Bank of America Online Bill Pay - PDF

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					MAKING
         O nline Bill Pay
              WORK
               f r B ilr
                o      les
BY ANN MCCORMICK
O
        nline banking and online bill pay are two of the               With check payments that customers mail themselves, the
        fastest growing consumer activities on the Internet.         city scans the accompanying remittance stub, which has
        Online bill pay is experiencing a huge increase in           account information in an OCR scan line. With bill pay
consumer usage — from 8 percent of monthly bills paid in             checks, there are no remittance stubs. All the check-and-list
2001 to 24 percent in 2005, according to the American                data has to be manually entered.“We have two due dates, the
Bankers Association 2005/2006 Study of Consumer Payment              10th and the 24th of the month,” Sofley explains.“Every month
Preferences.                                                         around those dates, we have two people who have to key in
                                                                     data for a couple of hours a day for several days. Right now,
IS WHAT’S GOOD FOR BILL PAY                                          bill pay payments represent only about 3 percent of our
CUSTOMERS GOOD FOR BILLERS?                                          accounts,but we’re spending more than 3 percent of our time
  If you have used bill pay services yourself, you understand        processing them. And the number of bill pay payments con-
what is driving this trend. Online bill pay is extremely conven-     stantly is going up.I realize that bill pay is great for consumers
ient.You can view your bills online,pay several bills at once,and    because it takes the paper out of paying bills. But when bill
never have the hassles of remembering to write checks and            pay service providers issue checks, they’re just putting all the
mail your bills on time. However, if your organization regularly     paper back into the process for billers.”
bills and receives consumer payments for utilities or other serv-    Manual processing is just part of the problem. Bill pay pay-
ices, you may have a different opinion about the convenience       ments are frequently late because customers don’t under-
of online bill pay. What many government                                          stand how bill pay works.“No one knows that
billers have found is that payments from                                          many of these bill pay payments end up
online bill pay providers are often not made
                                                     A bill pay concentration
                                                                                  being checks that are mailed,” Sofley notes.
electronically. Instead, payments arrive as          service . . . is a highly “So people wait to the last minute to sched-
mailed checks with remitter information              effective solution for ule their payments, and then they’re late
printed on the check stub or included on a                                        because the payment isn’t made electroni-
separate paper list.                                 making the paper-to- cally. We also see where payments were sent
  If your organization is already receiving
                                                    electronic conversion.            timely by the vendor, but got delayed in the
                                                                                      U.S. Postal system.”
bill pay checks and lists,you probably have a
good understanding of the challenges this                                                 Late payments lead to disputes and more
form of payment can create. If not, you will                         wasted administrative time and effort for billers.“When pay-
undoubtedly be receiving such payments in the near future,           ment is received late, we assess a late fee on the next bill,”
because bill pay is growing fast. In this article, we will look at   Sofley explains.“When the bill with the late fee arrives, we get
how online bill pay payments are affecting government agen-          an angry call from the customer, who tells us that he or she
cies and a solution for managing this problem.                       made the payment on time using online bill pay.We then have
                                                                     to explain how bill pay works, that the bill pay service is mail-
CASE STUDY:THE CITY OF SALISBURY,                                    ing us a check, and that the customer needs to schedule pay-
NORTH CAROLINA                                                       ments well in advance of the due date. In addition, our policy
  The experience of the City of Salisbury, North Carolina, pro-      is to reverse the late fee the first time this happens. So we also
vides a good example of the early stages of the bill pay check-      have to credit the fee back to the customer’s account, which
and-list problem. Salisbury, which has a population of 29,000,       is still more work for us. This is all very time consuming, and
bills about 16,000 customers for water, sewer, recycling, and        we continually have to do this with bill pay accounts.”
waste collection services. According to John Sofley, the city’s         It’s easy to see from the experience of the City of Salisbury
management services director, Salisbury began receiving              that what might start out as an inconvenience rapidly evolves
occasional checks from bill pay service providers a few years        into a major problem if the biller has thousands of bill pay
ago. Now, about 600 customers are paying by online bill pay          customers. For many government agencies, this is likely to be
and the number is growing. On a typical day, the city receives       the case. According to Jupiter Research, the number of U.S.
checks from as many as 15 bill pay service providers.                households banking online is projected to climb from 29.6



