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Smart Money and Smart MeteringVersion 2.0
New technologies alter the payment
landscape in the Utilities market
This paper examines the dramatic impact that the technological developments
of Electronic Bill Presentment and Payment (EBPP), coupled with the increasing
use of mobiles and the introduction of Smart Metering, are set to have on the
Utilities market. Utility Providers are increasingly moving to Smart Money
Collection to bring the benefits of Smart Metering to the consumer and
remain in front of the changing market.
1. The Utilities Industry at the crossroads
2. What should utility companies be doing today?
3. How Utilities can move to achieve Smart Money Collection
4. New technologies set to fast-track epayments for utilities in 2011
5. BillingTree: a leader in EBPP solutions
“Billing is a hugely expensive process within a utility and billing systems cost an
incredible amount of money to replace. The introduction of smart meters places an
enormous amount of pressure on the technology that underpins a utility‟s meter-to-
cash value chain and will force utilities to replace their legacy billing systems.” –
Datamonitor, „Customer Satisfaction, Smart Meters and the Utility Billing Process‟,
April 2010
“The utilities market is one that is not yet fully recognizing the latest advancements
in electronic bill payments processing, but one that will become increasingly under
consumer pressure to offer customers epayment facilities. Supporting mobile text
payments and mobile pre-funding provides a convenient option for utilities to
quickly begin supporting consumers on-the-go. Billers can leverage this technology
to reduce costs associated with consumer contact, including time sensitive notices
and recurring check reminders, as well as the expense of traditional paper billing.”
Scott McCollum, President of BillingTree
Section 1 – The Utilities Industry at the crossroads
The Change
The twin need to reduce costs and at the same time become more environmentally
responsible is driving change in all industries.
Electronic Bill Presentment and Payment (EBPP) came
into the equation almost ten years ago as a means of
revolutionizing payment processes. Adoption has
recently begun to surge, driven significantly by the
Gen Yers – loosely defined as those consumers born
after 1980. The tech-savvy 'Generation Y' group of
homeowners are already used to ebilling and
epayments for Internet and cell phone use, and are
happy to pay for power and water in the same way.
In the utilities market we have an additional driver to
EBPP: Smart Metering is taking off, with deployment
figures increasing daily. This means that utility
providers have the added challenge of having to
manage the increased amount of data available
through this new technology.
The recent Datamonitor report identifies an imminent problem for utility companies:
“Billing is a hugely expensive process within a utility and billing systems cost an
incredible amount of money to replace. The introduction of smart meters places an
enormous amount of pressure on the technology that underpins a utility‟s meter-to-
cash value chain and will force utilities to replace their legacy billing systems.” –
Datamonitor, „Customer Satisfaction, Smart Meters and the Utility Billing Process‟,
April 2010
The evolution of EBPP and the addition of Smart Metering is driving a shift inside
utility providers to Smart Money Collection and we are seeing a significant change in
the requirements of ebilling and payment solutions within utility companies.
Developments driving change
The shift in how consumers view and pay their bills has been significant in the last
five years.
Federal Reserve figures show that there were 30.6 billion transactions via check in
2006 – which represents 33 percent of non-cash payments – to the value of $24.9
trillion.
Around half of all households in the US will use EBPP for some transactions, with Gen
Yers driving the take-up (Forrester EBPP forecast).
69 percent of US consumers view their bills online – with six million
households set to adopt by 2013
62 percent of US consumers pay their bills online – with seven million more
households predicted to register by 20131
A recent report from the AITE Group predicts that bills paid online will increase
by 18 percent between 2010 and 2013, but even more staggering, the number
of bills paid with a mobile device is set to grow by a huge 377 percent across
the same period.
Electronic payments now comprise two-thirds of all non-cash payments (Fed
Res Payments Study), with Debit Card payments up 17.5 percent and
Automated Clearing House (electronic checks) payments up 18.6 percent.
There were 85 billion electronic payments in 2009.
Developments driving change: the drive to customer service
Just as significantly, the internal shift in focus towards customer service has required
a change in operational processes. The time and costs associated with managing
paper-based payments need to be reduced to enable those same employees to
spend more time delivering the customer experience and differentiating the
organization in the face of increased competition.
1 Javelin Strategy and Research
Developments driving change: Saturday mail and the Credit CARD Act
Nationwide changes in other industries will also impact on the billing cycles of utility
companies. The proposed abolition of Saturday mail in 2011 would reduce the billing
cycle for paper-based bill presentation and payment by a further 52 collection days
per year. The lengthy – and increasing – Days Sales Outstanding decreases cash-flow
and increases risk for utility providers, who must find a way to stabilize their
finances.
