ELECTRONIC BILL PRESENTMENT AND PAYMENT ... Bill Presentment and Payment (EBPP) is an emerging market and the segments are not yet well established, however, there have been certain

NETSCAPE COMMUNICATIONS 1

PRODUCT OPPORTUNITY ASSESSMENT

ELECTRONIC BILL PRESENTMENT AND PAYMENT

TABLE OF CONTENTS

BUSINESS PROBLEM STATEMENT .............................................................................................................. 1

THE MARKET OPPORTUNITY......................................................................................................................... 2

THE NETCENTER OPPORTUNITY.................................................................................................................. 4

TARGET CUSTOMERS..................................................................................................................................... 5

SOLUTION REQUIREMENTS........................................................................................................................... 6

COMPETITIVE LANDSCAPE............................................................................................................................ 8

BUY/PARTNER OPTION: PARTNERING STRATEGY DISCUSSION ......................................................... 9

BUILD OPTION: ENGINEERING SCHEDULE AND RESOURCE PLAN................................................... 11

BUILD OPTION: FINANCIAL ANALYSIS...................................................................................................... 13

RECOMMENDATIONS .................................................................................................................................... 15

APPENDIX: TARGET CUSTOMERS ............................................................................................................. 16

APPENDIX: MARKET BACKGROUNDER.................................................................................................... 19

BUSINESS PROBLEM STATEMENT

What is the key business problem that this product is supposed to address?

Companies such as telco’s, utilities, retail stores and more are interested in finding effective ways to both provide improved customer service, as well as reducing their costs. One way to do both is with Electronic Bill Presentment and Payment (EBPP). The on-line bill provides an opportunity for the company (the biller) to replace the expensive, static paper-based bill with a personalized, rich transactive presentment of the bill along with highly targetted cross-sell marketing and customer self-service access that also can significantly reduce billing costs and customer service/support costs.


THE MARKET OPPORTUNITY

What is the market and how big is the opportunity?

MARKET DEFINITION

Electronic Bill Presentment and Payment (EBPP) is an emerging market and the segments are not yet well established, however, there have been certain industries that have adopted the technology more readily than others, and there are certain approaches to the problem that have emerged.

For purposes of discussion in this document, we define Electronic Bill Presentment as the electronic transmission of bill detail from businesses to consumers. It includes presentation of information, data analysis, cross selling, up selling, advertising and bill dispute. We define Electronic Bill Payment as the process of performing electronic payments between the consumer, the biller, and the financial institution.

We define Direct Bill Presentment as the approach where billers create and present their electronic bills on its own website. We define Thin Consolidator Bill Presentment as when the biller’s summary data is provided to a bill consolidator that then presents the bill detail to the customer on demand. We define Thick Consolidator Bill Presentment as when the biller’s summary and detail data is provided to a bill consolidator, who then presents it to the customer.

Please see the Appendix: Market Backgrounder for additional market definition information.

MARKET ANALYSIS

The EBPP industry is expected to be large due to the opportunity for major billers to save literally millions of dollars through improved cash management and other cost savings. In this document we predict the market opportunity through two approaches. First, we do a bottoms-up analysis based on target customers. Second, we look at the industry analysts for data on number of billing transactions and the rate of growth of the internet billing market.

With respect to the bottoms-up analysis, we start with the following data of target customers (in US only):

Banks Savings Institutions

Credit Unions Telcos Utilities Insurance

Small 8853 1633 11318 0 0 0

Medium 277 130 51 0 0 0

Large 398 161 23 26 74 56

Total 9528 1924 11392 26 74 56

If we just consider large US, direct biller customers, and only in the financial, telco, utility and insurance industries, there are over 700 target customers (we limit here to be conservative in our market size estimates). If we assume the average expenditure for these large customers is $1M (product license and services), and we assume a ramp over several years, we have the following market opportunity projections:


Year 1998 1999 2000 2001

% who buy 10% 25% 35% 50%

Market Opportunity

$70M $150M $220M $350M

We think the market is considerably larger, especially when considering the global opportunities, additional industries, add-on sales and maintenance, but for planning purposes we use these numbers here.

The following industry references help to give us a sense of the market size.

“We have identified at least 15 billion transactions that fit this market space. EBPP is at least a $1B to $1.5B industry, more if we include transaction fees. There are unnamed opportunities for advertising and cross-selling services.” - Gary Craft, Senior Research Analyst, Robertson, Stephens & Company

“Savings from electronic bill presentment could net billers 75 cents to $1.25 per customer, per month. For a large biller with two million customers, even if only 10 percent of the customer base elects to receive their bills electronically, that’s a net benefit of anywhere from $2 million to $3

million a year.” - Bill Burnham, Senior Electronic Commerce Analyst, Piper Jaffray

“By the year 2000, the number of bills being presented electronically could go as high as 10 million to 11 million.” - Gary Meshell, Director of Electronic Financial Services, Price Waterhouse

0

2

4

6

8

10

12

14

16

18

20

EBPP Market Opportunity

Number of Bills in (MMs) 17.8 18 18.1 18.2 18.3 18.5 18.6 18.7 18.8 18.9 19

Payable through Net (in MMs) 0.1 0.4 2.5 5 7 9 11 12 13 13.5 14

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


THE NETCENTER OPPORTUNITY

What is the applicability of this product to Netcenter?