                                                                                                       October 2006 | Government Finance Review   39
   million in 2003 to 56 million in 2008.The percentage of those         for the biller by eliminating labor-intensive paper posting
   households using online bill pay is expected to grow from 50          processes. Here are some key features that this new bill pay
   percent in 2003 to 85 percent in 2008.                                receipts solution provides:
                                                                         ■   Notification to bill pay services. The biller is registered with
   AN ELECTRONIC BILL PAY                                                    a national remote payment and presentment service.This
   CONCENTRATION SOLUTION                                                    service notifies bill pay services that the biller is set up to
     Although the majority of online bill pay payments are deliv-            receive electronic payments and should be paid through
   ered electronically through the ACH, recurring payments to                the ACH. Bill pay services are subsequently monitored to
   government agencies are often made by checks and lists.This               confirm that they are sending payments electronically.
                                                                         ■   Single ACH credit. Instead of receiving numerous checks
                                                                             and lists via mail, the biller receives a single ACH credit
      Exhibit 1:The City of Salisbury, North Carolina
                                                                             that consolidates the payments received from multiple bill
      Population: 29,000                                                     pay services each day. ACH credits can be delivered sever-
      Services billed for: Water, sewer, and utility services                al times a day or sent as a single daily credit.
      Customer base: 16,000 accounts                                     ■   Account number masks. Check digit routines can be set up
      ACH direct debit payments: 3,000 accounts                              to screen account numbers for customer input errors.
      Bill pay payments: 600 accounts                                        When an error is discovered and the correct number is
      Bill pay receipts solution: Investigating a bill pay                   verified, the bill pay service is notified to make the neces-
      concentration service                                                  sary correction in their system so that no customer inter-
                                                                             vention is required.
                                                                         ■   Electronic remittance detail. Remittance detail is delivered
   may be happening because these agencies are relatively
                                                                             electronically in a file format that can be uploaded into
   small billers and are not as visible to bill pay services as are
                                                                             the accounts receivable system for automatic application
   large corporate billers. Some banks are recognizing this prob-
                                                                             of payments. Detail can be delivered via FTP in encrypted
   lem and are targeting recurring payments to government
                                                                             files or downloaded from a secure Web site.
   agencies and utilities as a key market for conversion to elec-
   tronic payments. However, because there are so many bank              ■   Real-time online reporting. Web-based reporting is also
   and non-bank providers offering bill pay, an initiative by any            available so the biller can research transactions online by
   single institution is not likely to reduce check-and-list pay-            account number.
   ments significantly. Because of the sheer number of bill pay             Let’s look at how two government agencies are using this
   services, it is also not feasible for a government biller to try to   type of service and how it works in practice.
   contact all of them to request electronic payments through
   the ACH.                                                              CASE STUDY: SIMI VALLEY, CALIFORNIA
     Fortunately, there is a solution to this quandary that does            The impact of online bill pay payments can be clearly seen
   not require getting all bill pay services to stop issuing checks      in the experience of Simi Valley,a city of 121,400 people locat-
   and lists. A new type of electronic bill payment and present-         ed near Los Angeles. The city’s waterworks services are pro-
   ment concentration service is now available.With this kind of         vided by two water suppliers: Golden State Water Company, a
   service, the biller can have bill pay payments and remittance         private company, and Ventura County Waterworks District No.
   detail from multiple bill pay services consolidated and deliv-        8, which is managed by the city. District No. 8 serves approxi-
   ered electronically. Conversion from paper check to electron-         mately 60 percent of the area.
   ic payments is arranged, without requiring the biller to con-
                                                                           Debbie Gabler,the city’s customer service manager,says that
   tact any bill pay services.
                                                                         Simi Valley has seen a tremendous increase in online bill pay
      Consolidators typically charge the biller a nominal transac-       payments in recent years. Of the district’s 23,800 customers,
   tion fee for each of the consumer payments received. These            about 5,000 now use bill pay to make payments, with pay-
   fees are usually pennies and result in a significant cost savings      ments delivered from about 25 different bill pay services. As




