International Data Corporation (IDC) predicts that Electronic BilláPayment and Presentmentá(EBPP) market revenues will explode to $1 billion in 2004. In the last year, worldwide transaction-based revenues leapt 540% to $32 million, as more and more people pay their bills on-line.
"This is a market that is still in its infancy but it has the potential to blossom into a staggering opportunity", says Albert Pang, research manager for IDC's eCommerce software program. The banks are heeding this trend.
Corporations are seeking new ways to streamline their accounts receivable and payable, forcing banks to extend their cash management services to provide invoice presentment and payment systems over the internet. Most recently, banks have been looking to web-enable these capabilities to provide lower cost processing, greater format flexibility and real time processing.
In June 1999, Chase Manhattan, First Union and Wells Fargo teamed up with Sun Microsystems to form The Exchange, which provides the infrastructure necessary to connect billers and consumers online. While banks are just now wading into these waters, non-banks such as Yahoo! and Netscape have been offering solutions in EBPP in the business to consumer (B2C) market for sometime. But the business to business (B2B) market is new territory, where the land is up for grabs.
How Harley did it
Harley-Davidson Motor Company's Credit & Insurance subsidiary collects more than $2 billion a year
from 75 Harley-Davidson dealerships, and until recently, the company used the standard bank
lockbox arrangement. It worked, but it wasn't good enough for big companies such as Harley-Davidson. The cost of paper and postage itself was phenomenal, not to mention the cost of manual labor to input and clarify the invoices.
An internet-based solution beckoned. Harley-Davidson wantedáits money and the information in real time, and wanted to fast track its cash flow. That's when Bank of America stepped in. A file of the dealerÆs open invoices are sent to the bank, and immediately posted on a protected website. Dealers with access are able to view, pay or dispute any of the invoices on-line.
"We are providing a medium for information exchange and transfer of value between the client and their customers. The value is that client, in real time, is able to know what is paid and not," says Richard Jaggard, senior vice president of Bank of America in Hong Kong. On the other side, dealers need not write or mail any checks. The next day, the payment is directly debited from the dealer's account and credited to Harley's Bank of America account.
There are a few wrinkles. For example, a dealer cannot pay by instalments, or make part payments. Further, full integration with the dealer's ERP system is not yet possible. A confirmation of payment still has to be manually inputted to the accounts payable system.
Another challenge is for the bank to take it out of the US and implement it across the Asian region.áIt also remains to extend the service to smaller players.
"Smaller players are still using lockboxes," says Jaggard. "For them, we are not taking responsibility for invoicing and we are still manually collecting data. But as the web becomes a universal medium for exchanging information, only then will smaller players use the internet for EBPP.áThe question is: can we take what we have developed for the big end users, and find a low cost delivery system across the market that will match the open system that the internet is?
"A hiccup is that there is only a limited number of countries in Asia that will accept direct debit through their clearing system and under their guidelines," Jaggard continues. "But countries such as Hong Kong, Singapore and Australia will allow us to use a variety of systems that will be available over the internet to merchants to pay. Other countries are still intensely paper based, with complex tax systems which means that if you are going to collect funds you have to have a piece of paper."
Asian companies have made substantial investments in existing accounts payable and receivable systems. Banks, in turn, have invested heavily in paper processing systems and associated technologies. And neither is prepared to take the plunge into cyberspace without substantial commitment from the other. But as internet penetration in Asia rises, and the trend to outsource back office operations continue, many companies and their banks will be looking to follow in Harley's tracks.