The BP team has been having ongoing discussions with the Netcenter team as we both explore the opportunities in the EBPP space. Netcenter has in fact several different opportunities, all of which so far appear to be very much in line with the requirements we are seeing from the rest of our target market.

NETCENTER AS DIRECT BILLER

There are several services that Netcenter would like to provide on-line billing for. These include advanced Netcenter membership subscription services, as well as new services such as on-line procurement that are planned for the future. For both of these, Netcenter is the direct biller, and wishes to provide the business or consumer customer with a tailored billing statement covering the products and services purchased and providing appropriate payment options.

NETCENTER AS PORTAL

Netcenter also of course has the opportunity to leverage its asset as a major industry portal to provide bill consolidator services. This bill consolidation feature could either be “branded” by Netcenter or a major Netcenter partner, such as one of the widely respected financial institutions. The thin-consolidator model is most appropriate here, although another approach could be the multi-hosted direct biller model, but this would require significantly more hosting capacity and in effect acts like the thick-consolidator model.

The Netcenter team and BP team have shared preliminary plans, and the opportunity for APD to be the provider of EBPP software to Netcenter is very high. The timing is roughly compatible, and the requirements are very compatible.


TARGET CUSTOMERS

What types of customers are we interested in addressing, and who in particular would target?

TARGET MARKETS

Seven industries account for ninety-one percent of the consumer biller market. The combination of Auto and Housing Finance makes Financial Institutions the largest billers. In the chart below, utilities includes both telco’s and power and gas utilities.

TARGET CUSTOMERS

Examples of customers that we are targeting with this product include utility companies, on-line service providers, insurance companies for health, auto and home, mortgage companies, automotive credit, general consumer credit card companies, savings & loans and credit unions, gasoline, department stores and other retailers, and health clubs.

Specific customers that we have interviewed during the requirements definition and validation phase include the following:

• Telecommunications – Bell Atlantic, GTE, Ameritech, SBC Communications, Pacific Telesis Group

• Financial Institutions – Citibank, Zion’s Bank, Chase Manhattan, Nations Bank, Banc One, Crestar Financial Corp, Barclays Bank

• Utilities – Boston Edison, PG&E, Questar, Edison International

• Billing Service Providers – CSG

For a complete set of companies that we consider prime targets for our first release product, please see the Appendix: Target Customers.

EBPP by Industry

Health Care

18%

Auto Finance

18%

Utilities

15%

Housing Finance

12%

Insurance

12%

Other

9%

Legal

8%

Periodical

8%


SOLUTION REQUIREMENTS

What are the core capabilities that we think are required to meet the needs of these target customers?

The Bill Presentment and Payment Application is intended to enable businesses to deploy scalable, reliable and flexible billing self-service over the Internet.

Functionally, the EBPP system needs to meet the following top-level requirements:

CATEGORY DESCRIPTION

BILL EXTRACTION AND CONVERSION

Extract the account information from the existing legacy systems and convert into a standardized browser-compatible format

BILL PRESENTMENT Personalize the bill with custom marketing and advertising and render the bill to the consumers over the Internet

BILL PAYMENT Bill payment via credit card, checking account or other payment method

CUSTOMER SERVICE Handle disputes on the bill data and analyze the bills

BILL POSTING Update the ERP/AR system with payment info and status

SCALE High scalability, high availability, secure access

NOTE: See the Netscape BillerXpert Detailed Product Functional Requirements document for a feature/function level description of the prioritized capabilities of the product defined based on the needs of our target customers.

Architecturally, the system needs a Presentment Server, which presents customized bills to the consumer; a Bill Processing Server, which processes the billing data for presentation using templates; and Integration API's, which allows integration with the existing payment, account management and customer support systems.


POTENTIAL PRODUCT ROADMAP

We propose here a multi-phase product roadmap, so that we can address the major markets as soon as possible.

Release 1.0

Release 1.0 would be as described above with the following differences:

• Solaris platform only

• No multi-hosting support (although we propose the system be designed to support multi-hosting, the testing and documentation would not be completed until Release 2.0)

• English only (although we propose the system should be designed to support localization wherever possible, the fully internationalized product would not be available until Release 2.0)

• Support for the Direct Biller model only (although we propose the system be designed with the thin-consolidator model in mind)

Release 2.0


• Add multi-hosting capability

• Add support for Thin Consolidator Model

Release 3.0


• Add NT platform

• Add HP-UX platform

• Add support for direct update of ERP systems

• Add support for Roman-8 and double-byte languages. The specific languages supported would be driven based on customer demand, and Netscape’s current sales force driven process of funding localizations. The primary purpose of this work is to take advantage of the Asian and European markets.


COMPETITIVE LANDSCAPE

Who are the current and projected players and how do they compare?

The competitors can be grouped into those supporting the three key models. MSFDC (Microsoft and First Data) and Checkfree support the thick-consolidator model. No company today supports the thin-consolidator model, although we believe that Just In Time is furthest along in building support for that new model.

There are also numerous companies that are in the bill payment space, including Princeton Telecom, Cybercash, and Intuit.

With respect to the direct biller model, we see Just In Time, Blue Gill and EDOCS as the three companies establishing some amount of visibility in this segment. In the table below, we compare and contrast their offerings with each other and with the proposed BillerXpert 1.0 product.

