The following article, excerpted from a May report by Celent Communications Inc., is the first in a two-part series on electronic bill scanning. In October, we'll run the portion of the report evaluating bill scanning providers.
Over the past four years, analysts have repeatedly declared that the market for Electronic Bill Presentment and Payment (EBPP) was on the verge of exploding, and that electronic bill presentment-touted as the next killer Internet application-would spark a mass market financial services boom comparable to that of Internet brokerage.
In the face of these predictions, however, growth of electronic bill presentment has been markedly slow. The market has been spinning its wheels, waiting for billers and consolidators to drive growth and hoping that consumers will jump on the EBPP bandwagon.
In recent months, however, consumer lockbox providers, focused on providing electronic bill presentment service to consumers rather than creating relationships with billers, consolidators or financial institutions, have generated a significant amount of attention.
These firms are essentially providing consumers with a lockbox service similar to what banks have provided to businesses for years-receiving their bills, opening and sorting them, converting them to electronic format, and enabling payment. Utilizing scanners, optical character recognition and form identification technology, consumer lockbox providers are able to deliver 100% of a consumer's bills for online review and payment.
The three primary competitors-Paytrust Inc., Princeton, NJ; PayMyBills.com Inc., Pasadena, CA; and CyberBills Inc., San Jose, CA- provide full electronic bill presentment services, with all the convenience that has been promised to consumers, but not yet realized through other channels. These services bypass the stalemate that has crippled growth in the electronic bill presentment marketplace.
This stalemate results from the fact that billers are unwilling to make their bills available electronically until a large number of consumers are already receiving them-a clear chicken-egg situation. Empowering consumers to receive all of their bills in one location is the key factor that could jump-start growth of electronic bill presentment. In addition, by attracting a large customer base to presentment, these firms will also be in a good position to broker partnerships with large billers and with biller service providers interested in distributing their bills to as broad an audience as possible. Referred to by many as "scan and pay solutions," such services also avoid the technology issues, most notably conflicting standards and debate about the appropriate level of information electronic bill presentment providers should host, that have further stunted growth of electronic bill presentment.
Detractors argue that consumer lockbox providers have both limited appeal and a limited window of opportunity. Customers who are attracted to the service will tend to comprise a niche market of technologically savvy individuals who are comfortable managing their finances on the Web and who don't place high value on working with an electronic bill presentment provider-be it a bank, financial institution or bill consolidator-that offers a broader array of services.
The implication, as well, is that these customers will tend to be more risk acceptant than the mainstream, as they are willing to entrust their financial affairs to a little-known startup. In addition to their limited potential customer base, critics argue that as the e-bill presentment marketplace matures, and the number of billers enabled to present and pay bills electronically increases, the competitive advantage of these firms will disappear, as will the firms themselves.
Consumer lockbox firms are characterized as one-trick ponies that will be replaced both by trusted financial institutions that offer bill presentment and by more multi-faceted presentment firms, such as CheckFree Corp. and Princeton eCom Corp., capable not only of interfacing with consumers, but also of enabling billers and working directly with financial institutions. The two electronic bill presentment models that have dominated to date-the biller direct and service provider consolidation models-require the participation of billers, banks and technology vendors to enable bill presentment, establish electronic links to consumer accounts and to provide the necessary software and services.
Consumer lockbox providers, in contrast, allow consumers to access all of their bills electronically, whether the particular biller is enabled to present bills and accept payments electronically or not, and without regard to whether the biller or bank agree to participate in the program. Their solution is retrograde, but ingenious: bypass billers, consolidators and financial institutions, scan in paper bills and create a direct lockbox relationship with consumers.
The scanning model works as follows:
1. Consumers enroll for service at the consumer lockbox provider's Web site. They print out a bank activation form, specifying the accounts they would like to pay from, and return this (via mail and/or fax), along with a voided check or account statement, to the vendor for processing.
2. Consumers then select the payees to which they would like to send a payment
3. The lockbox provider has established a new address (for the document processing center) to which all of the customer's paper bills are rerouted. Consumers must contact billers to reroute their bills. In some cases, vendors have a biller database from which customers can select, and the vendor will contact billers themselves to redirect bills.
4. When paper bills are received at the processing center, they are scanned and converted to electronic statement format. When electronic bill statements are available for the customer to review at the vendors' Web site, the customer is sent an email alert. The customer determines when to pay their bills, how much to pay, and the accounts from which they would like to pay.
5. Following the customer's instructions, the lockbox service provider submits electronic payment to those parties able to accept them (by instructing its bank to initiate an ACH debit from the customer account and a corresponding ACH credit to the biller's account). For billers unable to receive electronic payments, the lockbox provider prints and mails a paper check to the biller.
6. The biller processes payment and updates its accounts receivable system as in the paper-based payments system.
The consumer lockbox model skirts the "critical mass" issue that has stymied growth in the electronic bill presentment market. For consumers, this model realizes the convenience of electronic bill presentment, providing them with full electronic presentment and payment capability.
Information aggregation
Two of the three consumer lockbox providers also act as information aggregators, accessing consumer bank accounts and providing bank balances and perhaps also transactional histories or mini bank statements to the consumer in their bill payment account at the vendor's Web site.
To facilitate this, users register with the vendor site and, if their financial institution is one of those which the vendor is currently set up to access, provide the username and password for their online banking account. These user names and passwords are stored in the lockbox provider's systems and are used to access the customer's accounts.
Information aggregation is usually carried out without the knowledge or cooperation of the financial institution. It is also referred to as screen- scraping. The typical Web page will have substantial amounts of data and information, such as charts, buttons, etc., that are intended for a viewer. Most of the information provided is of no use to the aggregator; they must sift through it and extract or "scrape" out the useful data fields. To do this, they must analyze the Web page and determine where on the page the necessary information is located. Each financial institution will have their Web pages laid out in a different format, making this a considerable task for the aggregator (see Celent Report, "Account Aggregators, Screen Scrapers and Online Financial Services," April 2000).
