Electronic billing and payment has all the markings of a "killer app," in Internet parlance. But it's an Internet trend stuck in the mud. Just last year, the annual electronic payments conference sponsored by NACHA, The Electronic Payments Association, was overrun with vendors specializing in what has been known for years as electronic bill presentment and payment, or EBPP, but which some have now affixed with a new moniker: electronic invoice presentment and payment, or EIPP. Later this month, when the 2001 NACHA conference is held in Washington, only a few of those companies will be back.

While the no-shows aren't saying exactly why their companies chose not to return to the payments conference circuit, it's a safe bet that cash flow is a contributing factor. Some may well be struggling to survive in a market that hasn't quite materialized.

"We've been seeing a lot of shake-out, especially among the venture-backed companies. They just didn't have the resources," says Tim Aberle, a spokesman for BottomLine Technologies, an electronic billing and payments company based in Portsmouth, NH.

chose not to return to the payments conference circuit, it's a safe bet that cash flow is a contributing factor. Some may well be struggling to survive in a market that hasn't quite materialized.

"We've been seeing a lot of shake-out, especially among the venture-backed companies. They just didn't have the resources," says Tim Aberle, a spokesman for Bottomline Technologies, an electronic billing and payments company based in Portsmouth, NH.

In the consumer marketplace, experts say, even the most successful companies have failed to attract more than 4% to 5% of customers to EBPP.

Gartner, a consulting firm based in Stamford, CT, figures fewer than 200,000 Americans use e-billing networks to receive and pay bills in the business-to-consumer, or B-to-C, marketplace. Avivah Litan, a Gartner vice president who specializes in e-business and Internet- enabled commerce, has taken to saying that the consumer e-billing market is in a "trough of disillusionment."

The business-to-business marketplace is a bit more active. Cap Gemini Ernst & Young, another consulting firm with an extensive financial services practice, estimates that about one out of every four banks with some cash-management business last year also offered B-to-B electronic billing and payment services, while fully one-third offered corporate electronic payment services via the Internet.

Gartner estimates 9% of companies today use the Internet to send electronic invoices to trading partners. However, nearly three times as many companies (26%) sell to other businesses via the Internet, which suggests that for the majority of businesses, paper-based billing and payment remains the norm.

EBPP is not a phenomenon born out of the Internet. Banks, as well as non-bank providers of payment services, such as CheckFree, have been offering various types of electronic bill payment initiation for more than 20 years, first by telephone and later through PCs. Large corporations and government agencies, meanwhile, have been using private networks since the 1980s to streamline ordering and invoicing through a process known as electronic data interchange-the long- familiar "EDI"-but efforts to tie that process into electronic payment networks, such as the automated clearing house, or ACH, system, have lagged behind other e-payment trends.

NACHA estimates banks sent 96 million EDI payments through the ACH last year covering an estimated 267 million purchased items. In 1999, the most recent year for which complete numbers are available, the ACH handled more than 6.2 billion commercial transactions valued at $19.5 trillion, according to NACHA.

One of the biggest obstacles to electronic billing and payment involves integration with the legacy computing applications of both billers and payers.

"Clearly, interoperability becomes an issue," explains Gary Craft, founder of FinancialDNA.com, which tracks companies involved in e- finance. "The key point on the B-to-B side is that host systems, once integrated into a single bill-presentment platform, must be capable of seamless communication with the trading community through interoperable technologies."

Still, technological shortcomings aren't really to blame for the lukewarm uptake in EBPP. "The financial aspects of commercial trade have remained relatively unchanged for about 300 years," quips George Pavlov, chief executive officer of eTime Capital Inc. The Sunnyvale, CA-based company entered the EBPP market as an offshoot of an AT&T project to streamline freight invoicing.

Specializing in electronic invoicing and reconciliation services, eTime Capital recently purchased a small consumer payments company, Dynamic Transactions Inc., to help round out its offerings and become a full-service EBPP company.

Pavlov says eTime Capital chose reconciliation as its initial foray into the online market because, by his reckoning, one in five transaction documents (even those that are sent electronically) contain errors that keep buyers from paying. Claiming that eTime Capital has tamed that problem, Pavlov says the company will now leverage the technology and intellectual talent it purchased in Dynamic Transactions to become a full-service EBPP player in the B-to-B market.

The CEO isn't counting on mass conversions-at least not yet-but he certainly believes electronic billing and payment will take hold eventually.

"The financial infrastructure within corporate America really hasn't changed much," he says. "But we have a solution, and as the market becomes ready, we'll be ready."

Among some technology vendors, EBPP's failure to achieve what analysts sometimes call "traction" is seen as a product of the payment system's complexity rather than customer indifference.

"EBPP touches virtually every other application in the core business," explains Tom Kuder, executive vice president at TriSense Software Ltd., a Minneapolis company that markets the PaySense digital billing solutions to biller service providers, or BSPs. "It's the complexity of the process that has held these things up."

BSPs on PaySense's customer roster include companies such as Allison Payment Systems, the largest first-class mailer in Indianapolis. For years, companies like Allison have been handling behind-the-scenes grunt work such as statement printing and mailing. Their clients are mostly recurring billers-mortgage companies, among many others-which choose to outsource their billing work. Kuder thinks they're prime targets for EBPP.

"Anyone involved in the paper-side of this business is operating today under pretty thin margins," notes Kuder. "So if they lose just 2- to-5% of their volume, it could wipe out their margins." Translation: the 2% to 4% of consumers who reportedly have embraced EBPP (the so- called "early adopters") could put some of the BSPs out of business.

TriSense claims more than 20 BSPs use the PaySense digital billing network today. Collectively, they mail over 500 million bills and statements a year. Kuder says he expects the company to sign up as many as 300 BSPs in the next five years.

