What do telecommunications, cable, utilities, health club and subscription industries have in common? They are all recurrent billers at the forefront of accepting bank cards for automated bill payment. As these bellwethers lead the way, businesses in many other industries are not far behind. This movement, coupled with the growing use of the Internet for electronic bill payment - translates to an enormous new business opportunity for ISOs.
Bankcard acceptance is one of the major trends in Internet Bill Presentment and Payment (IBPP), a method of electronic bill payment already embraced by more than 32 million consumers. By 2005, it is estimated that well over 100 million consumers will have enrolled for IBPP. Hence there is an enormous upside potential for sales organizations that can help provide online bill payers with access to two of the most trusted and convenient consumer payment vehicles ever devised - credit and debit cards.
Billers are interested in card-based IBPP because they gain a compelling mechanism for increasing consumer IBPP enrollments, thus bringing them closer to their goal of paper statement suppression. They also gain a way to retain customers, improve cash flow, and reduce financial risk. This is a substantial value proposition.
Consumers, meanwhile, gain single-statement payment consolidation combined with all the ease, familiarity and consumer benefits of card usage. Banks also benefit as they gain an opportunity to strengthen their account aggregation services and to reroute the processing fees now going to third party payment processors back into the bank. They also gain an opportunity to increase to cardholder loyalty.
Billers are in the driver's seat
As consumers continue to sign up for electronic payment, they are increasingly activating IBPP directly with their recurring billers. In fact, billers have been five times more successful than banks at enrolling consumers for IBPP. It is important to remember that, with IBPP, "the one that that enrolls, controls." From a financial standpoint, this means that when a biller enrolls and registers a customer for IBPP, it is able to embed payment onto the electronically-presented bill. This means that payment will always comes back to the biller by the shortest and most efficient route, regardless of where the bill is electronically presented and viewed.
From a marketing and customer care viewpoint, biller-controlled enrollment also strengthens and extends the biller/customer relationship. There is greater likelihood that the customer will return regularly to the biller's website to initiate payment, check on balances and so on. On each of these occasions, the biller can cross-sell, up-sell, and offer a host of loyalty building electronic dialogs. Therefore, a biller should do everything possible to increase the number of customers it directly registers for IBPP. Hence ISOs have the opportunity to make sure billers look carefully at how card-based IBPP can (1) help attract and retain more enrollees, (2) streamline and simplify the registration process, and (3) improve their cash management position.
Why billers want card-based payments
There are also excellent cash flow and operational reasons for billers to promote payment cards. These include:
- Improved availability of funds - card transactions generally post to a biller's account faster than other forms of payment(seven days for bankcards, versus 9 days for ACH and 19 days for checks). (2)
- Lower payment risk - card-issuers assume the risk of non-payment so there is no problem with bad debt.
- Lower costs - payment handling costs are much reduced as are collection charges.
According to research conducted by Visa U.S.A., recurring billers accept cards for automatic bill payment for various reasons, including enhancing customer service (81%), customer demand (66%), increasing sales from new customers (59%) and customer retention (50%). (1)
Now let's translate this to the online world. Payment cards are almost universally the preferred payment method when making purchases on the Internet. Online purchasers generally expect to pay with their card, are familiar with entering their card numbers and entrust their numbers to be stored at merchant sites. So why not leverage this familiarity and trust in order to go beyond the use of ACH for online bill payments?
Registering for ACH is not an intuitive act for most consumers. They have to read off the demand deposit and routing numbers followed by the transit numbers from the bottom of their checks. By comparison, typing in a credit or debit card number is extremely easy, and is something they likely have done many times before when making online purchases. Billers offering payment cards as an option at enrollment are able to tap into this familiarity and high comfort level.
Consumers are attracted by the flexibility inherent in payment cards, which enables them to discharge their obligations to their billers on a recurring basis, while consolidating all bills on a single payment statement.
They benefit from the safety and accuracy of paying their billers "directly" and they also can enjoy the value-added benefits of card usage. For example, consumers with co-branded cards can amass considerable award points simply by paying all their monthly bills via payment card.
All this adds up to a payment card option being both a substantial initial draw for many customers and a way to enhance their loyalty once they start using their cards for bill payment. Visa USA research has shown that those who use their cards for bill payment tend to be more loyal customers. They also tend to belong to high-income households.
Banks benefit too
Card issuing banks have a stake in IBPP as well. ACH payments typically require them paying third-party processing fees. Card-based payments, on the other hand, result in a positive cash flow from debit and credit card interchange fees. Plus, the more often a consumer uses a card to pay bills, the more valuable that card becomes to the consumer. Thus card-based IBPP can strengthen bank customer loyalty and reduce churn, without challenging the consumer/ biller relationship.
ISOs and card-based IBPP
If there ever was a sweet spot for offering a service, card-based IBPP is it. ISOs have no lack of targets for card-based IBPP. They are equipped with a compelling, multifaceted value proposition that is readymade, tested and proven. And they are supported by a growing groundswell of consumer demand. It is not a matter of if a biller will embrace card-based IBPP, it is really just a matter of when - and a matter of who makes it happen. n
1 Source: Custom Research, Inc. , 1999
2 Source: 2000 Visa Merchant Bank Card Acceptance Survey
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