Note however that this is an emerging market, and in truth while there are a set of startups, no company has yet established itself as a leader in this space.

Product Just In Time Blue Gill EDOCS BillerXpert 1.0

Price $200 K $100K $150K ~$250K

Bill Extraction and Conversion

Presentation

Payment

Customer Service

Posting

Scale and Avail

Core Strength Presentation

Leading the OFX standards effort.

Mainframe Extraction

Strong IBM partner and is mainly used by customer for legacy integration

Customization

Information storage & retrieval is the core competency of the company.

Scale and Avail

Large-scale, industrial strength, integrated product

Main Weakness Mainframe Extraction and Scalability

Presentment side, and Small SI house

Scalability and very small company

ERP Integration & support for thin consolidator model


BUY/PARTNER OPTION: PARTNERING STRATEGY DISCUSSION

Who are the players that might help us get to market sooner, and what are the options?

The players that we’ve investigated as potential partners are Just In Time Solutions, EDOCS Inc. and Blue Gill Technologies. Their product offerings are summarized above in the Competitive Landscape section, so in this section we will describe the results of our partnership analysis.

JUST IN TIME SOLUTIONS

Refer above to the BillCast Presentation Server product and the BillCast OFX Server product. The BillCast Presentation Server (their BP application) does not currently have a bill payment side of the solution. Furthermore, there also is very little on the data collection side either (in fact, they say they are considering leveraging Blue Gill software for their back-end mainframe data loading software).

They were very defensive when asked about scalability. They're built on CORBA (Iona), and they wouldn't give any numbers for any configuration, but they said that they knew they needed to work hard on this point (in fact, according to them, everyone does). Just In Time is considering moving to our app server as a way to get past their current limits.

They are very much into the Thin Consolidator model. They do not believe in direct billing in anything but the very short term. They also view the Thick Consolidator model as locking you in to a proprietary solution.

They have an OFX-Pres server (no support for OFX-Payment or any other modules), and they price the OFX server at $1 per enrolled user (maxing out at "a few million bucks"). Both Tony and I considered this exorbitantly high, but we also both suspect they take what they can get. We do not need an OFX server for a first release of BP.

The company has approx. 65 people, which includes a significant pro services wing.

Due to Just In Time’s lack of focus on the Direct Biller model (our read of the primary interest in the next 12-18 month timeframe); their lack of product capabilities; and their statements that they know they need to rewrite on a more scalable foundation, we unfortunately do not consider Just In Time Solutions as being able to contribute to our time-to-market goals.

EDOCS INC.

EDOCS is a very small, VC-funded started of about 25 people, about two thirds of which are offshore contract developers. The company is based in Boston, and has Charles River and Signal partners as investors.

As can be seen above in the Competitive Landscape section, the BillDirect product is fairly close to the functionality that we need, but unfortunately suffers from the same scalability issues as Just In Time, and in fact they admitted to already looking for technology to address their scalability issues, including NAS.

Due to the foundation issues, and the fact that they have so little staff available, there did not seem to be much opportunity for them to help address our time-to-market issues, other than to possibly contribute 3-5 people to the effort to build a scalable product.

BLUE GILL TECHNOLOGIES

Blue Gill Technologies does not appear to have component technologies that are critical to an initial


product in this area. As can be seen in the competitive landscape above, they primarily offer strong legacy integration/conversion for mainframe data. The rest of the EBPP solution they build custom using their own professional services.

As with EDOCS, Blue Gill could mainly serve as an outsourced development group, if we are short developers and needed to get some number of trained developers experienced in the EBPP area.

OTHER ISV PARTNERS

There are other small companies in this space as well that would like to “partner” with us on an EBPP product. While none to date appear to offer anything that can actually get us where we need to go any faster, we propose that we continue to monitor this possibility and report on prospective partners as we discover them.

SYSTEM INTEGRATOR PARTNERS

There are a number of Systems Integrators that have expressed serious interest in partnering with us to ensure that together we can offer customers excellent solutions. We think that this represents an excellent opportunity to leverage our sales efforts and install our EBPP software in as many customer sites as possible. To that end, we propose that we establish an EBPP SI program where we prime the SI’s to our solution prior to FCS, and potentially work with some of them during the beta phase. Our objective is that when we release we have a number of them ready to go and add value.

COMPONENT PROVIDERS

In the course of building an EBPP product, there are several components for which there are several potential suppliers (e.g. payment systems, advertising engines, OFX servers, etc.). Acquiring these components from third parties can have a significant positive impact on our time-to-market needs, and we propose to pursue this path aggressively.


BUILD OPTION: ENGINEERING SCHEDULE AND RESOURCE PLAN

If we build the product, how long will it take and with how many resources?

ENGINEERING SCHEDULE

The following are the key project milestones:

INTERNAL DATE

APD POR DATE

MILESTONE

4/15/98 Project Investigation Begins

7/6/98 Requirements and Design Phase Complete – Begin Product Implementation

10/15/98 10/31/98 Product Functionality Complete – Begin Beta Program and Final QA Processes

1/15/99 1/31/99 Product FCS

2/28/99 Initial 3 Customers Running on RTM Software and Referencable

NOTE: The detailed Release 1.0 product schedule is available from BP Engineering. The table above simply highlights the major milestones from that schedule.

