Internet access trends
Ten years ago as the Internet emerged as a serious commercial opportunity, the key driver behind user acceptance was access to computer technology in the home, rather than fast and permanent connections.
Ten years on and few homes are without PCs and many have two or more. The issue now is not whether you have access to a PC, but whether you have access to a sufficiently fast connection speed to take advantage of everything the online world can offer.
The growth in broadband connections indicates that users recognise this fully. According to the Office for National Statistics (ONS) broadband connections in the UK now represent over 50% of all connections to the net, for the first time overtaking dial-up as the most popular connection method. According to Jupiter Research, by 2010, 80% of all European households will use broadband.(1)
Online banking trends
Against this background of widening access to the Internet, it comes as little surprise that online users are growing in confidence and increasingly using the more advanced features of online banking.
According to APACS (2) out of a total of 32.2m adult Internet users in the UK, 14.2m use the Internet for online banking, with a rate of increase being sustained at about an additional 3.5m adults per year. Usage is also becoming more sophisticated. 60% of online banking customers now use the service to initiate payments, an increase in excess of 20% in two years. Of the 5.7m users who do not, 80% have used the Internet for purchases, perhaps suggesting that this group too may extend their use of online banking to payment services.
Identifying past and existing trends is naturally easier than forecasting future developments. Do users want to do more online and are they growing in confidence about the complexity of their online transactions?
Research by Taylor Nelson Sofres (TNS) suggests users are looking to gain more from their online banking experience, with figures published towards the end of 2004 (3) revealing that:
“more than one in five (22 per cent) adults surveyed are either ‘likely to start using’ or ‘plan to increase their use’ of online banking in the future. A further 11 per cent of all adults surveyed ‘use Internet banking services and have no plans to change their usage’, while just four per cent planned to ‘decrease their use’ of internet banking.”
Further research by TNS quoted by Financial Sector Technology magazine (4) takes this one stage further:
“Whilst the majority of consumers still receive their bills by post, the demand for e-billing remains constant and there is a strong consumer preference for this service to be available through their existing bank web site.”
The impact of Direct Debits
One of the constraints on the growth of online bill payments in the UK is the phenomenal success of Direct Debits. Although a mature payment mechanism, Direct Debit usage continues to grow (up 7% in the 12 months to the end of May 2005) and now constitutes 2,645,533,000 transactions a year. Direct Credit transactions meanwhile (which include online bill payments) grew by 29% in the same period to 1,897,051,000 transactions. (5)
Whilst Direct Debits are the preferred means of payment for many organisations, there remain many users for whom the Direct Debit represents the relinquishment of too much control, particularly with regard to the date of payment. Traditionally this community has preferred to pay by cheque and yet, with cheque volumes declining steadily (down over 50% in the past decade) it is clear that an alternative method is being used. It is this community of users for whom it is believed that the online bill payment facility is proving particularly attractive, as the user can continue to exert control over the precise amount and date of payment.
Bill payment models
Paying bills online (6) is possible through your bank (direct or via the biller’s web site) and through consolidated e-billing providers.
Via your bank or biller’s site
To make an electronic bill payment via an online bank’s Internet site or via your biller, the payer needs to enter some personal data relating to the payment and, in the case of online banking, find the correct biller on the bank database. The data required includes details of the biller’s bank account together with their own account reference details and the value of the payment. The billers’ name is either entered or selected from a menu, and then finally the user selects the date they wish the payment to leave their account. This process is secure but its success depends upon the user entering information correctly.(7) Banks address this issue either by building and maintaining their own databases of verified biller data or by using BILLER WIZARD, a commercial database of over 1900 verified billers developed and maintained by Eiger Systems, a specialist software company focused on data validation for payment processing. If data is entered incorrectly the software generates an error message at the point of data entry, thereby preventing the possibility of monies being debited from the user’s bank account without being credited to their biller’s account correctly.
The maintenance of in-house biller databases has become an unsustainable burden on the banks as the number of online bill payments has grown in popularity and with it a corresponding growth in the number of billers whose details must be maintained by the banks. Mark Bish of Eiger Systems believes this has led to a growth in interest in solutions such as BILLER WIZARD:
“The breadth of the BILLER WIZARD database is hugely attractive. With an in-house biller database, a new biller is usually added only when prompted by the user and it is something of a ‘hit and miss’ affair as to whether the payment is then successful or not. With BILLER WIZARD the user is assured that well over 90% of all common billers are already registered on the database making the process much easier to complete and the likelihood of failure negligible.”
Via an e-billing provider
The second method of bill payment is relatively new to the UK. Consolidated e-billing (also known as Electronic Bill Presentment and Payment or EBPP) involves a third party providing the back end integration required for users to view, track and pay multiple bills. The technology offers billing organisations the prospect of being able to switch from paper to electronic billing and avoids the need for users to visit multiple billing web sites or enter customer data online.
Unlike bill payment services on banks’ web sites, consolidated e-billing does not require the user to have received a paper or e-mail version of their bill, for the bill itself is viewed electronically and not posted to the customer. The principle of providing a consolidated interface counters the need to visit multiple sites which is the primary disadvantage of bill payments made via biller’s own web sites. A major advantage of the online bank site however, is the ability to process one off or Person-to-Person (P2P) payments. This is a growing segment of the bill payment market that consolidated e-billing providers cannot address.
