Electronic Payment Systems 20-763 Lecture 10 Electronic Invoice Presentment and Payment

1. Electronic Payment Systems20-763 Lecture 10Electronic InvoicePresentment and Payment

2. Outline • Electronic bill (invoice) presentment and payment EBPP (EIPP) • Presentment: displaying notification of debt with details • Service providers • Bill consolidators • System Architecture • Future of ePayments

3. Electronic Billing • U.S. consumers pay 18.2 billion bills per year • Occupies 2.4 billion man-hours • U.S. businesses pay 26 billion bills per year • Generating bills costs USD $20-35 billion per year • Postage costs USD $17 billion • Moore demo, PayNet demo, CheckFree demo, FirstUnion, PayTrust • Santa Clara 999999999, 1234 • Other providers: • Logica, Netscape, TransPoint • Hong Kong: Jetco • Key for customer retention (convenience)

4. Savings on $100 Billed Electronically AMOUNTSAVED • Reduced float (USD per bill) • Reduced non-payments • Reduced processing errors • Eliminated paper processing • Saved postage • More efficient customer service • Total potential savings 0.15 0.25 0.10 0.90 0.40 0.10 1.90 SOURCE: MCKINSEY

5. What is EIPP? • Statements or bills rendered in electronic form on Web (1) • Multiple bills consolidated at one site (2) • Customers visit the site to view their bills (3) • Customers review bills and schedule payments (4) • Remittance information returned to biller electronically (5) • Payments routed from the customer's bank account to the biller’s account (6) SOURCE: VALERIE KRAMER, PNCBANK

6. EIPP Participants PERSONAL FINANCE SYSTEM, AGGREGATOR, BANK DATA PARSING BILL FORMATTING BILLER HOSTING DATA FLOW  BILL INFO PAYMENT ORDERS  MONEY FLOW PAYMENT AND REMITTANCE PROCESSING SOURCE: EBILLING.ORG

7. EIPP SWIFTBILL DEMO SOURCE: VALERIE KRAMER, PNCBANK

8. Biller Direct Model • Biller hosts its own site to present bills • Works through a financial institution to reach the settlement system to process payments • Requires payors to visit the biller’s site • Various vendors provide software to assist in internal development

9. Biller Service Providers (BSPs) • Acts as agent for billers • Technically enables electronic invoice presentment • Warehouses invoice data • Payment and remittance processing • Players: • some banks • EDS, IBS (Interactive Business Systems) • CheckFree, Transpoint • BlueGill • Paytrust

10. Consolidator Model • Bills from multiple billers are presented on a consolidated site • Site can be hosted by a financial institution or third party • Benefit to payer is one-stop bill payment • Key to success is critical mass of billers

11. Thick versus Thin Consolidators Biller #1 Billing Appl. Bill Data Biller #1 Billing Appl. Summary Data Conso- lidator’s Web Page Conso- lidator’s Web Page Bill Data Biller #2 Billing Appl. URL link for detail Biller #1’s Web Page Thick - data consolidated Thin - links to Biller’s site SOURCE: VALERIE KRAMER, PNCBANK

12. EIPP Issues • Retain familiar bill format • Information extraction • Bill presentation • Personalization • understanding customer bill review and payment habits • Settlement mechanism

13. Connect to biller legacy systems • Extract bill data • Convert to Web output formats • Integrate with third party systems and databases Bill Extraction & Conversion • Provide access to bills on biller’s Web site • Provide access to bills on consolidator Web sites Internet Bill Presentation • Facilitate credit card and direct debit payments • Process payments and post to customer and biller accounts Internet Bill Payment • Provide customer account management • Facilitate 1:1 marketing and e-commerce programs • Integrate bill analysis tools and applications Internet Customer Care The e-Billing Process SOURCE: LOGNET

14. Management System* End -User Semantic Analyzer Bill Database Internet BillMiner Architecture User Enrollment System Customer Query System Consolidator System Legacy System Data Stream Conversion Module Presentation Engine Biller Application Advanced Features Module Payment System Auditing & Licensing Accounts Receivable System BillMiner System SOURCE: LOGNET

15. Purch Order PO No. PO No. AOP, Payment Ship & Invoice Invoice No. Payment No. Invoice No. Integrating Payments with Upstream Processes Buyer Seller Purchasing Dept. Sales Dept. Receiving Dept. Shipping& Invoicing Dept. Accounts Payable Accounts Receivable SOURCE: COMMERCENET

16. EIPP Projections

17. SOURCE: KILLEN & ASSOCIATES

18. Customer Interface • Designing electronic bills • Typically varies from paper • Input from marketing • Requires internet expertise • May require regulatory approval • Possible legal issues • Advertising • Enrollment process…on-line is best! • Requires a fully structured and integrated customer service model SOURCE: VALERIE KRAMER, PNCBANK

