concept also includes the
idea of pre-printed payment information, which reduces the
number of administrative errors.
Moreover, the payment reference on the acceptgiro facilitates
the reconciliation process. Theacceptgiro is paper-based however.
As the trend is towards electronic paper-less payment
systems, the acceptgiro with its sense of control needs an
electronic substitute.
Currently there are no (de facto) standards for the electronic
representation of the payment
information contained in a bill, like the acceptgiro for paper
bills. The Dutch banks and
Interpay have the initaive to come with a standard however: the
digital acceptgiro, or
@cceptgiro. The idea is that the payment information is sent to
the payer electronically
through intermediaries (banks) in the financial sector, while
the bill or statement is sent to the
payer through any other channel of the billers choice (see
Figure 7). That is, the bill may still
be paper-based if that is more convenient. Electronic Bill
Presentment (EBP) may be anelectronic option.
Customer Biller
(Electronic) Bill Presenter
Bill Payment Service Provider
Digital accepgiro
Payment
service
Digital
accepgiro
(optional)
Electronic Bill
Payment channel
Bill presentment
channel
Electronic
bill presentment
service
hyper linking
Legend
Role Data flow Service ProvisioningData object
Figure 7: The envisioned scheme for the digital acceptgiro
The digital acceptgiro need not end-up in the domain of the
payer: it may remain on a server
within the domain of control of a bank, providing special
services for bill payment (including
feed-back to the biller on an @cceptgiros payment status). The
EBP service and the bill
payment service are crosslinked, such that Customers can easily
switch between bill details
and payment details, while these two are coming from different
sources (web sites). If
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required however, the digital payment information in the form of
the @cceptgiro may be
loaded into financial administration software or home-, web- and
e-banking applications.
3.6.2 Electronic Bill Presentment (e-Billing)
Electronic Bill Presentment (EBP) allows consumers10 to receive
and review their bills
electronically, in particular over the Internet. Electrifying
paper bills in itself does not
contribute much to reducing late payment. It may reduce the
operational cost of printing paper
bills, but an electronic biller needs to maintain an additional
ICT system for EBP instead.
Moreover, consumers will not instantly move towards the use of
this new technology. In fact,
[Mari00] states that billers have spent much effort getting
bills online, but less on
developing online bill payment as a consumer habit. The expenses
required to
implement online presentment of bills represent perhaps only 20
percent of the effort requiredto make it a consistent practice.
The main value-adding aspects of EBP are in its combination with
other functions, to the
benefit of both EBP and these functions, e.g.: (1) Customer
Relations Management (CRM),
(2) bill consolidation and (3) online payment services. The
combination of EBP with a
payment function is commonly called Electronic Bill Presentment
and Payment (EBPP). The
combination of EBP with CRM is sometimes referred to as
e-billing. Experiences with EBP
show that there are less late payments due to convenience in
payment: the payer only has to
click a button to pay.
Providing good Customer (self-)Care services through the EBP
channel may reduce the
number of disputes and thus late payment. An example of
e-billing is the Web site of KPN
Telecom, where subscribers can review their current and past
phone bills. The service offers
additional functionality for analysing a bill (e.g. call with
the longest duration, most called
phone numbers, et cetera).
Moreover, EBP provides new means for maintaining customer
attention to corporate web
sites, enable interactive marketing and establish extended
customer care. EBP can offer a
single point of entry for all financial and related transactions
with customers, offering the
company a unified customer view. This point of entry can be
personalised as well.
3.6.3 Bill consolidation and payment services
Bill consolidation and payment sites offer consumers the
opportunity of organising the
received bills. Some consolidators even scan paper bills and
include those in their list of
electronic bills. Users can schedule bill payment. In this way
late payment is reduced by
providing better administrative facilities to consumers. The
payment function reduces
administrative errors and the usage of paper-based
instruments.
10
The corresponding concept in the Business-to-Business market is
referred to as Electronic Invoice Presentment(EIP).