Validating payments
To ensure the ‘Straight Through Processing’ of individual payments all bill payment models need to ensure that the customer’s biller and bank data matches correctly.
Eiger Systems’ BANK WIZARD® and BILLER WIZARD® data validation software solutions (8) are used respectively by many billers and banks to double-check the accuracy of customer supplied data. As data - such as a utility customer reference number or customer bank account details - are entered online or by telephone call centre agents, the software checks to ensure that the information entered is in the correct format. In addition it verifies the reference number and the bank account number according to the modulus rules pertaining to the account. In the case of bill payment data, customers select the correct payee from a supplied list. Richard Searle, Online Services Development Controller at the Nationwide Building Society believes that online customer loyalty is fickle:
“Online banking statistics show that users will quickly move away from an online service that is not easy to understand or use. I believe that using BILLER WIZARD in our online banking product will confirm its position at the forefront of the industry. User tests have shown that finding a biller from the extensive biller database is simple, the help text on customer account number is useful, and users like the layout of the page. But the main advantage is of course the accuracy of payment and standing order details, and the reduction in the delays and costs of handling errors. In fact we are using the software to speed up and validate data entry for our own staff throughout Nationwide whenever a new payment is set up. BILLER WIZARD will prove an invaluable benefit to our company and our customers.”
Failure to implement effective data validation systems can result in customer accounts being debited successfully but their biller accounts failing to be credited at all. The resulting errors are time-consuming and expensive to correct and very inconvenient for customers to endure. Mark Bish, Product Manager at Eiger Systems says:
“These are precisely the problems BILLER WIZARD sets out to eliminate. By maintaining an accurate biller database, customer data can be verified at the point of data entry thereby removing the possibility that a payment might leave a customer account but fail to be credited accurately. The billers benefit from savings on the costs associated with manual reconciliation while consumers enjoy the benefits of error-free automation.”
Consolidated e-billing suppliers may address this issue in a similar way or seek to achieve the depth of integration between banks and billers to eliminate the risk of erroneous payments entirely by seamlessly linking customer and bank accounts together.
Value in variety
The two bill payment models outlined here - online banking and consolidated e-billing - may be perceived as being in competition with one another. An alternative view might see each as representative of different stages in the evolution of bill payment technology with consolidated e-billing as the ultimate in payment mechanisms. Mark Bish of Eiger Systems takes another perspective believing both to have their place:
“There is a clear consumer rationale for using both types of payment mechanism depending on the type of payment being made. In terms of their future growth, both methods of bill payment depend on the continued take up of online banking and it is far from clear if there is a limit to the number of customers prepared to make the transition from the high street to online. Although the potential is clearly huge, success for consolidated e-billing in particular, is dependent upon the continued expansion of broadband.”
What is certain is that consolidated e-billing offers banks and billers real added value for their online services, generating increased web traffic and greater exposure for their other products and services. Such is the limited opportunity for interactivity on a banking web site that banks are likely to be attracted to consolidated e-billing as an extension of what they already provide, rather than as an alternative.
Users may respond with similar pragmatism finding in consolidated e-billing a convenient way to reduce the number of sites they need to visit in order to pay bills. Will they prove less willing though to select or change a supplier purely on the basis that they participate in a consolidated e-billing service?
Recent research undertaken by TNS for OneVu, a consolidated e-billing provider in the UK, may suggest that the availability of consolidated e-billing may not dramatically increase the proportion of people paying bills online. (9) All this reinforces what any innovator knows. It is difficult for users to drive its development until it becomes a service they can test, experience and assess for themselves.
Conclusion
With the continued growth of low cost ‘always on’ Internet access, paying bills online will continue to provide users with a useful way to make ‘payee not present’ payments. An alternative to Direct Debit and to cheque payments, online Direct Credits, whether initiated through the user’s bank or biller web site or through a consolidated e-billing facility, will continue to grow significantly as a proportion of all payments. To ask whether one method or another will dominate the sector is to misunderstand the nature of the industry for both methods are essential and respond to differing needs. Consolidated e-billing web sites offer consumers an alternative method of utilising bill payment functionality that many will find attractive. But this will involve relatively few billers. The vast majority of billers will sit outside services and continue to utilise the bill payment functionality within bank and biller web sites in the traditional way.
(1)http://news.bbc.co.uk/1/hi/technology/4696613.stm
(2) Internet Monitor V, September 2004, APACS www.apacs.org.uk
(3) http://www.tns-global.com/corporate/Doc/0/3F4LO7CQ1EA4J3H4DT388KQV45/041124FV%20-%20Internet%20Banking% 20security.pdf
(4) Passing Shot, FST May/June 2005 p51
(5) www.apacs.org.uk
(6) This discussion is restricted to one-off bill payment methods (Direct Credits) and does not include Direct Debits or Standing Orders
(7) For a full exploration of this issue read Eiger Systems’ White Paper: Electronic bill payment and data validation, February 2003 available from www.eiger.co.uk
(8) www.eiger.co.uk
(9) "Over half (52%) of people with internet banking capacity in the UK already view and pay some of their bills online...In addition, 58% of online bankers stated that they would be likely to view and pay bills online in the future, if they could do so from one consolidated site" http://onevu.co.uk/news/press/20050526.php
Please note - Experian Payments was formally Eiger Systems