With respect to the dates above, please note the following:

• Quality and time-to-market are the key drivers. We will trade-off functionality in the first release in order to have a high-quality product available when we need it to drive revenue. We intend to continue to improve the product over time, and in an emerging market where companies are just starting to rollout their initial implementations, a wealth of features is less critical.

• Beta is a full feature-complete beta. Functionality that is planned but is not yet implemented by the Beta will be dropped from Release 1.0. We are, however, planning room for a very limited number of minor features to be added during the beta process as we learn of any critical capabilities we may be missing.

• The product is not considered complete, and the team is not eligible for ship bonuses, until the milestone of having 3 customers live and referencable is completed. The focus is on deployed, satisfied customers rather than shipping software.


RESOURCE PLAN

Month 4/98 5/98 6/98 7/98 8/98 9/98 10/98 11/98 12/98 1/99 2/99

APP DEV 3 5.5 5.5 6.5 7.5 8.5 8.5 8.5 8.5 8.5 3

COMP CORE 0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 0

R&D

COMP ADM 0 0 0 1 2 2 2 2 2 2 0

QA 0 0 0.5 1.5 3 4 5 5 5 5 1

DOC 0 0 0.5 1.5 3 3 4 4 4 4 1

PRODUCT MGMT 1 1 1 1 1 1 1 1 1 1 1

TOTAL 4 8 9 13 18 20 22 22 22 22 6

Notes:

• “APP DEV” R&D refers to those engineers working on the EBPP application proper (not including common business components).

• “COMP CORE” refers to those engineers working on the non-admin parts of the business components. Due to the BP time-to-market requirements, and existing demands on the components group time, headcount has already been moved from the components team to the BP team in order to work on getting the components available. These components are the billing, membership and payment components.

• “COMP ADM” refers to those engineers working on the admin parts of the business components that BP needs in order to ship on time. This is currently work that the components team is not sure if they can free staffing in order to deliver one time. Therefore the incremental staff required to do this work is proposed here as part of the BP project. However, if the components team can find a way to free enough resources to work on this we would be able to eliminate this cost. This is for the admin side of the billing, membership and payment components.

• The SystemX work may turn out to affect the above as well. They are expected to have all the same time-to-market issues as BP, and with the same foundation as well. All of the components that the BP product needs are also needed by SystemX, but in addition, they require several other key components (essentially the same set that PubX requires. We may want to consider a subset of the components team focussed on the BP and SystemX needs in order to ensure that the component work can be leveraged as much as possible (yet still meet the time-to-market needs of these products).


BUILD OPTION: FINANCIAL ANALYSIS

How much incremental revenue do we expect to make in the first year, and what is the projected P&L?

REVENUE FORECASTS

We use two different means to estimate first year revenue for the EBPP product described above.

The first method is based on assumptions of market size and the share of that market that we believe we can capture. We’re also assuming that we would likely accumulate some planned purchases in CY98 that we would recognize once we ship in CY99. Note again that this is only assuming US market, direct biller model customers, and for large companies in selected industries.

Forecast Method #1 – Market Share

Year 1998 1999 2000 2001

Market Size $70M $150M $220M $350M

BillerXpert (at 20% market share) $14M $30M $44M $70M

License Revenue (at 3:1) $3.5M $8M $11M $17M

In the second method we first described the product to the sales exec management, including the projected timeframes, and then asked them to predict sales for the first four quarters after shipment.

Forecast Method #2 – Sales Force Analysis (Fred Giordano and Bob Chamberlain)

Number of Sales Teams (North America Only) 65 teams

75% Percentage Trained on BillerX 50 teams

1 BillerX deal per year per team 50 deals

Total Revenue per year based on average deal size of $1M

$50M total

License Revenue based on 3:1 $12.5M

Note that this does not include the revenue from any sales teams in Europe or Asia.

We expect the following ramp of that $12.5M in revenue:

Quarter CYQ1 CYQ2 CYQ3 CYQ4 License Revenue ($M) 1.5 2.5 3.5 5.0


P&L SUMMARY

Based on the quarterly revenue ramp above for $12.5M license revenue in CY99, and the costs as we assume they will be at this time, we have the following projected P&L:

Investigation/Development & Test First Year Shipments

(K$) Apr-JunJul-SepO ct-Dec CY98 Q 1 Q 2 Q 3 Q 4 CY99 Total % Rev

Revenue - 1,500 2,500 3,500 5,000 12,500 12,500 100.0%

CO GS

Mfg - 23 38 53 75 188 188 1.5%

Royalties - - - - - - - 0.0%

Total COGS - - - - 23 38 53 75 188 188 1.5%

Gross Margin - - - - 1,478 2,463 3,448 4,925 12,313 12,313 98.5%

O per Expenses

Development 156 234 266 656 94 94 94 94 375 1,031 3.0%

QA 13 75 125 213 25 25 25 25 100 313 0.8%

Core/Adm Components 31 94 109 234 - - - - - 234 0.0%

Documentation 11 53 84 147 - - - - - 147 0.0%

Admin/Prod Mgmt 100 100 100 300 100 100 100 100 400 700 3.2%

Total Opex 311 556 684 1,550 219 219 219 219 875 2,425 7.0%

Contribution - Direct (311) (556) (684) (1,550) 1,259 2,244 3,229 4,706 11,438 9,887 91.5%

Corporate Allocations

Marketing - 174 290 406 580 1,450 1,450 11.6%

Sales - 429 715 1,001 1,430 3,575 3,575 28.6%

G&A - 153 255 357 510 1,275 1,275 10.2%

Total Allocations - - - - 756 1,260 1,764 2,520 6,300 6,300 50.4%

Contribution - Post Alloc (311) (556) (684) (1,550) 503 984 1,465 2,186 5,138 3,587 41.1%


RECOMMENDATIONS

Based on the above data, what is the team’s recommendation?