40 Government Finance Review | October 2006
                                                                    vice’s account number verification feature.“Our account num-
  Exhibit 2:The City of Simi Valley, California,                    bers are eight digits in specific ranges plus an alpha character.
  Ventura County Waterworks District No. 8                          Our service automatically detects account numbers that do
                                                                    not fit those criteria. If a wrong account number is found, the
  Population: 121,400
                                                                    associated payment is converted from an electronic payment
  Services billed for: Waterworks services
                                                                    to a paper check.When we receive this check, we know there
  Customer base: 23,800 accounts
                                                                    is an account number problem.We research to determine the
  ACH direct debit payments: 2,000 accounts
                                                                    correct account number, deposit the check, and notify our bill
  Bill pay payments: 5,000 accounts
                                                                    pay concentration service provider, who contacts the bill pay
  Bill pay receipts solution: Bank of America PayMode
                                                                    service to have them correct the account number in their sys-
  Concentrator Solution
                                                                    tem. This is great because we don’t have to call the customer
                                                                    and ask them to make the correction and resubmit their pay-
the volumes of these payments grew, the district tried using a      ment.The process is totally transparent to the customer.”
bill pay aggregation service, which sent payments as checks
and lists. To apply these payments, Gabler’s staff developed a      CASE STUDY: IRVINE, CALIFORNIA
manual workaround, key entering amounts paid into a
                                                                       Irvine, California, with a population of 181,000, is one of the
spreadsheet program that included account numbers to
                                                                    nation’s largest planned urban communities.The city’s domes-
recreate payment stubs with OCR scan lines for each pay-
                                                                    tic water, sewage collection, and water reclamation services
ment.They would then run the stubs through the scanner sys-
tem used for customer-mailed checks to upload the payment
information into the district’s SAP enterprise system.                Exhibit 3:The City of Irvine, California, Irvine
                                                                      Ranch Water District
   Gabler estimates that this process took approximately two
to three minutes per stub. But by the end of 2005, with the city      Population: 181,000
receiving 75 to 100 bill pay payments daily, this workaround          Services billed for: Water, sewer collection, water reclamation
was requiring four to five hours of staff time every day.In addi-      Customer base: 90,000 accounts
tion, the city was receiving numerous late bill pay payments,         ACH direct debit payments: 13,000 accounts
which meant fielding calls from customers complaining                  Bill pay payments: 17,000 accounts
about late fees and educating them about how bill pay works.          Bill pay receipts solution: Bank of America PayMode
Again, this was taking up too much valuable staff time.               Concentrator Solution
  It was clear that the old bill pay aggregation service was not
a workable solution.Late in 2005,Gabler began investigating a
                                                                    are provided by the Irvine Ranch Water District, which serves
new bill pay concentration service.“We had discussions with
                                                                    more than 90,000 customers, not only in Irvine, but in many
our bank’s treasury management sales officer and we looked
                                                                    surrounding communities. In recent years, the district has
at an online demo of the service,” Gabler says.“We decided
                                                                    seen a sharp upswing in the number of customers using
that this was the solution we needed and started implemen-
                                                                    online bill pay.“Right now, about 17,000 of our monthly pay-
tation,which went very smoothly.The whole process only took
                                                                    ments,or 18 percent,come from customers using bill pay serv-
six to eight weeks from initial discussions until we went live in
                                                                    ices,” says Debby Cherney, the district’s controller.“We want to
January 2006.We didn’t have to do any custom programming
                                                                    accommodate our customers that use bill payment systems
on our end because our service formats files so that they work
                                                                    through their own banks. However, the existing service we
in our SAP system without modification.All we had to do was
                                                                    were using resulted in the district receiving too many checks
make several test file transmissions.”
                                                                    without account numbers — these required manual process-
  According to Gabler, the bill pay concentration service has       ing.We were also receiving many late payments.This not only
greatly reduced administrative effort while improving funds         affected our cash position, but our staff was also spending an
availability.“We recognize bill pay payments now in two days        inordinate amount of time on the phone trying to educate
versus five to seven days before.” She also appreciates the ser-     customers about bill pay and manually reversing late fees.”