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4 Electronic Bill Presentment and Payment
4.1 Introduction
Recall that the business market for bill presentment differs
from the consumer market
(Section 3.3). Accordingly, we follow the distinction between
bills and invoices, and between
EBP or Electronic Bill Presentment and Payment (EBPP) and their
counterparts in the
business market: Electronic Invoice Presentment (EIP), and
Electronic Invoice Presentment
and Payment (EIPP) (following [CEBP99], [CEBP01]). Our focus is
on the consumer market,
on EBP and EBPP. EBP can also be seen within a broader setting:
as a specific variant of
electronic document or legal document presentment. We do not
pursue this approach in the
sequel.
4.2 The impact of cultural aspects
Providing EBP services on-line is a growing field of commercial
activities in which many large
companies participate. Organisations, like the Global Billing
Association (telecom sector) and
the National Automated Clearing House Association (NACHA US
financial sector), have put
the subject on their agendas for research, standardisation and
discussion. As the market is
growing, new firms enter the market. The competition is
growing.
The uptake and level of success of EBPP services is closely
related to the payment cultureand payment infrastructure of the
countries in which it is applied. A solution or model for
EBPP that is successful in one country need not be successful in
another. US providers of
EBPP services have experienced this observation in reality.
Their entrance on the European
market has not been as easy as they expected. Currently these
companies tend to co-operate
with European counterparts in order to get a grip on the
cultural differences of which they
were not fully aware initially.15
The US market for EBP(P) differs from the European market. To
mention a few differences:
The efficiency of the overall payment system;EBP combined with
electronic payment functions reduces costs when compared
withpaper-based instruments: invoicing and cheques in the US. The
payment system offered
by the financial sector in the US is less efficient than many
systems in Europe, the
Netherlands in particular. The Dutch payment infrastructure is
one of the most efficient in
the world. Therefore the realisation of cost reductions by means
of EBP(P) is less apparent
to billers.
15
According to Anachron,at IIR Conference E-billing and Customer
Care Management, Schiphol, The Netherlands,March 20-21, 2001.
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of IFX (see Section 4.6.3). In the middle there are companies
that control the overall
architecture of the EBPP system, but let others players exploit
parts of the EBPP value chain.
Parties in this value chain are e.g. billers, biller service
providers, banks and customers.TransPoint, a company owned by
Microsoft and First Data Corporation, follows this strategy.
Apart form the system approaches (open or closed), several
models for EBP(P) have been
developed, which we shall now discuss. We base our exposition on
[OSS+98], [NACH99],
[CEBP99], [Mari00], [HJTW00], [CEBP01], and [AuKi01]
(chronological order). Terminology
differs among the various sources. We followed that of
eBilling.org16.
Commonly, the following elementary roles are identified:
Biller,A company or organisation that sends a bill or statement
to a Customer.
Customer,An individual or company that receives goods or
services which are subject to bi lls or
statements.
Bill Receiver,A person or company that receives a bill or
statement for goods or services ordered by a
Customer. A Bill receiver and Customer may be different.
Biller Service Provider (BSP),An agent of the Biller that
provides EBP services to the Biller.
Customer Service Provider (CSP),An agent of the Customer that
provides a single point of entry (or one interface) forCustomers,
e.g. for enrolment, for reviewing bills and payment status.
Bill Consolidator,A Biller Service Provider that consolidates
bills from other Biller Service Providers or Billers
and delivers them for presentment to the Customer Service
Provider or directly to the
Customer.
The following models have been identified:
Direct Model
In this model, a single firm (in the role of Biller) offers
online bill presentment and paymentdirectly to a customer (see
Figure 8). Thus, the Biller incorporates an electronic bill
presentment capability into its corporate web site. Consumers
have to enrol into the EBP
service of each of the billers with which they are involved
separately. A Customer Service
Provider may take care of the enrolment process for the various
billers. The Biller may
outsource the EBP service itself to a third party, the Biller
Service Provider. Outsourcing is
typically transparent for the Customer.
16
See http://www.ebilling.org/glossary/default.htm
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Customer Consolidation Model
In this model the Biller directly delivers the electronic bill
directly to the Customer, i.e. the bill
data is transferred to the Customers domain of control, for
example through email. Afterreception the Customer is able to
import the bill data into their Personal Financial
Management System (PFMS) or home-banking application for further
processing.