Given the costs of building a product, and the projected revenue, and the situation with the various partnering options discussed above, our recommendation is that APD proceed to build the Release 1.0 EBPP product, designed to meet the needs of the target customers described earlier.

This option corresponds to the “Build Option”, described above.

RISKS AND OPEN ISSUES

• Dependency on components, especially administration of components

• Hiring due to required staffing

• The Thin-Consolidator model could take root faster than we anticipate

• We would like to be able to go to market sooner than January of 1999. We think it’s likely that the Beta in October will be very popular, likely more popular than we have staff to support.

• We will have to work hard on the marketing side to establish Netscape as a player in this market in the minds of the appropriate decision makers at the direct billers.


APPENDIX: TARGET CUSTOMERS

UTILITIES, GAS & ELECTRIC

PG&E Corp. Southern

Edison International Energy Consol. Edison of NY

Unicom Texas Utilities Public Svc. Entr. Group

FPL Group American Electric Power Central & South West

Dominion Resources Duke Power CMS Energy

Utilicorp United Pacificorp Peco Energy

Houston Industries Niagara Mohawk Power GPU

CNG NorthEast Utilities DTE Energy

LG&E Energy Columbia Gas System Cinergy

Florida Progress BG&E Long Island Lighting

Carolina Power & Lighting PP&L Resources Northern States Power

Pacific Enterprises Centerior Energy Ohio Edison

New England Elec. System Allgheny Power System Public Svc Company of Colo.

Union Electric Midamerican Energy N.Y. State Electric & Gas

MCN Western Resources PEPCO

ENOVA NICOR NIPSCO Industries

Pinnacle West Capital Wisconsin Energy ILLINOVA

Boston Edison UGI SCANA

TECO Energy Brooklyn Union Gas Hawaiian Electric Inds.

OGE Energy DPL DQE

ONEK AGL Resources National Fuel Gas

Puget Sound Energy Peoples Energy Portland General

Oglethorpe Power Delmarva Power & Light Rochester Gas & Electric


WICOR Commonwelath Energy Sys. Eastern Enterprise

Atlantic Energy IES Industries Montana Power

TELCOS

AT&T GTE BellSouth

MCI Communications Ameritech Sprint

SBC Communications NYNEX Bell Atlantic

US West Pacific Telesis Group Tele-Communications

Worldcom Comcast Alltel

Frontier Airtouch Communications So. New Eng. Telecom.

Cincinnati Bell Cox Communications Excel Communications

Cablevision Systems Citizens Utilities Telephone & Data Sys.

LCI International Comsat

FINANCIAL INSTITUTIONS

Citicorp Chase Manhattan Corp

Bank of America Corp. Nations Bank Corp. J.P Morgan & Co.

First Union Corp. Banc One Corp. First Chicago NBD Corp.

Banker Trust N.Y. Corp. Norwest Corp. Wells Fargo & Co.

Fleet Financial Group PNC Bank. Bank Of Boston Corp.

KeyCorp Bank Of New York Co. National City Corp.

Mellon Bank Corp. Corestates Finance Corp Suntrust Banks.

Wachovia Corp. First Bank System Barnett Bank

Republic New York Corp. MBNA ComAmerica

U.S. Bancorp State St. Boston Corp First of Amer. Bank Corp.

Southtrust Corp. Nothern Trust Corp. Southern National

Crestar Financial Corp. Firstar corp. Summit Bancorp.

Huntington Bancshares Fifth Third Bancorp Regions Financial


Amsouth Bancorp Banponce Corp. Marshall & Ilsley Corp.

First Tenn Natl. Corp. Union Planters Corp. First Security Corp.

First Empire State Corp. Old Kent Financial Corp. Bancorp Hawaii

Signet Banking Corp. Synovus Financial Corp.


APPENDIX: MARKET BACKGROUNDER

INTRODUCTION

Electronic bill presentment and payment (EBPP) offers a powerful new opportunity for businesses to use bills strategically to sharpen a corporation’s competitive edge in the Net Economy. Many corporations, particularly in the financial services, telecommunications, and utilities sectors where bills number in the 100,000s each month are currently evaluating, implementing, or piloting electronic bill presentment solutions. These companies are planning EBPP solutions to target their marketing programs more accurately, cross-sell products and services, and enhance customer care while reducing costs.

