UtiliPoint Daily IssueAlert, April 21, 2006
By Jon T. Brock, Chief Operating Officer and Christopher Perdue, Senior Director, Market Research

Have you ever called a utility about a payment and had them take payment right there on the phone via your checking account or credit card? I hadn't until recently when apparently my local electric and gas bill got lost in the mail and when my second bill came in, there was this late fee for not paying the previous month. Of course, like any good paying customer would do, I called in to find out what had happened. In a matter of minutes, I had paid the bill via my checking account. "That's pretty cool," I thought. I knew they could take credit card payments, but did not know they could hit my existing checking account over the phone.

A lot has happened behind the scenes in the world of electronic payments while I have been busy focusing on high energy prices (I just filled up my car yesterday at over $3.00 a gallon—ouch!). I queried the UtiliPoint® research department on what has happened over the years. It appears that a major milestone was passed according to a survey released by the Federal Reserve in December 2004. Americans kept their checkbooks in their pockets and instead flashed debit and credit cards in record numbers, making 2003 the first time plastic and other electronic payment methods beat out paper. A total of 44.5 billion electronic payment transactions crossed the wires in 2003, compared with 36.7 billion check payments. Those numbers marked a turnabout from 2000, when Americans wrote 41.9 billion checks, and electronic payments clocked in at 30.6 billion.

The increases in electronic payments are believed to have been achieved through large-scale consumer marketing campaigns funded by major financial institutions. This marketing activity is expected to collaterally aid utilities by educating consumers as to the benefits, ease of use, convenience, and security of paying bills online. Customers are increasingly ready to pay electronically and it is up to utilities to offer these services as effectively as possible.

Credit and Debit

Utilities have also faced the increasing popularity of consumer credit and debit card usage, and most now allow customers to pay their electric and gas bills with a card. However, when referring to credit and debit card acceptance, utility distribution companies face pressure from major card companies and other third-party vendors. These issues revolve around the method of acceptance, fees assessed by outside vendors and regulatory obstacles.

These issues are overcome by the fact that accepting card payments streamlines the online payment registration process by simplifying the input request to nothing more than the card number and expiration date—a method that nearly all Internet users have familiarity with and have done online.

This is simpler than prompting a consumer for the routing and transit numbers that appear in the Magnetic Ink Character Recognition (MICR) line at the bottom of a paper-check as well as account number that may be combined with a check number and the like.

Accepting card-based payments is more than worth the added processing costs (or interchange fees) if closely linked to suppressing paper statements and promoting the active use of online account management. Utilities can achieve improved cash flow since e-payments typically post to accounts faster than other forms of payment. Just as important, utilities will help themselves and their customers avoid the cumbersome and expensive paper trail of checks. This can decrease the cost per payment process by over 50 percent.

Nearly all purchases made through the Internet today are consummated with a card-based payment. For utilities, making card-based payments an available and attractive option for consumers certainly increases the active, regular use of online account management including e-payments.

Internet Presentment and Payment

While utilities have been rather slow in fully embracing the opportunities of e-commerce when compared to other industries, electronic bill presentment and payment (EBPP) is a convenience that utilities are beginning to support according to research from UtiliPoint® International.

UtiliPoint performs an annual survey of over 300 utilities in North America regarding customer service. This particular survey was conducted from late-February through early-May 2005, and consisted of interviews with managers or directors of billing and customer care at North American utilities. The survey questionnaire consisted of 39 closed-ended questions.

According to the survey results, only 47 percent of North American utilities currently offer EBPP. However, when the results are segmented by the number of customers served, it paints a different picture, indicating that the number of customers served has a significant correlation with a utility's likelihood of offering EBPP. Of those utilities that serve over one million customers, over 94 percent currently offer EBPP to customers.

As the following chart attests, the 47 percent saturation of EBPP still represents significant growth over UtiliPoint's previous surveys that were conducted over the last few years.

So why the dramatic growth? There appears to be a variety of reasons. One is the fact that utilities have dramatically changed strategies over the last few years. In 2002, many utilities began the process of refocusing its efforts on the core utility business after disastrous forays into merchant generation, international operations, and energy trading. As a result, utilities are increasingly looking for ways to increase the satisfaction of their customers. By offering EBPP, utilities are responding to an increasing number of customers that prefer online options for billing services.

Another reason utilities are adopting EBPP, in addition to meeting the growing customer demand, is that EBPP offers significant cost reduction opportunities, especially as utilities move to a paperless billing environment. Internet payment offers opportunities to streamline payment processing, and additionally remove paper from the processing. EBPP also provides utilities with another means to communicate with customers, and enables the utility to market ancillary products.

Technology Advances Making it Easier?

I recently visited a UtiliPoint research client, ChoicePay in Tulsa, Oklahoma. ChoicePay offers customers the options of paying their bills with credit cards, checks, ACH, or even cash by phone via IVR or customer service representatives, over the Internet, or at kiosk payment terminals located at over 1,100 7-11 locations across the United States. They have historically built software for utilities or allowed utilities to “outsource” their bill payments to them. They are currently building their technology in a service-oriented architecture (SOA). Per DM Review, a service-oriented architecture is a collection of services that communicate with each other. The services are self-contained and do not depend on the context or state of the other service. They work within a distributed systems architecture. They are also sometimes referred to as web services.

Many analysts have spoken about the arrival of SOA and what it might mean to industry if adopted. Some range from very dramatic change in the IT services industry (total collapse of applications as we know it) to more subtle (augmenting existing applications with callable routines). The true answer is probably somewhere in between. The thing that impressed me at ChoicePay was a couple of modules they have separated out of their application and built as callable Web services, one was the ABA number verification and the other was the actual payment routine. If successful, this could mean that instead of purchasing an application to do these functions or outsourcing the service, an IT shop at a utility may be able to call a web-service that provides the needed result and pay some rate for calling the service (per call). To quote a resource within ChoicePay, it's like turning the company into a big Dynamic Link Library (DLL).

Conclusion

If customers do see the benefit of electronic billing and payments, the utilities themselves are no longer the only option. For example, customers can also receive and pay bills online through a bill payment service provided by banks, credit unions, and portals. This option allows customers to pay multiple bills via one Web site. Many utilities now provide their customers a full listing of such affiliated bill payment providers on their company web sites. With that in mind, what is known as “biller direct” sites are actually more accepted than “consolidator sites” when it comes to electronic payment per research and advisory firm Aite Group.

With the dramatic growth of electronic payments in the utility industry over the last year, it is becoming a requirement as opposed to a differentiator. Customers have come to expect this type of service from most service providers. It has rapidly become mainstream, and is perceived by most customers as a given in dealing with a company in today's environment. Now that utilities have decided to provide electronic payments, they must find a way to make it more attractive to their customers via a number of channels.