Electronic Payment Systems 20 763 Lecture 14 Electronic

Electronic Payment Systems 20 -763 Lecture 14 Electronic Invoice Presentment and Payment

Outline • Electronic invoice presentment and payment (EIPP) • Presentment: displaying notification of debt with details • Also Electronic Bill P&P (EBPP) • Electronic Statement Delivery (ESD) • B 2 C v. B 2 B • Service providers • Bill consolidators • System Architecture • Future of e. Payments 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

What is EIPP? • Statements or bills rendered on Web (1) • Multiple bills consolidated at one site (2) • Customers visit the site to view bills (3) • Customers review bills, schedule payments (4) • Remittance information returned to biller (5) • Payments routed from customer's bank to biller’s account (6) SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 • Mellon demo (password: “solutions”), Whitney • Moore demo, Pay. Net demo, Check. Free demo, Pay. Trust, Santa Clara 99999, 1234 • Other providers: – Logica, Netscape, Trans. Point • Hong Kong: Jetco 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 SOURCE: EBILLING. ORG COPYRIGHT © 2004 MICHAEL I. SHAMOS

Electronic Invoice Presentment Participants Billers B B Biller Service Providers BSP HOSTING Consolidator CSP HOSTING Customer Service Providers Customers C C C BILLER DIRECT C Distribution Options SOURCE: APACS

EIPP SWIFTBILL DEMO SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 Pay. Net, Metavante Check. Free Paytrust 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Bill Consolidation Biller 1. BILLERS SEND BILLS TO CONSOLIDATOR Biller 5. BANK PAYS BILLERS 2. CONSOLIDATOR ADVISES CUSTOMER OF BILLS Customer’s Bank Aggregator Customer 4. CONSOLIDATOR DIRECTS BANK TO PAY 3. CUSTOMER VIEWS BILLS, AUTHORIZES PAYMENT 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Invoice Generation Convert Legacy XSL Stylesheets MIME • HTML • OFX • Excel XML Render S/MIME Secure SMTP Submit Modern User Input Demographic Info X. 509 Certificates Tracking Delivery Info Account Management SOURCE: STEVE KILLE 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Invoice Delivery Architecture Delivered Statement Raw Statements Statement Generation Secure Email Distribution & Tracking STATEMENT 000. 00 ===== 000. 00 Archive Administration Account Management Actions 20 -763 ELECTRONIC PAYMENT SYSTEMS URLs (web links) Action/Payment Manager SOURCE: STEVE KILLE SPRING 2004 COPYRIGHT © 2004 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. Accounts Payable 20 -763 ELECTRONIC PAYMENT SYSTEMS Sales Dept. AOP, Payment Invoice No. Payment No. SPRING 2004 SOURCE: COMMERCENET Accounts Receivable COPYRIGHT © 2004 MICHAEL I. SHAMOS

Bill Miner Architecture 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS SOURCE: LOGNET

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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

ILLUMINATED STATEMENT SOURCE: ENCIRQ 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

EIPP Projections 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

SOURCE: KILLEN & ASSOCIATES 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Ubiquitous Computing • • • Limitations on processor speed/size Solution: more processors Computers in walls, desks, cars Seamless movement of money Will money exist in several forms? – Accounts, e-scrip, cash, e-cash? • PDAs 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 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 SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Q&A 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Bill. Cast Architecture OFX = OPEN FINANCIAL EXCHANGE (XML STANDARD) 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS SOURCE: AVOLENT

Bill. Cast Internal Structure VRU = VOICE RESPONSE UNIT SOURCE: AVOLENT 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS

Bill. Cast Payment Model 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS SOURCE: AVOLENT

Bill. Cast Bill Distribution IFX = INTERACTIVE FINANCIAL EXCHANGE OFX = OPEN FINANCIAL EXCHANGE 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS SOURCE: AVOLENT

Bill. Cast Thin Consolidator Model 20 -763 ELECTRONIC PAYMENT SYSTEMS SPRING 2004 COPYRIGHT © 2004 MICHAEL I. SHAMOS SOURCE: AVOLENT