Electronic bill presentment is the delivery of bills to customers through the Internet. With an integrated bill presentment and payment system, customers are able to view, store, and pay bills via the Internet using their web browser or personal financial management software. In addition to the obvious benefits of providing an electronic bill to the consumer together with historical access and the ability to look at individual charges (e.g. telephone calls), more sophisticated EBPP systems will enable customers, particularly business customers, to analyze, dispute, and recalculate their bills as part of a presentment and payment system. The next generation Bill Presentment will evolve from a batch-mode and rigid billing model to a real-time and flexible billing model. As a result customers will have more control over how and when they will receive and pay their bills. For example, a customer may be able to choose the billing date which is most appropriate to his payment cycles. Billers will also be able to offer more options to their consumers while saving cost due to the billing automation. For example, a Biller can offer customers an option to pay mortgages monthly or weekly without having to incur significant system costs to accommodate.

EBPP is gaining momentum in large companies because it addresses key business objectives across functional areas. An electronic bill can be a strategic marketing vehicle tailored to a customer’s unique profile and cross-selling a company’s services and products. An electronic bill can be part of a customer care solution vital to a company’s efforts to differentiate itself from its competitors. EBPP makes dollars and sense opening a new sales channel and shortening the payment cycle for better cash management, while reducing the cost of customer support and the costs of printing, handling, and mailing paper bills. A bill is "content" that can drive traffic to the websites.

The question for large billers today is not whether to present bills electronically, but how to do it. The EBPP infrastructure is still evolving with much discussion as to the best approach to implementing EBPP. One thing for certain is that bill presentment must be integrated with bill payment to successfully address the customer’s needs for convenience and time savings. How the bill will most likely get from the biller through the Internet to the customer’s PC or web TV is a subject of great cross-industry debate. Whether a bill is accessed from a biller’s web site, through bill consolidators, or from a portal, the challenge is to attract a sufficient volume of customers to justify the system’s cost and leverage its dynamic marketing opportunities.

HISTORY OF ONLINE BILLING

Online bill payment has been with us for close to a decade with its usage only a fraction of its potential. With the advent of electronic bill presentment, the level of convenience of reviewing, questioning, and then paying bills online is expected to reach the threshold necessary to motivate significant customer


usage. Electronic bill presentment has only recently been feasible due to technical advances in integration with databases and legacy systems for the retrieval of billing data, the evolution of electronic financial data exchange standards, and, most importantly, the ubiquity of the Internet and browser software providing a common user-interface through which billers can obtain broad distribution of their bills.

BENEFITS OF ELECTRONIC BILL PRESENTMENT AND PAYMENT

EBPP has benefits for both the billers and the consumer or business being billed. BENEFITS TO CONSUMERS

The benefits to the end-user include improved customer service, reduced postage fees as well as the time associated with manual payment of bills, savings in associated transaction costs such as checking, the benefit of the float in that you have finer control over the date and time you pay the bill, and the additional analysis that you can do on the detailed content of the bill. BENEFITS TO BILLERS

With respect to the biller, the benefits of EBPP depend on how the company views its bills. Market-leading billers see bills as strategic points of contact with customers in addition to being a vehicle to generate payment. Electronic presentment creates an opportunity to build customer loyalty through better service. EPB solutions can be designed to answer routine billing questions by providing payment history and bill details on demand. Customers receive answers in a timely fashion and the customer care staff’s time is reserved for handling more complex issues. While serving customers more efficiently, EBPP also offers the chance to gather market intelligence on customers in real time. Companies can deliver ads and customized “enclosures” and other dynamically-generated promotional content to their customers, enabling marketing programs to be tailored to an individual’s preferences...true one-to-one marketing. Innovative companies are using EBPP to enable customers to turn on new services and order products…. the beginning or an extension of a company’s e-commerce offering.

In companies, where bills are viewed strictly as vehicles to generate payment, electronic bill presentment will be evaluated for its potential cost savings. BancAmerica Robertson Stephens & Company believes that “the most measurable savings likely will come through enhanced cash flow”, due to the reduction of the billing cycle float involving mailing, processing times, and funds availability. The company estimates that a one day reduction in float would enhance interest income by over $200 million per annum in the overall economy. Reduction in float might also have negative effect on the cash flow of the company since customers who may have paid earlier might now pay on the last day. Regardless, it will improve the efficiency of the Billing industry.

A second area for cost savings is the printing and mailing of a bill. Paper, printing, labor, and postage to send a bill costs anywhere from $.50 cents to $1.50, most of which can be saved with online presentment. For large billers with millions of customers this reduction could eventually add up to considerable savings, even with only a small percent of customers paying online. In the early stages of implementation however, many companies are looking at piloting EBPP solutions in parallel with printed bills and will eventually phase out the paper bills only with a customer’s approval. BENEFITS TO PORTALS AND BILL CONSOLIDATORS

Within certain industries, electronic bill presentment offers yet a third opportunity beyond marketing and cost savings, which is a new business opportunity. Large billers and portal providers wanting to attract customers to their sites are considering hosting other companies’ bills in order to offer customers one


convenient bill paying location in anticipation of greater usage. Banks with their established online banking services are in a particularly strong position to consider bill consolidation. Telecommunication companies are also in various stages of evaluating this opportunity. As EBPP becomes more established in the market, a well-branded popular bill paying site is likely to be able to sell advertising space for additional revenue generation.