A comparison of models
Looking only at current practices in the US the Direct Model and
the Thin Provider
Consolidation Model seem to be used (see [Mari00]). These
observations hold for the
Netherlands and Europe as well. Most players in the US are using
the Thin Consolidation
Model. The Direct Model is only feasible for large companies
with a large enough volume of
recurring bills and customer base willing to use the electronic
services to justify the
investments required for in-house deployment of bill presentment
systems.
The Thick Provider Consolidation Model has the drawback that the
biller loses much of the
potential interaction with its customers and hands-over (too)
much control to the BSPs and
CSPs. It offers opportunities to develop the market however
(examples in Norway). As soon
as the market is more mature i.e. EBPP facilities at the billers
site the BiSP can make a
shift to the Thin Model.
The problem with the Customer Consolidation Model may be the
electronic delivery of the bill
and the bills integration into the PFMS. Open and commonly used
standard bill formats or
electronic formats for payment information are required in that
case, and the availability ofPFMSs conforming to these formats.
It is also possible for a firm to feature aspects of both the
Direct Model and the Consolidation
Model in its service offerings. A Dutch example of such a
combined offering is Bluem (see
Section 4.5.2). The Consolidator and combined model are more
complex than the Direct
Model. The factors affecting this complexity centre around: who
"owns" the customer
relationship (biller, consolidator or CSP e.g. the Internet
portal), who processes the
payment, who manages the data, how do consolidators
interoperate, and how do
consolidators translate bill data in multiple formats?
4.4 US players
In the U.S. EBP is quite successful. The providers of EBP
services there can be divided into
two groups: (1) financial institutions (banks) and (2)
non-financial institutions [AuKa01]. The
Spectrum consortium17 is leading in the first group. Recently,
also MasterCard entered the
EBPP scene [Mari00]. CheckFree and TransPoint are the main
players in the second group.
Players in this group offer EBP services to e.g. Internet
portals as Yahoo! and America
Online, which act as bill consolidators for consumers. These
portals obtain payment services
from other players in order to realise electronic bill payment
and full EBPP functionality.
17
Consisting of Chase Manhattan, First Union and Wells Fargo; see
http://www.spectrumebp.com
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Competition comes from home banking software companies (Home
Financial Network, Edify)
that aim at customers of small to medium-sized banks, bill
publishing companies
(International Billing Services, Princeton Telecom, Electronic
Funds and Data) that offer paperand electronic bill publication,
and others that mostly use third-party payment (EDOCS,
Netdelivery, Intuit, Novazen, BlueGill, NCR, Electronic Data
Systems).
The second group of non-financial institutions is currently
leading in the market. A survey
performed in late 1999 by Gartner Group among 173 large U.S.
companies indicated
however, that these companies would prefer their banks to act as
EBP service provider. They
seem to be turning to the non-financial institutions for
solutions instead ([AuKa01], [Lita00]).
Table 2: US providers of EBP solutions.
System vendors: Application Service Providers (ASPs):Alysis
Iplanet BillServ.com CheckFree
Avolent Checkfree Derivion Pinceton eCom
Edocs Portal TransPoint
Solant TransPoint YourAccounts.com
4.5 Dutch providers of EBP solutions and services
In this section we focus on the players active in EBP in the
Netherlands. Anachron and Intrum
Justitia are such players that are also active throughout
Europe. Bluem and the TNT Post
group with Privver focus on the Netherlands.
4.5.1 Anachron: Pulse Suite
Anachron18 is a Netherlands-based company, founded in 1999, that
specialises in e-Billing
and customer interaction solutions. They state that Web-enabling
customers financial and
personal information is their core business. It offers the Pulse
Suite of electronic bill
presentment and customer care solutions, both for B2B (Pulse
Business Advantage) and B2C
(Pulse Consumer Advantage).
Their solution is platform-neutral. For example they showed EBP
over a mobile platform
developed by AtoBe19 at the CeBit in Hannover in March 2001. The
system uses 1024-bit
Virtual Private Networks for the transfer of data to and from
customers. Sensitive data is
completely encrypted before it is stored. Anachron's solutions
are based on open standards
(e.g. XML, J2EE, 3DES, X.509).