Similarly, the Credit CARD Act is having an effect on the way that consumers choose
to make payments. An increased confidence in using credit cards will see more of
them used to pay bills – much of which can be done online. Along with more diversity
in payment types will come changing preferences for alternative payment channels,
as EBPP grows. There are different profiles for bill payers, many of which will
demand, or at least benefit from, more flexible means of bill presentation and
payment.
Developments driving change: Smart Meters
Smart Meters are on their way to becoming the norm within the next 10 years. The
projections are for 60 million to be in place by 2020 (The Edison Foundation) – which
is equivalent to half of US households. Currently six percent of meters are Smart
Meters, but legislation that has committed $3.4 billion in grants to deploy more will
help to boost that figure. The amount of information that will be collected – and
therefore sent to the customer – as a result of smart-metering will be far higher in
volume and cost, if it‟s not done electronically.
Smart Meters will play an important role in driving Bill Payment and Processing for
utility companies online.
Developments driving change: mobility
Another development driving change is that of the growth of mobile payments. SMS
text is not just for payment reminders and payment authorization; for utilities, it
provides an opportunity to communicate with customers about any upcoming issues
that they need to be aware of – helpful information on planned power cuts or
possible power outages due to maintenance work is easily and conveniently sent via
SMS, and would be happily received by the customer who can then plan their
activities and energy usage accordingly. SMS provides a convenient and quick way for
customers to pay their outstanding bills.
Developments driving change: going green
All of these changes in regulations and consumer payment preferences are all set
against the backdrop of individuals looking to be more environmentally friendly – so
any changes that utility providers can make to boost their green credentials will give
them greater credibility with their customers. The potential environmental impact is
significant. If 20 percent of American households switch to EBPP, two million trees,
151 million pounds of paper and 100 million gallons of gas will be saved every year2.
2 NACHA PayItGreen Coalition
Section 2 – What should utility companies be doing today?
Utility companies currently spend at least $5 per customer, per year just handling
paper bills and statements – that is not inclusive of the cost of actually producing the
bills, stationery, equipment and maintenance.
Organizations can save 60-90 percent of these paper, processing and postage costs
by going electronic – which is significant enough on its own. However, there are key
business benefits, such as a reduction in Days Sales Outstanding by anywhere from
30 to 70 percent.
With increased cash-flow, decreased risk, lower costs and more employee availability
for customer service, utility companies can experience an enterprise-wide
transformation of profitability and efficiency through the effective deployment of
EBPP. Select utility companies are already taking steps to harness this shift, with
every one that serves over one million customers offering EBPP – although take-up
has been slow in comparison to other markets so far.
Where are we right now in the change?
Utilipoint research tells us that over 50 percent of utility providers already offer EBPP,
though the trend is that the larger the customer base, the more likely the provider is
to offer it. While every organization with more than one million customers offers
EBPP, that number drops to 81 percent when the threshold is lowered to utility
providers serving 100,000+ customers.
The majority of those utilities offering EBPP have not surpassed 6 percent penetration
into their customer base – only 20 percent of those companies have exceeded 10
percent uptake.
Billing is also mainly done on paper – 65 percent for Electricity providers, 68
percent for Gas and 76 percent for Water3.
The catalyst – 60 million Smart Meters by 2020
There are currently eight
million smart grids
deployed in the US (Parks
Associates). Companies
like SoCal Edison and
PG&E are increasing that
number every day. Over
six percent of American
meters are Smart Meters.
The projections are for
there to be 60 million by
2020 (The Edison
Foundation). This is the
catalyst driving EBPP in the utilities market, as one of the most traditionally viewed
industries in the country makes the shift to become more digitized – its billing and
payment processes should follow.
Another catalyst is that of the dramatic surge in the use of mobile phones for bill
payment. With growth in the number of bills paid with a mobile device predicted at
377 percent between 2010 and 2013, it is clear that utilities need to embrace EBPP
and mobile solutions in order to give customer the option to pay however they wish.
How can EBPP be made most simple for a utility company?
EBPP requires the integration of a number of different systems to ensure that bill
presentation is accurate and payment is efficiently processed. As many utilities will
be proprietary in their systems architecture, it is important that any EBPP system's
implementation is flexible enough to fit in with both utility providers‟ existing
environments and customer expectations – including across multiple channels.
To make the deployment both effective and cost-efficient, new roll-outs should be
able to maximize any existing systems. For example, using a central gateway portal
can provide an interface between external payment channels and existing billing and
payment solutions.