Just how many consumers will opt to receive and pay their monthly bills electronically is anyone's guess. The more educated guesses tend to be negative. Jeanne Capachin, an analyst with Meridien Research, Newton, MA, doesn't expect consumer adoption rates to increase much.

"The mail-based billing system works pretty well for most people," Capachin says. "There's just not enough incentive for them to change. And then, when you start charging, people say, 'Why bother?'"

Vendors can be skeptical, too, if clearly bullish on EBPP's long- term prospects.

"In concept, it's great," says Darryl Dobin, executive vice president of Avolent Inc., a San Francisco-based EBPP company, "but, when you get right down to it, what is going to prompt consumers to do this?"

Today, consumers receive all their bills in one place: the mailbox. Even the most successful e-billing consolidators have not yet managed to bring all of a consumer's bills to one email box.

"In the B-to-C market, the barriers are just too high to overcome now," says Tom Teynor, senior product manager with Alysis Technologies, another California company.

David Fiacco, chief operating officer at Derivion, isn't convinced that consumers won't adapt to EBPP. "Consumers will pay more bills online if there are more bills to pay online," Fiacco insists.

An Atlanta-based bill presentment company, Derivion claims to have developed an "activation marketing" program that can boost a biller's EBPP numbers by as much as 35% a month among early adopters.

"We're focused on maximizing adoption rates with the billers who are already out there doing this," says Fiacco. "The real foundational success is in driving adoption rates."

Farmers Insurance Group, a large home and auto insurance company, used the Derivion program to sign up over 10,000 consumers for EBPP in an eight-week period, Fiacco says.

In fact, Derivion reports that some of its 83 biller clients are tracking enrollment rates as high as 12%. Fiacco estimates Derivion is helping deliver bills electronically to about 50,000 consumers. None of those billers charge consumers for the service, Fiacco says, but he believes consumers eventually will be willing to pay for the convenience of receiving their monthly bills online.

Avolent (formerly Just in Time Solutions) is another vendor focused on boosting adoption rates. "We're concerned that it's taking a lot longer than anyone had anticipated" for EBPP to gain converts, says Dobin. Avolent's plan: to be able to deliver bills to any device or intermediary a consumer desires. That includes banks, personal financial software, Web sites and personal digital assistants.

It's a bold plan, as it will require broad acceptance of standards like OFX and IFX, which detail the requirements of financial data exchanges between banks and customers.

Leigh Hocker, manager of the customer adoption program at Avolent, isn't concerned. "The key is in understanding your customer base and marketing accordingly," says Hocker.

When pushing a service like e-billing, that means focusing on more than just the dollar savings. Although most experts believe the cost savings can be considerable, the up-front costs can run as high as $500,000, due in part to the necessity of maintaining both paper and electronic processes.

"We view e-billing as a relationship technology that supports monthly interactions with customers," says Fiacco. So how does he see EBPP evolving? "I see it taking off first in the B-to-C space, but the market opportunities in the future will be much greater on the B-to-B side."

Eric Smith, chief executive officer of BillingZone.com, is more optimistic about B-to-B market opportunities in the short term.

"We're still very optimistic," Smith says. "We think 2001 will be a very important year. People are educated and they're ready to buy."

Smith says his company, which specializes in the B-to-B market, is fielding about 10 new customer inquiries a month so far this year, compared with about 10 for all of 2000.

BillingZone.com is a joint venture of PNC Bank, headquartered in Pittsburgh, and Dallas-based Perot Systems Corp. The company recently signed a deal with consumer-goods giant Procter & Gamble Co., which will use its online invoice presentment and payment service. An early EDI adopter, P&G says it wants to expand its electronic trading relationships to companies outside the Fortune 500.

"This is a perfect fit," says Todd Barnhart, BillingZone vice president. When P&G goes live with the BillingZone system this month, the company should have five large clients sending invoices and collecting payments online. Smith expects others to follow in short order.

Dan McGurl, chairman and chief executive officer of Bottomline Technologies, is also optimistic. "Invoice presentment is going to accelerate the movement away from paper-based payments," says McGurl. "It's really inevitable."

Bottomline, which has been automating payments processes for banks and corporations for more than 12 years, acquired technology last year from The Northern Trust Co. that allowed it to expand into the B-to-B side of the e-billing and payments market.

Licensees of the company's NetTransact EBPP system include FleetBoston Financial, Citibank, United Parcel Service, and United Technologies. In addition to using NetTransact internally, McGurl says, each company is re-marketing the system to corporate customers as a value-added service.

"While everybody isn't doing it yet, when you have the leaderships of organizations like these making commitments, it's a major step toward general adoption," he says.

It also helps that Bottomline is a payments company. Altogether, McGurl says, 5,500 banks and corporations use Bottomline's payment technologies to initiate transactions through the ACH and other payment systems.

In the end, in fact, it's likely to be the electronic connections to payment systems that will make or break the EBPP business case. For years, while consumers-and even some businesses-have been initiating bill payment instructions online, the payments have actually gone out as checks (a process referred to as "check and list" because the checks are typically accompanied by lists detailing the accounts that are covered by the payment).

"The check and list is a huge hindrance to the EBPP process," explains Craig Yarbrough of Brinkman Technologies Inc., a biller service provider that markets NextBill.com and processes payments through the ACH. NextBill's latest customer: Airborne Express.

Indeed, some might say the check is the biggest reason why EBPP has yet to assume the role of "killer app" on the Internet.

"The world of e-commerce is upon us," says Smith. "For it to really work well for a company, the 'paperlessness' has to go beyond just procurement, all the way down to the financial transaction."

If it doesn't, then it just isn't e-commerce.

Patricia A. Murphy is a contributing editor of Bank Technology News.

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