18
See http://www.anachron.com19
Press release, Anachron-AtoBe, Anachron and AtoBe Deliver Mobile
e-Billing, March 22, 2001.
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1980s and 1990s it expanded its activities into Scandinavia and
the rest of Europe. Currently
it has a presence in over 20 European countries.
As part of the sales ledger services they offer (among others)
invoicing and payment
matching (with bills). Intrum Justitia has a strategic
partnership with NetGiro (see Section
5.5.2) for expansion in Europe with regard to EBPP. Intrum
Justitia uses NetGiros G-Bill
solution.25
4.6 Standards
In the (outsourced) Direct Model and the Service Provider
Consolidation Model bill data needs
to be exchanged between the Biller and the organisations that
fulfil the roles of Biller Service
Provider or Bill Consolidator (see Figure 9). In this section we
discuss three standards areused for this purpose: OFX, GOLD and
their successor IFX. The scope of these standards is
broader however: the integration of systems of financial
institutions with those of their
customers. It should further be remarked, that these standards
have been developed in the
US with its Anglo-Saxon approach to financial affairs. This may
make these standards less
suitable outside the Anglo-Saxon world.
4.6.1 Open Financial Exchange (OFX)
Open Financial Exchange (OFX)26 supports a broad range of
financial services by defining a
framework for directly exchanging financial data and
instructions between financial institutionsand their customers.
Customers can be individual consumers and businesses. Financial
institutions can be any organisation that provides some kind of
financial services, such as
banks, financial advisors, government agencies (e.g. Tax
Office), information providers,
transaction processors, et cetera.
For each financial service, OFX defines the format of financial
data exchanged, the set of
instructions (messages) and the way the data and the
instructions are interpreted. The
financial data and instructions are specified in SGML. The
interpretation of data and
instructions is realised by implementing OFX server and client
applications.
The OFX specifies a client-server architecture. The server
implements financial services or
has access to such, and the client can request such services.
The communication between
the client and server is carried out in HTTP (see Figure
10).
25
See http://www.netgiro.com26
http://whww.ofx.net/
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Client application
Web-client
OFX client
OFX
request
Server Application
Web -server
OSF-server
Service 1
Service 2
...
Service n
OFXrequest
OFXreply Legacy system
(implementing service 2)OFX
reply
HTTP
(appl/x-ofx)
Legacyformat
Figure 10: OFX Architecture
This section has been sourced from [Stef00].
4.6.2 GOLD message standard
The GOLD message standard27 was created by the Integrion
Financial Network28, an industry-
based consortium owned by fifteen Major International Financial
Institutions that joined
resources to positively impact the electronic delivery
channel.
The GOLD Message Standard is an interface protocol used to
enable financial institutions,technology vendors and third party
processors to connect to one another more efficiently and
with enriched functionality. The standard has the following
functions:
enables various end user products to connect to financial
institutions core systems in an
extendable protocol.
defines a broad range of messages and transactions embodying the
complete set of
banking functions.
shields the financial institution from the variety of end user
devices, networks and
protocols, as well as shielding the end user from the
peculiarities of the financial
institutions' core systems.
In summary, GOLD defines an open, cross-platform standard
messaging interface which
facilitates the secure electronic exchange of data between
financial institutions, their partners,
and their customers.
27
http://www.integrion.net/gold/28
http://www.integrion.net/
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4.6.3 Interactive Financial Exchange (IFX)
The Interactive Financial Exchange (IFX) specification29
provides a robust and scalableframework for the exchange of
financial data and instructions independent of a particular
network technology or computing platform. It was developed as a
co-operative industry effort
among major financial institutions, service providers and
information technology vendors
serving these institutions and customers in the small business
and consumer markets. IFX
builds on the industry experience of the Open Financial Exchange
(OFX) (see section 4.6.1)
and Integrion GOLD (see section 4.6.2) specifications, which are
currently implemented by
major financial institutions and service providers.
