In the current, first wave of Internet commerce it is already clear that there is much more to be paid for on the Web than just software, socket wrench sets, or shiny new tractors.
Hundreds of thousands of billers and millions of consumers are eyeing cyberspace as a convenient place to fulfill payment obligations for any number of services not purchased there to begin with-infrastructure services like power, water, insurance, phone, cable TV, credit cards, and home and auto loans.
The emerging interest in Internet, or interactive, bill presentment and payment is thus starting to resonate throughout the wholesale and retail sides of banks. Both sides have much to gain from Internet billing-and a lot to lose if it is not approached properly.
The wholesale side of the bank not only serves billers, but does so anonymously by not putting its brand on a bill or on the remittance processing service. There is no need to because wholesale banks are well compensated through serving the biller as the repository and cash management solution.
As wholesale banking's single largest customer segment-accounting for as much as 50% of some banks' profits-major billers have a lot of weight to throw around, and it is a good idea for banks to remember their heritage of serving billers anonymously.
This is in contrast with the idea of home banking, which injects the bank's or other institution's brand into the bill payment process - and rightfully so. Home banking has traditionally added value to bill payment through proprietary consumer interfaces and linkages. But there is nothing proprietary about the Internet. Anyone can play.
If a consumer wants to pay a bill at a biller's Web site, and if the biller and its bank supports such direct payments, the interactive nature of the Web and technologies such as browsers, secure electronic checks, and electronic cash register software for capturing payments combine to let it happen. More and more it is happening in just this way.
The most important rule to remember is that "payment follows the bill." The bill, as wholesale banks have implicitly acknowledged, belongs to the biller. As banks move into home bill paying over the nonproprietary Internet, they have to be sensitive to those entities to whom the payment is due-the billers.
Billers have a significant stake in interactive presentment and payment, and not only because of customer convenience or its virtual elimination of inbound and outbound float. It is also because the interactivity inherent to the Web can help billers add their own particular value to the process at their Web sites and thereby build customer loyalty.
Kansas City Power and Light dips into billing data to let consumers produce a graph of power usage for the last 12 months. American Express allows cardholders to highlight and dispute transactions on-line. These and other savvy billers are clearly looking to the Internet as a way to reinforce their relationships and brands. They are not looking to it as a sharing opportunity.
How can banks continue meeting billers' needs in an on-line environment? Essentially, by helping themselves.
In most banks, there is a wall between wholesale and retail banking. It must be torn down, as it no longer serves in today's wired world.
It is incumbent on the wholesale side of the bank to take a leadership role and show the retail side how to deal with billers. Implicit in this is helping billers register consumers to pay their bills directly over the Internet at a biller's own Web site in the same way they signed up the biller's customer to direct debit services.
Offering billers electronic lockbox services, both at a bank's and the biller's Web sites, constitutes a new cash management service without intensive capital investment, labor, or the logistically bound infrastructure inherent in the paper-based remittance process. And it can be done as anonymously as a biller desires, without the costly check-and- list remittances that characterize traditional home banking programs.
Once the "Berlin Wall" between wholesale and retail comes down and the two sides cooperate on Internet billing, exciting new opportunities present themselves to extend a bank's reach far beyond its current demand deposit account base.
Bankers need to think of the Internet as an alternative acquisition channel. Empowering billers to accept payments directly at their Web sites essentially means establishing a quasi-direct-deposit relationship with every bill-paying consumer that visits those sites.
You don't have to wait for new retail customers to walk into branches or visit ATMs. Instead, you gain the universal Internet as a channel into a new customer base, courtesy of billers, which in turn become almost like value-added resellers for your bank. They do all of the work of registering their customers to make direct debit payments via the automated clearing house and electronic checks, all resulting in instantaneous deposits into their cash management accounts.
It is a very profitable cycle and everyone wins. The legacy of home banking and its costly, labor-intensive, and error-prone check-and-list payments left bad tastes in the mouths of billers. Retail banks need to line up behind their wholesale side in promoting to billers the industry's lowest-cost remittance and highest-margin fee generator for banks, namely ACH debits and electronic checks enabled by direct-to-the-biller Internet payments.
Billers can draw customers to their sites, where they can forge stronger bonds and strengthen brand awareness. Payers gain the convenience of electronic debits and checks. Banks will strengthen their own bonds with highly profitable commercial customers, which can be leveraged to establish increasingly profitable retail relationships.