3 NACHA PayItGreen coalition, 2010
When I deploy Smart Meters, how will I manage the extra information?
A new data storage system may be needed, but certainly the database needs to be
made highly accessible – for both customer and for billing transparency.
The additional information has to be shared with the customer – for legal as well as
service reasons – so being able to give them visibility of it is critical. A database
stored in the cloud, which can be securely updated and accessed by the customer
and the billing systems, provides a very simple way for integrating Smart Metering
information into today‟s processes.
How can I ensure maximum consumer buy-in for these new initiatives?
Without consumer buy-in however, these initiatives will not see the light of day.
Consumers must see the benefits to them of using EBPP systems – and be
encouraged to do so.
Too many businesses have seen backlash for trying to charge consumers for paper
bills that unless you have an entrenched customer base, it‟s a risky move. T-Mobile
for example met with consumer resentment when in 2009 it started to charge $1.50
to customers requesting a paper bill – on top of an existing $2.00 surcharge for an
itemized bill.
However, the flexibility that EBPP
affords the whole billing process
means that a system can be
more tailor-made to a
customer‟s individual
requirements. A customer should
find that an electronic method is,
in fact, more convenient, more
interactive or more
accommodating than paper-
based options.
The secret behind ensuring that these benefits are identified is clear
communication and education, and if needs be, incentivize the take-up of
EBPP, not penalize the paper tiger!
Section 3 - How Utilities can move to achieve Smart Money
Collection
The average Days Sales Outstanding for utilities customers still receiving paper bills
is 45 days. EBPP can reduce the DSO cycle by as much as 70 percent.
The chart below shows the time to pay for the EBPP customers of a major utility
company. Almost all payments are made within 30 days – rather than an average
completion of 45 days – which significantly enhances the cash flow of a utility
provider.
For utility organizations servicing half a million households, these are some cost
saving forecast scenarios after implementing or increasing use of EBPP:
Achieving an EBPP uptake of 20 percent (100k customers):
- $0.5million saving per year in processing costs
- 3.8 million days saved from DSO cycle
Achieving an EBPP uptake of 40 percent (200k customers):
- $1million saving per year in processing costs
- 7.6 million days saved from DSO cycle
Achieving an EBPP uptake of 60 percent (300k customers):
- $1.5 million saving per year in processing costs
- 11.4 million days saved from DSO cycle
An additional benefit in all of these scenarios is the increased customer satisfaction
and resulting customer loyalty resulting from a billing and payments system tailored
to their needs.
What technology will help ease the transformation?
Any billing and payment solution that can ease the transition into an electronic
strategy must involve integration of existing systems – because the utility industry
uses a mix of proprietary solutions – have the flexibility to be a premise-based or
virtual deployment, and contain customizable features to appeal to all customers.
The payment process is complex. A centralized payments
gateway is a critical tool for any organization with an
existing investment in other systems, or silos of
information that need to be accessed in an EBPP strategy. A
system that can sit in the middle of these processes,
linking together any number of IVR (self-service), web
payment, telephone payment and check conversion
solutions ensures a single electronic payment processing
strategy, across the multiple touch points required by
customers.
Add to this a drive in mobile payments, and utilities have
yet another channel through which to communicate with
customers effectively. Utility companies need to integrate
mobile channels into existing processes so to ease this
process even more.
The flexibility of deployment of any new system is
essential to its success. One that‟s deployed via a SaaS
method will enhance the integration with other enterprise billing and payment
systems – especially if they‟re based across multiple locations.
More consumers are now willing to use Automated Clearing House (ACH) systems for
their payments. It constitutes a compromise of sorts between the traditional
preference for paying via check and the new desire to move to electronic payments.
The automation of checking – turning it into an electronic payment method – is both
customer and enterprise-friendly.
Whatever the measures being deployed, ensuring that the protocols are in place
within the technology to customize the systems – at least at the interface level – to fit
in with customer preferences, is an important stipulation for consumer buy-in.
Section 4 –Mobile solutions – Text and Pre-funding set to fast-
track electronic billing and payments for utilities
Two key developments, pre-funded accounts and mobile payment solutions
including SMS text billing, payments and notifications – already being deployed in
other markets – are set to drive the adoption of epayments in the utilities market,
bringing both financial and customer service benefits to utilities.
2011 will see utilities
reaping the benefits of
such an increase by
integrating innovative
ways of applying the
Internet and mobile
phones to provide
customers with more
convenient, flexible and
timely ways to make
payments.