According to [Mari00], US banks seem to like version 1.0.1 of
IFX, in particular because of the
included account-management features that it includes. These
features enable the seamlessintegration of EBPP with online banking
services. For example the Spectrum bank consortium
has accelerated its schedule to implement IFX.
Electronic bill delivery and payment messages are highlighted in
the IFX Specification. These
messages were developed to support the open, interoperable and
secure exchange of
electronic bills and the reliable delivery of payment and
remittance information.
4.7 Examples of Electronic Bill Presentment systems
In this Section we treat EBP systems (products) that are being
used by some of the providersof EBP services mentioned in Section
4.5.
4.7.1 BillCast (Avolent)
BillCast is a product of Avolent (formerly of Just in Time
solutions) 30 that provides Internet
billing and interactive customer care. Customers can view,
analyse, and get details on current
and past bills. User profiles, together with an integrated
business rules engine, are used to
provide personalised billing. The engine is also used to realise
the systems flexibility:
changes to the business logic can be made by adjusting business
rules. No (re)coding is
required. As part of customer care, a home page is generated
around bill presentment. Fromthis page users can e.g. make
scheduled payments.
BillCast uses XML-based definitions of back-end systems.
Therefore it is claimed that easy
integration with e.g. accounting systems is possible31. The
billing service is delivered through
web-based and email channels. Personal digital assistants (PDAs)
can be used to access the
service. Figure 11 shows the BillCast Architecture.
29
http://www.ifxforum.org/30
http://www.justintime.com/home.html31
http://www.justintime.com/productsTechnology/billCastArch.html
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4.7.3 Oracles Bill Presentment and Payment Solution
Oracle Bill Presentment and Payment allows customers to perform
multiple functions such asview bill summary, view bill details, pay
bills, dispute bills and set-up auto payment rules. All
these functions are achieved through a browser-based interface
that is customisable. Its
features include:
Bill-delivery support through browser, e-mail to PFMS (through
Open Financial Exchange -OFX) and other clients;
Support of direct-biller, consolidator and combined models;
Interoperability with CheckFree via OFX and TransPoint;
Customisable billing look-and-feel for customers, customer service
representatives, billers
and administrators;
Rules-based e-mail notifications (new bill, auto-paid, etc.) and
payment functions; Payment queues (real-time and batch); SSL
(Secure Socket Layer) security Integration with partners for
targeted marketing; Simple sign on.Bill Presentment and Payment is
part of an Oracle portfolio of e-commerce product and
service offerings. Oracle's e-commerce consulting solutions
cover three main areas: Buy Side
(Supply Chain Management), Sell Side (Customer Relationship
Management) and In Side
(Strategic Enterprise Management). Each offering incorporates
Oracle's underlying Internet
Platform and encompasses products and services for building
comprehensive, scalable,extensible and integrated e-commerce
solutions. Additionally, these solutions allow existing
applications to incorporate e-commerce functionality so that an
organisation's current
investments in information technology can be leveraged.
4.8 Trends and developments
Providers of EBP services compete with providers of print and
mail services. It is also
important to note that the EBP concept assumes that the biller
and customer have a good
trust relationship. Thus Billers will benefit most from extended
customer (self) care functions
offered in conjunction with EBP services, and from economies of
scale because of theefficient payment system. Therefore EBP seems
to be most suitable for large volume billers,
with recurring customers and bills: so-called recurring billers.
Typical companies are: telecom
operators, utilities, financial institutions, insurance
companies, mail order companies, charity
organisations and governmental institutions, like the Tax Office
and municipalities.
The initial focus for bill presentment services has been on the
business-to-consumer market,
because of the relative simplicity of integrating EBP with
consumers financial management
systems when compared to the internal administrative processes
for invoice handling
encountered in firms. However, attention is now shifting towards
business-to-business
applications. B2B bill recipients, like consumers, benefit from
the availability andpersonalisation, but are also interested in the
possibilities of analysis and reporting. Hence,
B2B systems must offer this functionality. Furthermore, they
need to be scalable to handle
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large (amounts of) bills, multi-part bills, and must integrate
with existing financial and
accounting software (for example offer data integration from
various sources, access control,
cost item allocation, and dispute resolution).