19. ILLUMINATED STATEMENT SOURCE: ENCIRQ

20. Encirq Preference Model SOURCE: ENCIRQ

21. Paytrust • Consumer bills sent to Paytrust • Bills are scanned and presented to customer

22. Statements, Billing & Reporting in Banking（银行服务的对帐单、帐单和报告处理） • Account Statements（对帐单） • Fixed Deposit Statements（定期存款对帐单） • Loan Accounts（贷款对帐单） • Credit Card Bills（信用卡对帐单） • Merchant Statements（贸易商对帐单） • Mutual Fund Statements（共有基金对帐单） • Securities Statements（债券对帐单） • Branch Reports（分公司报告） • Statutory Reports（法定报告） Corporate Customers（企业客户） Consumers（私人客户） Merchants（贸易商） Branch Managers（分公司经理） Management（管理层） Regulators（法定管理者） SOURCE: CHECKFREE

23. Tradelink’s E-Commerce Flow Air Terminals US Customs Banks ECIC Insurers Govt Depts Tradelink & Partners Establish Market Channel Negotiate Contract Prepare Products Arrange Logistics Comply with Regulations Settle Payment • Info Services • Production • Notification • Certificate of Origin • Outward Processing • Arrangements** • Cross Border • Documentation** • Carrier • Notification • Shipping Order* • Packing List# • Bill of Lading / • Forwarder Cargo • Receipt** • Textile Quota Licenses • Electronic Visa Copy • Trade Declaration • Dutiable Commodity • Permit* • Manifest* • TTRS Notification* • Manufacturer’s • Declaration** • Commercial Invoice# • Packing List# • Insurance Certificate# • Proof of Delivery# • Export Credit • Insurance • Declaration • Quotation# • Purchase Order# Trade Card / CIECC / Pan-Asia E-Commerce Alliance / PortsNPortals China Traders & Manufacturers Overseas Buyers Sellers Container Terminals Carriers Forwarders HK Traders * Confirmed development schedule (with Government / other service providers) ** Under scoping / consideration # TradeCard Services SOURCE: TRADELINK

24. EIPP Status • Only 3 countries with widespread offering • US, Canada, Australia • Others – small scale or coming • Scandinavia, NZ, UK, Hong Kong, Switzerland • All are finding EIPP is complex • Scale- and/or partner- dependent

25. EIPP Major Ideas • EIPP is data-rich • Interactive bill detail, challenge, resolution • EIPP is complex • Interaction with legacy accounting systems, data interchange • EIPP requires service providers • Biller service provider • Customer service provider • Are bills necessary?

26. Future of Electronic Payments

27. Money Supply Chain and Value Chain • Where does it come from? • More electronic flow • Role of banks? • Can money be transferred without banks? • Financial intermediaries • Banks, insurance companies, stores, stockbrokers • Agents (sports figures have them because they’re rich) • all vying to park your money • Increasingly, payment will be viewed as part of the supply chain. (Just one more piece of data.)

28. Role of Cash • Will never vanish • Portability • Offline use • Authorized by government • Increasingly useless • Risk of theft • Not sufficiently liquid! (Must deposit in bank. How?) • Role of stored value cards

29. eCash • Where does the technology stand? • Security • Anonymity, pseudonymity, privacy • Rivest: anonymity may be a value-added feature • Double spending • Chaum’s protocol • Does not work completely offline • Not for large transactions • Possibility of detection not a deterrent • Outside the banking and Federal reserve system • Decline in importance of offline transactions

30. Ubiquitous Computing • Limitations on processor speed/size • Solution: more processors • Computers in walls, desks, cars • Seamless movement of money (e.g. EZ Pass) • Will money exist in several forms? • Accounts, e-scrip, cash, e-cash? • PDAs

31. Checking • Holdover from paper processing system • Future view : check is just a type of payment order for moving notational money • More research needed on clearing and settlement systems • Instantaneous clearance & settlement. Why not?

32. Micropayments • Transaction cost vs. transaction value • Rivest prediction: method of choice for purchase of information over the Internet • Aggregation • Digital rights management • Hierarchical approach • Aggregate amounts < .01 cent until they reach1 cent • Aggregate pennies until they reach dollars, etc. • Alternative economic models • Subscriptions, taxes

33. Microcredit • Small loans in underdeveloped nations (e.g. < $50) • Commercial banks unable to serve the needs of low-income households and microenterprise • Cost of granting credit, servicing loan. Low return. • Apply micropayment principles to microcredit • Hierarchical aggregation

34. International Aspects • Currency conversion • Controlled currencies • Banking laws • Alternative monetary systems • Credit cards, checking: minor importance • Availability of credit: major importance

35. Major Ideas • Integration of payment with business processes • Straight-through processing • World trend toward globalization of currencies • Euro, HKD/USD, Eastern Caribbean dollar • Instantaneous settlement • Increases volatility • Reduces risk • Effect on currency control? • Future of currency

36. Q A &