Many service providers
– Internet, phone and financial services – are already realizing the benefits of
engaging with their customers through new channels such as SMS text integrated
into their customer service operations, but many utility companies have yet to deploy
similar communications tactics. Yet prepaying for services such as electric and water
can make controlling finances much easier, while providing a risk resistant
alternative for those providing the services.
In the context of a distinct increase in Smart Meter deployment, it is clear that
utilities need to start preparing themselves to be able to deal with these new
technologies as more data will be on hand to distribute effectively.
Mobile payments a key driver
With such an increase in mobile billing forecast, utilities should not ignore this
rapidly emerging channel to use toward their advantage. SMS text can be used in a
variety of different ways, such as to send timely payment reminders to encourage
customers to pay on time; to send immediate confirmations to let customers know
that their payments have been received; to get instant traction with delinquent
customers by sending shut-off avoidance messages to inform customers when their
payments are critically overdue; and to send payment authorization
messages in order to process a bill payment.
The use of SMS text also transfers these benefits directly on to the customer,
enabling them to pay bills quicker and more conveniently, at a time that best suits
their needs. Utilities can also reap multiple benefits across other communication
channels – the use of SMS text helps to alleviate pressure on inbound call queues and
consequently reduces waiting times for customers, which in turn enhances the
customer‟s experience.
Added benefits of SMS text
Utilities can go one step further in using SMS text to their full advantage. By using it
to communicate with customers about any upcoming issues that they need to be
aware of, customers can receive helpful information on planned brown outs or
possible power outages due to
maintenance work easily and
conveniently. Such information
would be happily received by
the customer, who can then
plan their activities and energy
usage accordingly.
Pre-paying for services
enhances customer service and
drives loyalty
The other major driver in 2011
will be the rise in the use of
pre-funded accounts, which
offer another option for making payments easier, and reduce the element of risk for
utilities. Pre-funded accounts may be managed via a mobile device further
entrenching the smart phone as a driving force in the future of service based billing.
Prepayment for services has gained significant acceptance in the US led by the cell
phone industry, where a report from IDC indicated 65 percent of new customers in
Q4 of 2009 opted for prepay service plans. The same economic factors driving the
shift in cell phone plans has impacted prepayment demand for other services that
traditionally rely on short term credit or deposits. Utilities can consequently reduce
the risk of an unpaid bill by introducing pre-funded accounts for particular
customers who they have identified as being unlikely to be able to pay on the spot.
Customers can draw down funds allocated for a specific service, thereby minimizing
risk for the utility company, while also eliminating the need for upfront deposits,
which are largely unpopular with new account holders or the un-creditworthy in
particular.
The billing and payment landscape is constantly evolving, with customers today
demanding more alternatives to manage corporate and household budgets, and
seeking rewards for being customers in good standing. Pre-funded accounts enable
utilities to offer loyalty programs to customers: they are capable of improving their
prepaid payment adoption through customer rewards for example for maintaining
positive balances, opting for paperless billing or setting up recurring account top
offs and bill payments online.
Utilities already adopting mobile payments
One company already reaping these benefits is Tennessee-based Pulaski Electric
System, which has integrated the BillingTree mobile payments suite into its existing
collections processes. The energy company services 15,000 electric customers in
Giles County in the State of Tennessee, and has always been at the forefront of
energy supply. It launched its state-of-the-art 100 percent fiber-optic network
known as Energize in early 2007, and continues to offer its "triple play" of video,
voice and data services to a growing number of residents and businesses across the
county.
“Initially, I expected the 20-30 age group to sign
up for the mobile program, but we had customers
well into their 50s and 60s signing up as well. It
has been very well received by our customers. We
publicized it through the radio and of our walk-
ins the day of the launch, 30 percent of customers
signed up.
- Daryl Williamson, Vice President of Customer Support at Pulaski Electric Systems.
At Pulaski, we provide every avenue possible for the customer to take care of
business with 15 percent of customers accepting bill notifications via the web and 10
percent of them paying online. We anticipate similar results through the text
program.”
The use of SMS text has also been shown to be extremely effective in utility
companies across Europe, with many already using SMS text to their advantage.
Companies including E.on, the world's largest investor-owned power and gas
company, has already leveraged the benefits of automated text notifications in order
to effectively communicate meaningful information with its end customers.
Judging by Europe's success in the use of SMS, this new channel has huge potential
to be a similar success in the US as more utility companies embrace it.