Both in the B2C and B2B market the uptake depends on the
penetration of Internet among
households and firms. The rate of penetration is growing for
both cases (e.g. consult [CBS01]
for figures on the Dutch situation over the past few years). EIP
requires much more than
Internet connectivity however. For EIP Internet should reach to
the workstation of the relevant
employees. Business processes may need to be redesigned and
these changes must be
made operational. Currently this Customers point of view seems
to be somewhat neglected.
Most discussions stress the benefits forproviders in the scheme:
for billers, banks and other
service providers. Paradoxically, the current schemes for
activation of EB/IPP services (the
enrolment) are Customer-driven.
The benefits for the Customers are not always clear. [AuKa01]
draws the conclusion from a
Gartner Group survey (see [Lita00]), that it suggests that
consumers are only likely to sign up
for EBPP if they are able to get most - if not all - of their
bills online. In the Netherlands the
banks investigated the possibility of providing access to
electronic bills of various billers for
their customers: the bank as trusted party for the consumer.
More light should be shed on
Customer benefits both consumers and businesses before more can
be said on the
uptake of EBP and EIP services.
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a solution that works both domestically and internationally.
GlobalCollect offers this service on
an international scale (see Section 5.3).
5.1.2 International reach
For an Internet merchant it is hard to predict the national
origin of customers on its Web site.
Worldwide there is a huge number of different Internet payment
systems operational. The
selection and subsequent implementation of these payment systems
is therefore hard, costly
or even impossible.
There are only a few general purpose international payment
instruments available: (1) credit
cards, (2) cross-border bank transfers, and (3) international
collection services. We discuss
the issues regarding on-line credit card usage in Section 7.2.
The second instrument, cross-border bank transfers, is highly
inefficient (see [HiSt01]). This makes them unsuitable for
payment of products with a small margin. Currently they are not
supported on-line in
electronic banking applications as well. International
collection is an option. We discuss
GlobalCollect as an example in Section 5.3.
5.2 Examples of dedicated account-based systems
In this section we discuss the PayPal system and Jalda, which is
an Application Programming
Interface to a central account management system proposed by
EHPT, an Ericsson and
Hewlett Packard joint venture. Before we discuss the system
details, a few words from abusiness perspective.
The operator of a dedicated account-based system has special
concerns. In the pre-paid
situation a consumer should have sufficient trust in the
operator. Otherwise he will not deposit
money into the account. Possibly the operator needs a banking
licence as well, because he is
attracting funds from the public. In the post-paid scenario the
operator is having a credit risk.
Loading will involve other (electronic) payment systems. Thus
such a system may solve the
direct payment issue, but the consumer may still be faced with
the necessity of using various
payment instruments over the Internet. By its very nature, such
a system is perfectly suited for
exploitation by intermediaries.
5.2.1 PayPal
PayPal35 is an account-based payments system that is exploited
by a US company with the
same name. In the US it is quite successful, partially because
the biggest Internet auction
site, eBay, uses PayPal [Econ01], partially because the system
also supports person-to-
person payment transactions. The latter functionality is rare
among Internet payment systems
(because of risk and fraud management). The only other payment
system that currently
supports this functionality is the card-based electronic money
scheme Mondex (see [HiSt01]).
35
See http://www.paypal.com/
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Initially the service was free of charge for consumers en
merchants. The initial business
model was claimed to be based upon selling personal financial
details to third parties. As of
June 2000, PayPal changed its strategy. This change coincided
with the introduction of newrules in the USA curbing these
activities. From that point in time PayPal asked 1.9% of the
value of purchases from vendors [Econ01]. This is about two
percent less than credit card
companies charge for transactions. Moreover, PayPal has
encouraged more Internet buyers
away from using credit cards, by starting to pay interest on
deposits in PayPal accounts.
PayPal has a transaction monitoring system that is capable of
identifying unusual money
flows, e.g. from several accounts loaded by using stolen credit
cards to a single PayPal
account, where the money is collected. The system uses email
addresses as account
identifiers.