ALTERNATIVE APPROACHES TO EBPP

The decision for most large billers is not whether to offer an electronic bill presentment solution, but how to implement it. EBPP solutions can be structured where bills are presented on the corporate web site (which we refer to as the direct biller model), via a bill consolidator presenting multiple companies’ bills, and/or through a portal provider such as Netcenter or AOL (of which there are two forms, known as the thick consolidator model and the thin consolidator model). Each approach has its advantages and drawbacks. Ultimately, the customer will decide which approach works best in addressing his/her needs for convenience, time savings, and increased functionality.

THE DIRECT BILLER MODEL

The key issue is that from the biller's perspective, they highly value the opportunity to provide an interactive, personalized experience to each of their customers each month. Realize that for many companies, the only regular communication with the customer is through the bill.

However, if every biller did the direct biller model, the consumer would need to go to numerous web sites each month just to pay their bill, which is not very convenient to the consumer. This is what drives the interest in the thick consolidator or thin consolidator models. These models allow the consumer to go to a single location to get a summary of their bills, and they can see the detail if they feel they need to, or they can simply pay the bill or bills from the bill summary. Unfortunately, while this can be easier and more convenient in one sense, the billers may lose that one-to-one communication opportunity. THE THICK CONSOLIDATOR MODEL

With the thick consolidator model, the consumer must go to a specific site where all of their biller data is located. The risk here is that consumers may not want to be locked into a single site, and the billers may not like being locked in either. Checkfree, and the MSFDC partnership between Microsoft and FirstData is an example of an approach to the thick consolidator model. THE THIN CONSOLIDATOR MODEL

With the thin consolidator model, multiple sites could offer the bill consolidation feature, and if and when the consumer asks to see the bill details for one of the bills listed in the bill summary, then at that time the detail data is downloaded over the Internet to the user. No service bureaus have implemented the thin-consolidator model yet, although products are emerging which are designed to support this model (e.g. Just In Time Solutions). BALANCING THE NEEDS OF BILLERS AND CONSUMERS

If the consumer wants to optimize the customer service experience with the biller, then the consumer might want the personalized, transactive content approach of the direct biller model. Likewise, for larger organizations and businesses, the detailed bill analysis available through the direct biller model is a significant benefit. These larger customers may be more accepting of visiting multiple web sites in order to drill down into their bills if it helps them analyze and control costs.


The challenge long term for the industry is to come up with ways to aggregate or consolidate bills, yet still provide the biller with the direct billing experience and benefits.

Today, billers are evaluating all the alternatives to implementing an electronic bill presentment solution. Some of these companies will select one approach while others will plan on multiple routes to reach as many customers as possible. Large billers with strong brand images who are able to pull customers to their web sites will reap the benefits of cross-selling services, targeted marketing, and enhanced customer care while maintaining full control of billing data within house. While advantageous to the biller, the direct approach does force a customer to visit multiple web sites to pay multiple bills, again not entirely convenient from the customer’s perspective. Nevertheless, progressive corporations and financial institutions anxious to gain the benefits of EBPP are implementing direct solutions while bill consolidators and consumer service providers are still sorting out their EBPP offerings and business models.

Ultimately, visiting multiple sites to pay bills may not be efficient enough of a process to attract large numbers of online bill paying customers (particularly, consumers) which companies will require to cost justify the EBPP infrastructure. Consequently, a small set of large bill consolidators, called bill service providers (BSPs) may emerge and specialize in the aggregation of biller content from multiple billers. Bill service providers will serve as clearinghouses preparing billing information for presentment and structuring the back-end payment process. Consolidators may choose to present the bills themselves such as banks choosing to consolidate bills from multiple billers and present them along with their own bills through online banking services, or consolidators may strictly aggregate bills and present them through a well-branded web site such as a popular Portals like Netcenter and AOL. Portals with strong brand images and service offerings have the ability to attract customers with their many services and aggregate them in one location for bill presentment.

In today’s market, there are numerous bill consolidators just now emerging, each with a different view on how best to consolidate and present bills. Different types of companies will serve as BSPs including large billers such as banks, telecommunication companies, Internet service providers, and customer service corporations which already perform paper billing and accounting functions for targeted industries. Depending on a company’s expertise, and the target industries which it hopes to serve, consolidators are offering thick or thin consolidation. A thick consolidator manages customer data and service and prepares the bills. Such is the case in the cable industry, where non-branded third parties actually handle customer service and billing under the guise of the cable company. In other industries, controlling customer data in-house is preferred. Telecommunication firms prefer to control data and either bill customers direct or via thin consolidators which present only the billing summary. Thin consolidators aggregate bill summary information from multiple billers and link a customer back to the billers web site if detailed information is required. Both types of consolidators will need to be linked to electronic payment processes in order to meet the customer’s foremost requirement of convenience. INDUSTRY STANDARDS

With respect to standards in this area, in early 1998, Integrion, a consortium of banks and high tech companies, agreed with the Banking Secreteriate and technology leaders to merge the competing GOLD, BITS, and OFX standards into a single standard for financial data exchange. The development of this single standard offers billers a choice of products and services that are generally interoperable and interchangeable enabling bills to be delivered using browsers, personal financial management software, TV set-top boxes, and other Internet devices. The technology is now available to present detailed billing information from multiple merchants in a standard format all at one convenient web site accessible through a variety of Internet devices.


