Electronic Payment Systems 20 763 Lecture 14 Electronic

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

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 $20 -35 billion per year – Postage costs $17 billion • Pay. Net demo, check. Free demo, i. Bill on-line checks demo • Example providers: – Blue. Gill, Logica, Netscape, Pay. Net, Trans. Point • Key for customer retention (convenience) 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 SOURCE: EBILLING. ORG FALL 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

EIPP SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Thick versus Thin Consolidators Biller #1 Billing Appl. Bill Data Biller #2 Billing Appl. Bill Data Consolidator’s Web Page Biller #1 Billing Appl. 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

EIPP Projections 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

SOURCE: KILLEN & ASSOCIATES 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Data Management • Extracting data from legacy systems – Various vendor tools can assist – Can be a significant work set – Account for on-going billing data stream changes • Integrating remittance and payment data into the A/R system – Will create additional payment streams SOURCE: VALERIE KRAMER, PNCBANK 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Financial Aggregation • Idea: allow access to all assets through a single portal SOURCE: VERTICAL ONE 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Financial Aggregation Issues • Account consolidation – Different accounts in one bank – Different accounts in different banks – Combine brokerage, insurance with banking • Web Bill. Pay – Requires registration of vendors • EIPP

Mobile Aggregators SEE ALSO YODELEE 2 GO 20 -763 ELECTRONIC PAYMENT SYSTEMS WIRELESS BANKING: EDS FALL 2001 SOURCE: VERTICAL ONE COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Micropayments • Transaction cost vs. transaction value • Rivest prediction: method of choice for purchase of information over the Internet • Aggregation • 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 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 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS

Q&A 20 -763 ELECTRONIC PAYMENT SYSTEMS FALL 2001 COPYRIGHT © 2001 MICHAEL I. SHAMOS