Electronic Payment Systems 20 763 Lecture 10 Electronic

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

Outline • Electronic bill (invoice) presentment and payment EBPP (EIPP) • Presentment: displaying notification of debt with details • Service providers • Bill consolidators • System Architecture • Future of e. Payments 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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, Pay. Net demo, Check. Free demo, First. Union, Pay. Trust • Santa Clara 99999, 1234 • Other providers: – Logica, Netscape, Trans. Point • Hong Kong: Jetco • Key for customer retention (convenience) 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Savings on $100 Billed Electronically AMOUNT SAVED • • 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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 SOURCE: EBILLING. ORG COPYRIGHT © 2002 MICHAEL I. SHAMOS

EIPP SWIFTBILL DEMO SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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) Check. Free, Transpoint Blue. Gill Paytrust 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Thick versus Thin Consolidators Biller #1 Billing Appl. Bill Data Biller #2 Billing Appl. Bill Data Biller #1 Billing Appl. Consolidator’s Web Page Biller #1’s Web Page Thick data consolidated Summary Data Consolidator’s Web Page URL link for detail Thin - links to Biller’s site SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

EIPP Issues • • Retain familiar bill format Information extraction Bill presentation Personalization – understanding customer bill review and payment habits • Settlement mechanism 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

The e-Billing Process Bill Extraction & Conversion Ø Ø Connect to biller legacy systems Extract bill data Convert to Web output formats Integrate with third party systems and databases Internet Bill Presentation Ø Provide access to bills on biller’s Web site Internet Bill Payment Ø Facilitate credit card and direct debit payments Internet Customer Care Ø Provide access to bills on consolidator Web sites Ø Process payments and post to customer and biller accounts Ø Provide customer account management Ø Facilitate 1: 1 marketing and e-commerce programs Ø Integrate bill analysis tools and applications SOURCE: LOGNET 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Bill. Miner Architecture Management System* User Enrollment System Customer Query System Consolidator System Legacy System Biller Application Data Conversion Stream Module Semantic Analyzer Bill Database End -User Presentation Engine Internet Auditing & Licensing Bill. Miner System Advanced Features Module Payment System Accounts Receivable System SOURCE: LOGNET 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Integrating Payments with Upstream Processes Buyer Seller Purch Order PO No. Purchasing Dept. Receiving Dept. Ship & Invoice Shipping & Invoicing Dept. PO No. Invoice No. AOP, Payment Accounts Payable 20 -763 ELECTRONIC PAYMENT SYSTEMS Sales Dept. Invoice No. Payment No. FALL 2002 SOURCE: COMMERCENET Accounts Receivable COPYRIGHT © 2002 MICHAEL I. SHAMOS

EIPP Projections 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

SOURCE: KILLEN & ASSOCIATES 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

ILLUMINATED STATEMENT SOURCE: ENCIRQ 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Encirq Preference Model SOURCE: ENCIRQ 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Paytrust • Consumer bills sent to Paytrust • Bills are scanned and presented to customer 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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） Corporate Customers （企业客户） § Fixed Deposit Statements （定期存款对帐单） Consumers （私人客户） § Loan Accounts （贷款对帐单） § Credit Card Bills Merchants （贸易商） （信用卡对帐单） § Merchant Statements （贸易商对帐单） Branch Managers （分公司经理） § Mutual Fund Statements （共有基金对帐单） § Securities Statements Management （管理层） （债券对帐单） § Branch Reports （分公司报告） § Statutory Reports 20 -763 ELECTRONIC PAYMENT SYSTEMS （法定报告） FALL 2002 SOURCE: CHECKFREE Regulators （法定管理者） COPYRIGHT © 2002 MICHAEL I. SHAMOS

Tradelink’s E-Commerce Flow Air Terminals ECIC Insurers US Customs Govt Depts Banks Tradelink & Partners Establish Market Channel -Info Services Negotiate Contract Prepare Products Comply with Regulations Arrange Logistics -Export Credit Insurance Declaration -Production -Carrier Notification -Certificate of Origin -Quotation# -Purchase Order# -Outward Processing -Shipping Order* -Dutiable Commodity Arrangements** -Packing List# Permit* -Cross Border -Bill of Lading / -Manifest* Documentation** Forwarder Cargo -TTRS Notification* Receipt** -Manufacturer’s Declaration** Settle Payment -Textile Quota Licenses -Electronic Visa Copy -Trade Declaration -Commercial Invoice# -Packing List# -Insurance Certificate# -Proof of Delivery# Trade Card / CIECC / Pan-Asia E-Commerce Alliance / Ports. NPortals Overseas Buyers Sellers HK Traders China Traders & Manufacturers 20 -763 ELECTRONIC PAYMENT SYSTEMS * Confirmed development Container Terminals Carriers Forwarders 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS schedule. FALL (with Government / other service providers) ** Under scoping / consideration # Trade. Card Services SOURCE: TRADELINK

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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? 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Future of Electronic Payments

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. ) 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

e. Cash • 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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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? 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 reach 1 cent – Aggregate pennies until they reach dollars, etc. • Alternative economic models – Subscriptions, taxes 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Microcredit • Small loans in underdeveloped nations (e. g. < $50) • Commercial banks unable to serve the needs of lowincome households and microenterprise • Cost of granting credit, servicing loan. Low return. • Apply micropayment principles to microcredit – Hierarchical aggregation 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

International Aspects • Currency conversion • Controlled currencies • Banking laws • Alternative monetary systems • Credit cards, checking: minor importance • Availability of credit: major importance 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

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 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS

Q&A 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2002 COPYRIGHT © 2002 MICHAEL I. SHAMOS