These difficulties are further compounded by the fact that financial institutions frequently change the layout and location of their Web pages. If a bank changes the location on the Web page where the account balance is displayed, the aggregator's system will have difficulty finding the balance. For simple changes, aggregators have automated scripts to seek out changes and make accommodations for them. For more complex changes, human intervention is required-a programmer must analyze the page and designate the parts of the page that now contain the important information.
Technology elements
Lockbox providers utilize a typical three-tier client architecture, with a database server, application server (and perhaps also an aggregation server) and Web server, plus technology on the back end to convert paper bills to electronic format.
Paper bill processing technology. Bills are converted from paper to electronic format by scanning the pages of text and converting them into digital format. Optical character recognition technology and form identification technology are then applied to this image to translate the images of characters into an editable text file and to identify the key bits of information on the bill. Since bills vary widely in format and placement of information such as amount due, bill due date, previous balance, etc., finding this information can be time-consuming; the extent to which it can effectively be automated greatly decreases processing times.
Providers often have templates set up for large billers, identifying the location of important billing information on the bill, in order to facilitate converting paper bills into electronic format. Since this process is rarely 100% accurate, it is generally followed up by manual proof reading.
Customer account database server. Customer account numbers, user IDs and passwords, as well as bill information-images of the bills, bill summary and detail information, history of billing transactions, etc.-are stored in the database server. The database is accessed by the application server when a customer requests a bill.
Billing application server. This server is the heart of the consumer lockbox offering and serves as the main gateway for users. The primary business logic of the application is housed within this system. This includes elements such as the handling of user IDs, passwords and other security measures, analytics such as historical reports on bills, sorted by biller, amount, date, etc., and information about data presentation.
Aggregation server. The aggregation server tends to be a peer to the billing application server. The server includes a browser emulator that mimics the activities of a standard browser to allow access to customer accounts at financial institutions at which screen scraping will be carried out. It also includes screen-scraping functionality to sift through the data fields on a Web page to extract the important information.
Customer user IDs and passwords for bank accounts may be stored here. This server may link to the database server if the provider chooses to archive customer financial information.
Front-end server. The front-end server includes applications that connect to the Internet and to wireless applications to serve up HTML pages, Java applets or ActiveX controls to users relying on Web browsers or wireless applications such as mobile phones or PDAs.
Strategic issues
Consumer lockbox providers represent a paradigm shift in the e-billing presentment marketplace. To date, debates about presentment have primarily focused on the value proposition for billers and the role that software vendors and bill consolidators can play in enabling billers. The realization that addressing consumer demand first, and biller enablement second may in fact be the preferred strategy and can largely be attributed to the challenge lockbox providers have presented to other electronic bill presentment market participants.
Consumer lockbox providers are in direct competition with other customer service providers such as Yahoo!, AOL, and Quicken.com, bill consolidators such as CheckFree, Princeton eCom, and Spectrum EBP LLC, as well as banks that plan to serve as consolidators and customer service providers.
The strategy for lockbox providers initially was to leverage their unique value proposition to acquire a large customer base that would serve as a barrier to entry for other players. As the customer base grew, this would have the dual effect of increasing operational efficiencies for the lockbox providers and of demonstrating to billers that there was sufficient consumer demand for online bill presentment to justify investment in electronic bill presentment.
The next step, then, would be "electronification"- developing the capability to accept electronic bills and deliver electronic payments, as well as developing relationships with other players in the electronic bill presentment marketplace.
To date, however, consumer enrollment for lockbox services has been disappointing. Although this may in large part be due to lack of awareness and concerns about security and privacy, the fact remains that the window of opportunity for lockbox providers to capitalize on being the first firms to market with their e-billing presentment solution is closing quickly.
As a result, lockbox providers seem to be telescoping their strategies. Not having acquired impressive customer bases, they are refocusing their strategies, and putting emphasis on developing relationships with other bill presentment players-biller service providers and other customer distribution points such as portals and banks-to enable electronic delivery of bills and payments and to increase the scope of their membership base. The question in the minds of all players in the bill presentment marketplace is what challenge do the consumer lockbox providers really represent?
Looking ahead
We do not expect that lockbox processors will become major destination sites. Over the next few years, we expect growth in consumer enrollment for lockbox providers at their sites alone will grow only moderately.
The future of consumer lockbox providers will in large part be dependent upon their ability to create business development partnerships that will incorporate their technology into larger scale electronic bill presentment offerings. This will benefit the electronic bill presentment marketplace as a whole.
For online bill presentment to stand a chance of flourishing, bill presenters must have the ability to give customers all of their bills electronically. Currently, there is no dominant provider of unified electronic bill presentment service. Billers can present only their own billing content, banks can provide payment services only to their own customers, and electronic bill consolidators are dependent on billers both for linking into their networks and providing electronic bills.
Thus, the only way consumers can receive all of their bills electronically at this point is to have a customer service provider, whether lockbox provider or other consolidator, handle large numbers of paper bills. We believe that in the medium term, if e-bill presentment is to live up to its promises, a new hybrid model, which includes some lockbox processing, must appear.
Organizations that intend to be players in the electronic bill presentment market will only be able to accumulate large numbers of users by, initially at least, handling large amounts of paper bills. Eventually, other purely electronic means of gathering billing information will become important cost saving measures.
Contact Celent Communications at (617) 621-1113 for the full e-bill scanning report, called "Scan and Pay Services: The Future of Electronic Bill Presentment."