The future of EBPP
Utilities are realizing that by implementing new payment channels such as SMS text
and pre-funded accounts, customers have more flexibility in managing their
personal payment processes, and feel more in control of their payments.
Last year, BillingTree identified the utilities market as one not fully recognizing the
latest advancements in electronic bill payments processing, but one that would
become increasingly under consumer pressure to offer customers epayment
facilities. Supporting mobile SMS text payments and mobile pre-funding in a new
suite provides a convenient option for utilities to quickly begin supporting
consumers on-the-go. Billers can leverage this technology to reduce costs associated
with consumer contact, including time sensitive notices and recurring check
reminders, as well as the expense of traditional paper billing.
The rapid mainstream adoption of SMS text messaging and demand for increase
mobile commerce alternatives is shifting EBPP from what previously was almost
exclusively on the desktop to the hand-held device. The future of electronic
payments is expanding to also require optimized web-payment forms for use on
smart phones. The predicted growth in mobile payments is staggering, and the
technology is there now for utilities to implement new and innovative ways for
customers to pay their bills in order to maximize the likelihood of payment – on
time.
Section 5 – BillingTree: a leader in EBPP solutions
The proven leader in on-demand payment processing, BillingTree‟s solutions simplify
the billing and receivables process and make it as easy and inexpensive as possible
to accept payments. Its software-as-a-service (SaaS) model delivers industry-leading
payment solutions, proven integration, and point-and-click simplicity.
BillingTree pioneered the integrated approach to payment processing through a
seamless interface to software and telephony solutions that businesses use today.
What‟s important is that this approach doesn‟t require new software, hours of
training or lengthy implementation – the solution enables utility providers to focus
on providing their services.
BillingTree provides access to powerful payment gateways that cover every available
channel for accepting payment. Its product line simplifies the cumbersome process
of receiving and applying payments via an integrated approach that enhances
accounting, receivables, and billing software with payment-acceptance functionality.
The company has integrated a variety of payment solutions into its EBPP solution for
the utility market to provide a tailored industry solution. This integration means that
users are able to accept one time and recurring payments without leaving their native
business applications. In addition, transactions that are accepted through peripheral-
payment channels, such as website payments, IVR transactions, or check conversion,
can be automatically posted into the application. BillingTree's most recent addition to
its wide variety of payment solutions is its Mobile Solutions suite, with integrated
text payment facilities.
Paper check conversion and the resubmission of NSF check faces along with state
mandated bad check fees through RCK are technologies that BillingTree offers that
enable utility providers to better manage the payment process.
The BillingTree credit and ACH payment-processing gateways provide an electronic
payment-processing solution for corporate billing via the Automated Clearing House
(ACH) Network and major Credit Cards (Visa, MasterCard, American Express and
Discover). The Automated Clearing House (ACH) electronic payment network is often
used by individuals, businesses, financial institutions, and government organizations
because of its more efficient and lower cost cash management capabilities, compared
to Credit or traditional paper payments.
BillingTree's ACH-processing gateway creates a NACHA approved ACH-formatted file
of payment transactions generated by the payment-capture solution. The ACH-
formatted payment file is submitted to the ACH-Payment Processing Network for
electronic processing and results in cleared funds in as little as 24 hours.
Utilities can manage all of their Credit, ACH payments, Returns, and Corrections
through a single portal. They can integrate directly with their current software to
process in near real time or batch upload commonly formatted files (comma- or tab-
delimited) that contain transaction details – so employees don‟t have to key in every
single transaction manually.
Through its core solutions – BillingTree AgentBill; BillingTree OnlineBill Suite;
BillingTree ivrBill; BillingTree Deposit; BillingTree CheckCollect; and BillingTree
Collect – BillingTree offers a unique, customizable and fully integrated payment suite.
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About BillingTree
The proven leader in on-demand payment processing, BillingTree empowers customers with competitive
advantage through a simplification of the billing and receivables process. By delivering the most
innovative technology while making it as easy and inexpensive as possible to accept payments,
BillingTree has revolutionized the payments landscape. Its software-as-a-service (SaaS) model delivers
industry-leading payment solutions, proven integration, and point-and-click simplicity. BillingTree‟s
focus on innovation has allowed us to help more than 2,000 customers eliminate manual processes and
automate their payment cycles. BillingTree – Growth is our Business. For more information, visit
www.mybillingtree.com or call 877.4.BILLTREE.
Contact: Dave Yohe
Corporate Marketing
BillingTree
Tel: 602.443.5948
Claire Russell
PR for BillingTree
Tel: 561.228.1940
crussell@iba-
international.com