Effect of the Internet on payment processing by tuwaro


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       Trough the centuries, people have witnessed a number of technological
inventions that have changed the course of human social history. In the area of
communication, the Gutenberg printing press, along with low-cost, massproduced
paper, revolutionized the distribution of knowledge and ideas during the Renaissance.
More recently, the telephone and radio extended communication dramatically. At the
end of the 20th century, the Internet joins these inventions.
       It is interesting that the indelible marks left by these inventions were not always
envisioned by their inventors. The printing press, for example, was invented primarily
to massproduce the Bible, which until then had been slowly and painstakingly hand-
lettered by monks. It evolved into the means for introducing reading and writing to the
world at large, fostering the expansion of learning and education to the entire culture,
not just to the elite.
        Similarly, the Internet was developed to allow academicians and the military to
easily share information between disparate computers over a web of networks around
the world. It is just within this decade that we have witnessed its remarkable evolution
into a global communication and electronic commerce channel. The Internet is
transforming the way people communicate, do business and carry on their daily lives.
Businesses often struggle to anticipate how a new technology might affect what they do,
or how they do it. Failure to recognize a new technology's impact can have disastrous
results. During the first half of this century, railroads dominated transportation. Over
the next 20 years, airlines began to compete for this business, eventually causing the
demise of personal transportation by rail. The railroad companies saw themselves as
being in the "railroad business." They failed to recognize that they were actually in the
"transportation business." Today, we might be flying the B&O or the Union Pacific
Airline if the railroads had adopted this new technology instead of ignoring it.
       We are now at a similar crossroads in the payments world. Your payment center
can continue to be merely a paper processing department. Or you can embrace
payments of all kinds, including electronic payments, which are not the competition, nor
are they irrelevant. The Internet is not a flash-in-thepan phenomenon. It is a juggernaut,
and an incredible opportunity for payment centers.
        Perhaps the biggest potential that the Internet holds is in the area of electronic
commerce, specifically electronic payment. "If payment centers view the Internet as a
threat, they are missing the boat," said Bob Weirauch, president of Wausau Financial
Systems, a supplier of payment processing solutions. "If they see the vast opportunity,
they will begin the process of building delivery systems early on."
       Although the prevailing payment instrument today remains the paper check,
within the next decade electronic payments will surely be at least as prominent as
paperand perhaps even more important.
         Today, there are many forms of electronic payments, but those completed over
the Internet will provide the most convenience to the consumer, while requiring the
least labor and delivering the lowest error rate to your payment center. The
introduction of electronic bill delivery (EBD, along with the associated e-payment,
allows the payment center to convert labor-intensive paper payments and `check-and-
list' to error- and labor-free electronic payments.
        In EBD, bills that would normally be printed and mailed are sent via e-mail or
posted onto a Web site for viewing and paying. The entire experience for the customer
is electronic. An electronic payment is conveniently made by merely clicking on a Pay
button on the screen.
       The e-payment returned to your payment center is always accompanied with the
proper customer account and payment information. Thus, customers receiving e-bills
are eliminated from check-and-list and exception handling. In fact, check-and-list
customers are the most likely candidates for early adoption of EBD.
        You should encourage the shift from paper to electronic billing and payment.
Paper payments that become electronic are processed at a much lower labor cost and at
a significantly lower error rate. EBD can bring even more value to your organization as a
whole because it can drive the customer to your organization's Web site, where you can
cross-sell additional products and services.
         Is your payment center the proper location in the company for EBD? It would
seem so. Since EBD can be viewed as a front-end to electronic payments (for each bill,
there is an associated payment), you can drive electronic payments using electronic
       It is beyond the scope of this article to fully analyze the EBD application, but you
may want to consider these questions before deciding on a strategy for your
Should the bill be delivered using e-mail or be posted on a Web site?
How important is the ease of interface to the biller's legacy billing system?
Should you own the system or use an outsourcer?
Should the bill and payment data be warehoused at a third-party site or at your
payment center?
What kind of interactivity with your customer is desired?
What kind of advertising and demographics are desired?
What efforts and materials will be needed to drive customer adoption of e-billing?
        Strong adoption of EBD will most certainly occur during the next decade. The
Internet is gaining momentum with consumers and businesses alike, and accessibility to
it is becoming increasingly easier. In 1993, less than 1 in 100 PC users were online. In
the ensuing years, growth in Internet usage has been phenomenal. By the year 2002, it
is estimated by Jupiter Communications that over 180 million people in North America
will be using the Internet, a growth rate of 420 percent during the six years from 1996
through 2002 (see Figure 1). This audience of connected users is the perfect recipient of
online billing and payments.