Not all information on PayPal is positive: various users seem to
have complained about the
system in relation to fraud [Cave01]. Moreover, the European
deployment of PayPal has been
postponed, because the company should either obtain a banking
licence or co-operate with a
commercial bank, according to the European regulations. The ING
Group was envisioned as
European partner, but there is not much news on the deployment
process.
5.2.2 Jalda-based Safetrader
Jalda36 is a secure, flexible Internet payment method developed
by EHPT. A Jalda system
has three major participants: the customer, the e-commerce
service provider and a paymentservice provider (or Internet Payment
Provider IPP). Jalda uses the concept of a tick to
represent a payment transaction. The value associated with one
or more ticks is defined by
the e-commerce service provider and agreed to by the customer in
a digitally signed contract
or order confirmation. The tick-concept offers flexibility by
supporting both single transactions
(a web shop pursuit) and session-based sliced-payments (as
IP-telephony, streamed video,
music and on-demand services, discussed in detail in Chapters 8
and 9). Moreover it enables
the support of payment transactions of almost any value.
The system works as follows. Both the consumer and service
provider hold an account in a
Jalda compliant payment server, e.g. the Safetrader payment
server of EHPT that ismanaged by the IPP. Using the Jalda API the
service providers application sends ticks to the
server that charges the appropriate account and updates the
service providers account. Ticks
can be generated by any part of the service providers
application: that is, the client, the
server or an intermediary proxy. Thus it is possible to
integrate the functions of a payment
system into a web server or a client application that runs on
the customers computer.
In practice, the system works like this:
1. An agreement is made between the client and the service
provider with regards to costing
of the services that will be provided (e.g. based on time or per
click, etc.)
36
See http://www.jalda.com/.
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2. With this agreement in place, the IPP is contacted by the
service provider application
(which may be a web server or an application running on the
customers machine) and a
secure connection is made between the two parties.3. Using this
secure connection, as the client utilises the services (as detected
by the
service provider application), the clients account is billed as
the service provider
application sends ticks over the secure connection to the
IPP.
At the IPP, a payment server maintains a database of pricing
information (i.e., different rates
for recurring customers etc.) and also customer profile
information. When each tick is
received by the IPP server, it must be analysed. This process
involves determining:
who sent the tick,
the product it refers to, the price,
the currency to be used,
any applicable discounts,
who is paying,
how to bill the customer.
The charging information generated by the IPP may then be
utilised by a bill ing system i.e.
for monthly bills or direct debit from an account.
This system seems to be quite attractive since it allows service
providers a flexible way tocharge for Internet services. Its
accounting model is somewhat like a taxi cab meter. Both
the rate at which the meter ticks, and the value associated with
each tick are customisable by
the service provider. Since the payment functionality may be
integrated into a web server, the
impact of adding this technology to existing systems is
lessened. The ability to integrate the
Jalda payment API into a client-side application is also an
attractive feature of the system.
5.3 Example of international collection: GlobalCollect
GlobalCollect37 is a service of the TNT Post Group (TPG) that
offers an integrated,
transparent and secure solution for worldwide cross-border
collection of consumer payments.Their slogan is Act Global, Collect
Local. Accordingly it supports the production and
despatch of invoices and reminders to customers abroad, in the
local language and the
currency of payers choice, following the local customs. The
invoice recipient can pay the bill
with various local payment instruments. By means of
GlobalCollects network of associated
banks the payer may even use a domestic credit transfer for
settlement, instead of a costly
cross-border transaction (cf. [HiSt01]).
The payee receives detailed reconciliation reports regularly.
Other (value-adding) services
offered are fraud detection and debt collection. It seems that
the company aggregates single
37
See http://www.globalcollect.nl
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service over Internet. These are the so-called Payment Service
Providers (discussed in
Section 5.5). The white horizontal spacing in Figure 12 between
the merchants web shop
application and the Internet Cash Register represents the
possibility of outsourcing the latterfunction over a public
communication network. The Merchant may also implement the Cash
Register in his own domain of control however.
The equivalent of the Cash Register in the consumer domain is
the electronic wallet or e-
wallet. Among others it functions as organiser of the various
Internet payment instruments, i.e.
of the client-side applications that implement these systems.
E-walle