INDUSTRY ADOPTION

Several industries are aggressively pursuing EBPP solutions, most notably financial institutions, telecommunication companies, and utilities. These industries have all experienced deregulation with a corresponding increase in competition. They have a large base of both consumer and business customers and sell commodity products. These industries are being forced to differentiate themselves with services. This business environment requires that they work harder to gain and retain customers, and increase operating efficiencies. FINANCIAL INSTITUTIONS

Financial institutions, particularly banks, are in a unique position to play multiple roles in electronic bill presentment and payment making EBPP clearly a strategic decision for them. Currently, banks provide lockbox services to business customers on the payment side. These services are increasingly being converted to electronic lockboxes where banks can process payments, facilitate reconciliation with billers, and post payments to billers’ accounts receivables. It is a natural extension for these banks to play a role in the electronic payment processing side of bill presentment and payment solutions. The role which banks will choose in bill presentment is still evolving.

Many banks, acting as direct billers, are planning to add bill presentment and payment to their home banking services. Banks have much to gain with electronic bill presentment. It affords them not only the opportunity to streamline the presentment and payment processes for their car, mortgage, and loans/lines of credit reducing their costs, but is expected to increase usage of online banking services. Once the paper handling is reduced through bill presentment, online payment becomes more convenient for the customer. Furthermore, when banks link EBPP to account balances, overdraft protection, credit cards, and loans, they enhance customer service while cross-selling additional services and/or increasing outstandings on current lines of credit.

Large, national banks are seizing the new business opportunity to get a piece of every bill that is presented and paid by creating plans to build the infrastructure to support large bill hosting and presentment sites as consolidators and presenters. Banks have a significant advantage in this arena as customers and billers already trust them with their funds and payments processing. Becoming a consolidator and presenter for other companies’ bills enables banks to use EBPP as a competitive service to win small and medium business accounts and gain additional consumer accounts via co-branding with major consumer billers.

As bill consolidators, banks are jockeying to gain transaction fees from various participants in presentment and payment. Different business models are emerging to support this. Some include fees from the biller to process payments or for each bill presented, while other models include charging non-customers a fee to use the site for bill payment similar to ATM fees for non-customers. Regardless of which roles a bank plays in the infrastructure, the most savvy retail banks are looking to offer customer choices and are likely to present their bills through multiple channels including popular Portals other than themselves. TELECOMMUNICATION AND UTILITY COMPANIES

Over the past decade, deregulation has remarkably transformed the business environment of the telecommunication industry into a fiercely competitive landscape. At the same time, there has been unprecedented growth in demand for services due to additional access required by fax machines, modems, and mobile phones, and an increasingly complex mix of services being offered. The tremendous challenges of the telecommunications industry has required companies to find new operational efficiencies and ways to gain and retain customers.


Deregulation in the utilities industry while just in its infancy is expected to subject utilities to some of the same market forces experienced by telecommunication companies over the last decade. Companies will be forced to compete for business. They will need to differentiate themselves with services wrapped around their commodity products. There will be a heightened urgency to build brand awareness and increase customer loyalty. Companies will need to find new ways to reach and retain customers. Price pressures will demand greater operational efficiency.

Leading telecommunication and utility companies have determined that electronic bill presentation and payment has a role to play in their newly competitive environments and are rapidly moving forward with their EBPP plans. The early adopters see EBPP as a powerful relationship builder. It generates a new customer touchpoint, an opportunity to better serve the customer anytime and anywhere while cross-selling services. Routine customer questions can be answered on demand while freeing up the customer care staff to handle non-routine inquiries more quickly. Online bill analysis will enable business customers to better plan there consumption and manage their costs building a stronger partnership between the company and these customers. Online customer profiling will provide the means to effectively individualize marketing activities. Gaining and retaining customers is the driving force behind the EBPP decision.

Telecommunication and utility industries have not settles on a standard way to implement an EBPP solution. There are those companies that demand full control of the customer relationship and data, and maximum flexibility in their marketing programs. They will bill customers direct. Other companies, both telecos and utilities, prefer to outsource their EBPP solution to customer care business partners. Regardless of implementation, an EBPP solution presents a powerful competitive advantage in winning and satisfying customers. OTHER INDUSTRIES

While financial institutions, utilities and telcos are expected to initially be the major implementers of EBPP solutions, there are many other industries that are also expected to benefit from EBPP solutions. These include home lending (mortgage payments), retail stores (Sears charge cards), Insurance companies (for medical, autos, home), automotive financing (auto payments), and subscription services (for industry news or entertainment).

SUMMARY

There are two fundamental changes occurring in the customer billing space. First, billers are changing the very nature of how interact with their customers in the hopes of provided improved customer service, and personalized up-sell and cross-sell opportunities. Second, the technology involved in the billing and bill payment mechanism is being revolutionized due to the internet, benefiting in significant cost reductions and gained efficiencies.

While the market is just emerging, and we can expect the traditional wave of early startups and ensuing shake-out, it seems clear that there is a significant market to be captured by those companies that can deliver the benefits of EBPP to both billers and consumers.

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ELECTRONIC BILL PRESENTMENT AND PAYMENT ... Bill Presentment and Payment (EBPP) is an emerging market and the segments are not yet well established, however, there have been certain