                                                                                                       October 2006 | Government Finance Review   41
                                                                      have been $16.89 but the customer had entered as $1,689. In
                                                                      the past, we would have had to notify the customer and then
                                                                      manually cut and mail a refund check, which required vari-
                                                                      ous levels of approval within our organization. With our new
                                                                      bill pay concentration service, we have business rules built
                                                                      into the system so that we can refund the payment electroni-
                                                                      cally and still meet our internal control requirements. So all
                                                                      we had to do was call the customer to say we’d caught the
                                                                      error and they should resubmit payment for the correct
                                                                      amount, and that we’d already refunded their incorrect pay-
                                                                      ment electronically.”

                                                                         Cherney also likes the on-demand online reporting avail-
                                                                      able through her new service. “With our previous bill pay
      Early in 2006, the district made the decision to implement a
                                                                      aggregation service, our staff had to wade through 40-page
   new bill pay concentration service.“This was a very fast imple-
                                                                      faxes of bill pay payment information to research transac-
   mentation,” Cherney says. “We were up and running in less
   than 30 days.We had very little work to do on our end, except      tions. Now, we simply go online and can search for an indi-
   getting our systems up to speed to accept the encrypted files       vidual transaction or a series of transactions. We can also
   the service transmits to us.A big plus was that we didn’t have     archive all of this payment information electronically,which is
   to do any re-programming of our software, even though we           a great benefit.”
   use an internally developed system for billing and account-
   ing. Our IT people were very happy with the entire imple-          THE BILL PAY FUTURE
   mentation effort, and I was too. Before joining the district, I    FOR GOVERNMENT BILLERS
   worked for accounting and consulting firms, so I’ve seen              Because online bill pay is being so widely embraced by
   many system implementations. This is one of the smoothest          consumers, it’s almost a certainty that bill pay payments will
   I’ve been through.”                                                grow into a significant percentage of your agency’s payment
      Cherney notes that the bill pay concentration service has       mix in the near future.As bill pay service providers gain a bet-
   worked extremely well in practice.“Just weeks after we started     ter understanding of the impact of check-and-list payments
   this solution, we were already seeing significant improve-          on billers, we should see more and more of these paper pay-
   ments,” she says.“Each day, our service pulls three files of bill   ments converted to ACH.
   pay payments, which we have consolidated into one nightly
                                                                         In the meantime, a bill pay concentration service of the
   transmission.So every morning,we receive a single electronic
                                                                      kind we’ve discussed in this article is a highly effective solu-
   ACH credit with remittance detail for all of the previous day’s
                                                                      tion for making the paper-to-electronic conversion immedi-
   bill pay receipts.”
                                                                      ately. Furthermore, such features as account number verifica-
      Like Simi Valley, the Irvine Ranch Water District has been      tion, automated return of incorrect payments, and online
   especially impressed with the account number verification           reporting can significantly improve your receivables opera-
   feature of their service. “We no longer have to contact cus-       tions.And that makes a bill pay concentration service a highly
   tomers to make corrections when they make a simple error           valuable proposition for the long term. ❙
   like leaving out a digit or putting in a leading zero,” Cherney
   says. “Our provider works directly with the various bill pay
   services to make those corrections on their systems.”
                                                                      ANN MCCORMICK is the business product management executive
     Another plus is the service’s ability to simplify handling of    for Bank of America’s PayMode Product Solutions, responsible for
   payments where the customer has made an error in the pay-          product management, customer support, quality assurance, and trad-
   ment amount.“We recently received a payment which should           ing partner adoption.




42 Government Finance Review | October 2006

				
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