        The Internet is being used for a broad range of personal and work-related
activities, including receiving and sending e-mail, and conducting research. According to
a report by Forrester Research of Cambridge, Mass., in the past five years the number of
people in the United States using e-mail has increased from 2 percent of the population
to IS percent-a total of 40 million users. That number is expected to reach 135 million
by 2001.
       In 1998, only about 425 million bills will be paid electronically, but over the next
four years this volume is expected to increase eight-fold, according to The Tower Group
(see Figure 2).
       It is not just the young, PC-aware customers who will be the potential target
market for electronic payments and other electronic commerce. According to a twopart
study by Charles Schwab & Co. and SeniorNet, performed 34 months apart, senior
citizens are the fastest-growing group on the Internet. According to the study, 40
percent of seniors reported having a personal computer at home in 1997, compared to
29 percent in 1995. Even more revealing is that in 1995, just 17 percent of seniors
reported regular use of an online service, and only about 10 percent said they had
accessed the Internet sometime in the past month. Thirty-four months later, 70 percent
of senior computer owners reported being able to access the Internet from home, and
nearly 80 percent said they have accessed the Internet in the past month.
       These very encouraging statistics point to rapid adoption of the Internet for bill
delivery and payment, not just by the young, but by potential customers of all ages.
       Your operation can become the local settlement center in your organization for
payments of all kinds, not just paper. The sources of payments can be from other paper
remittance centers, check and list payments from PC-based payment servicers, point-
ofsale payments, credit card payments, direct debits (automatic payments) and other
electronic payments.
       With the advent of EBD, a new form of electronic payment from Internet
consolidators will enter the mix using Interactive Financial Exchange (IFX). IFX is an
emerging transmission standard being developed as a combined effort of NACHA and
BITS, the Banking Industry Technology Secretariat. Other forms of electronic payments
are alsc developing, such as smart cards and payments from Internet commerce.
Settling all of these payments will provide a single upload to the legacy system that
balances with bank deposits.
       If your payment center is run by a bank, the value of offering electronic bill
delivery and payment services is even more strategic. If you are not prepared for
electronic payments, your revenue will be irretrievably reduced as electronic payments
become more prevalent. Only by controlling and offering electronic billing and payment
services can the payment center continue to keep its clients and its business.
        The returns are significant. By controlling this service, the bank builds its
commercial relationships, controls the fee structure, controls the ACH origination for its
clients and enhances its retail relationships. "My belief is that banks need to be the
aggregators, not MSFDC [TransPoint] or the telcos," said Gary Meshell of Benton
International in a recent article in American Banker.
       Joseph S. Pendleton, a former bank executive with CoreStates Financial Corp.,
also warned recently in Home Banking and Financial Sen,ices, "There is a significant
threat because if you have the scenario where someone like CheckFree or MSFDC
[TransPoint] has a direct relationship with a biller, the processor could establish a
preferred relationship with a financial institution ... and the bank would lose that
relationship with the biller."
       The Internet can represent either a struggle for your payment center or a new
opportunity to deliver value to your organization. The rewards stand to be great if you
combine your expertise in payments and settlement with emerging electronic payment
mechanisms. You can offer innovative and profitable solutions to a new set of problems
facing all companies-the assimilation of payments from the Internet. E
David R. Lamm
President and CEO
TriSense Software, Ltd.
       David R. Lamm is Founder, President and Chief Executive Officer of TriSense
Software, Ltd., a Minneapolis-based financial systems software company and maker of
the PaySense electronic bill presentment and payment solution. He has overall
management responsibility for all aspects of the company, including strategic direction.
       Lamm has more than 25 years of seniorlevel experience in the areas of financial
systems, product management and marketing, including in-depth expertise in the
banking industry. His unique skills involve the ability to take a product from the idea
stage to practical functionality, including design, problem solving, implementation and
market development.
       Prior to forming TriSense in 1996, Lamm established Document Solutions Inc., a
Birmingham, AL-based company that pioneered check and statement imaging for the
banking industry. Lamm and his partner sold Document Solutions to BISYS, a major
bank service company, in 1995. That year, Document Solutions was an $18 million
company serving 300 bank clients. He continued to serve as a support and development
consultant to BISYS until he formed TriSense.
       Lamm also developed two Minneapolisbased start-up companies. In 1978, he
founded Concepts in Software, a consulting firm for banking, financial applications and
operating systems. Compus, founded in 1971, developed compilers and operating
system software for mini-computers.
He received a bachelor's degree in theoretical mechanics from the Illinois Institute of
Technology in Chicago and has completed two years of graduate degree work.

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