Act 1: E-shopping.
E-commerce has been center stage in the technology world since 1994. By the spring of 1995 technologists, merchants, the financial services industry, and the media started clustering around a shopping vision of e- commerce.
Think of all the times you've seen pictures of people in their pajamas shopping over the Internet for wine, fishing lures, or lobsters. The promises of greater consumer convenience and global markets were compelling, drawing hundreds of millions of investment dollars and millions of early adopters.
First-generation e-store implementations were unstable, both technically and economically. E-malls came thundering along - and most have gone quietly away.
Three years later the e-shopping vision for both business-to-consumer and business-to-business is basically fully enabled, if not fully utilized. Any merchant that wants to sell to consumers or businesses over the Internet can do so with aggravation comparable to what it would take to open a store in a mall or launch a paper catalogue-just different aggravation. Consumers and purchasing agents can buy and produce to their heart's content.
E-shopping is in full swing. Simple shopping-cart store models have metamorphosed into elaborate (behind-the-scenes) relationship managers. Cybercash Inc., a leading Internet payment services and technology company, provides transport services for Internet credit card transactions, moving about three million transactions a month. A far greater number are probably happening through more traditional pipelines.
Last year America Online members bought more than $100 million of goods from AOL-affiliated merchants, not including what those same members may have bought directly from Internet merchants.
While there may not be any e-shopping billionaire legends comparable to Bill Gates yet, there are millions of dollars of computer and book sales happening every week.
So e-shopping is very real, and it has plenty of room to grow, as Internet access reaches beyond its current 40 million U.S. users. All in all, not a bad first act for e-commerce.
Act 2: E-billing.
There are more than 12 billion recurring bills sent to U.S. consumers and businesses every year, most on paper through regular mail. They trigger more than half of the country's consumer-generated check traffic-an undoubtedly significant part of the paper industry's regular revenue-and they underlie a mostly unseen layer of billing service companies.
While the driving motives for e-shopping are the opportunity for merchants to reach broader markets and serve them at higher margins, the driving economic force in the billing world is the huge potential cost savings. Billers can use those dollars for marketing, to lower prices, or to provide higher stockholder returns.
Those monthly bills from your phone, cable television, credit card, gas, and electric company cost about a dollar each to put into your mailbox. Billers then have to open the envelope you sent back and process the check and payment stub inside.
Billers maintain huge, expensive systems to do a good billing job. Their error rates are so low that electricity or phone service is rarely turned off because a payment was posted to the wrong account.
But many of us may not appreciate the cost of this accuracy. For example, it is said that one-quarter to one-third of your telephone company's total operating costs are wrapped up in billing.
When I was a part of the management team running a $12 billion cable television company-which is neither big nor necessarily typical by industry standards-we spent more on billing than we did on programming content.
The Internet makes possible the delivery of bills without cutting trees for paper, without trucking mountains of bills to the post office, without the timing delays inherent in physical handling. For consumers it makes possible the payment of bills without return postage and with even more certainty.
That said, e-bill presentment (getting the bills to consumers) and payment and posting (crediting the right account) reduce the per-bill costs by about half. E-billing makes national annual savings of about $9 billion possible. This has grabbed the attention of every biller's CFO and of companies like Microsoft Corp., Citigroup, and First Data Corp. as well as Wall Street.
But e-billing will take far longer to emerge than e-shopping. In e- shopping a merchant is almost plug and play today, but the billing world has just begun to seriously percolate with investment and activity. And even if billers quickly get their e-billing act together, it will take a long time to enlist consumers in large numbers.
The good news for billers is that it doesn't take really large numbers to make it pay. The savings from having as few as 1% or 2% of customers using e-billing can pay for the effort.
For billers, many obstacles are rooted in the legacy billing and posting systems that were built without communications interfaces, random access, or transaction-level processing in mind. Changing them requires unpopular diversions of current earnings into big systems investments and the time to make and test modifications without destabilizing dependability. And, of course, all big systems shops are steeped in year-2000 projects and investments, probably causing deferral of other new features.
Many billers will have to rethink and implement different accounting methodologies. Already, billers' receivables departments struggle with reconciliation issues that were unheard of a few years ago.
Then there are significant customer service implications that such changes create. One power company told me that manual check and list payments cause a whopping 5% error rate in ultimate posting (some of the errors occur in the creation of the list, and the rest happen when the list is rekeyed into the biller's posting system). That's a load of irate customers and avoidable call-center activity.
Call-center operators need to be trained to understand more versatile consumer choices and what can go wrong with each one. Certainly, no biller wants to cut the cost of bill handling only to spend it twice over at the call center.
So the imperative for e-billing is powerful: the opportunity to raise profits while giving better service.
As competition continues to reach into the power and telephone industries (two of the largest classes of billers), being more efficient also means that e-billing capabilities can actually contribute to successful market expansion, a force many billers may not yet even realize.
Given its importance, this competition does and should fuel much of the current e-billing dialogue about how all this will work. If e-billing can really be important to the marketing side of the house, what e-billing mechanisms capitalize on that importance? Which ones will undercut it?
Banks and financial services providers, especially lockbox services operators with a significant current revenue stream at stake, should look for opportunity in the tidal change in biller payment handling first and foremost.
Of course, there may be an opportunity to provide new services on the presentment side. Citigroup must think so, for it has already acted by buying a third of Transpoint, the Microsoft-First Data company set up to provide e-bill services.
Unless banks participate in e-billing they will find it just one more techno-social change eroding their role in the payments process. Mr. Silverman is a senior associate at First Annapolis Consulting, Linthicum, Md. He was formerly a vice president at Cybercash Inc.
