What's New in Cybertalk?

by Jean Gora
May 1999

Note: CyberTalk is a column that appears monthly in LOMA's Resource, the magazine for insurance and financial services management. To see more contents of the magazine and to see how to subscribe, click on
RESOURCE MAGAZINE.

A Lack of Presentment

An examination of the Internet sites of the 20 leading U.S. life insurance companies shows that not a single one of the sites offers electronic bill presentment. Electronic bill presentment delivers a customer’s bill to the customer over the Internet and allows the customer to initiate payment over the Internet. One reason may be that the tools for electronic bill presentment are only now beginning to reach the market. Another reason may be that some companies are unfamiliar with the issues involved.

For an insurance company, the best way to receive recurring premium payments from customers is through an automatic draft. The customer agrees to have the insurer debit the customer’s account every month for the premium amount. Because the drafts are automatic, the customer is not presented with the decision of whether or not to pay. For the customer, automatic drafting saves the time and costs associated with writing checks and mailing them back to the company. Thus, automatic drafting arrangements work to the customer’s interest as well as that of the company.

For an assortment of reasons, some people do not enter automatic draft agreements. For these people, the insurer must generate and mail bills and collect and process incoming payments, crediting the correct payment to the correct customer account. Some insurers use bank lock box services in order to ensure that they receive credit for the incoming checks as rapidly as possible.

A Cheaper Method

Electronic bill presentment offers a significantly cheaper way of collecting recurring payments not covered by automatic draft agreements. A study by the Gartner Group has estimated that the cost associated with electronic bill presentment would be 69 percent of the cost of doing so through a traditional billing system. Thus, the cost advantage of electronic bill presentment to an insurer appears significant.

Several electronic bill presentment pilot projects are now occurring with insurance company participation. The CUNA Mutual Group and Prudential Securities participate in CheckFree’s E-Bill pilot. GE Capital and the Hartford Financial Services Group participate in the TransPoint E-Bill project. TransPoint is a joint venture between Microsoft and First Data Corporation, a major credit processor. Citibank of Citigroup, the owner of Travelers, is a minority equity investor in TransPoint.

A number of Canadian banks that own insurance companies are participants in a Canadian bill payment consortium called e-route that makes use of TransPoint technology. These banks include Caisses Desjardins, Canada Trust, CIBC, National Bank of Canada, Toronto Dominion Bank, and Royal Bank of Canada.

A Host of Implications

The advent of electronic bill presentment has a host of implications for various players in the financial and Internet industries.

The biller direct approach allows billers to deploy bill presentment and capability on their own Internet sites. From a biller’s point of view, this option is attractive in that it forces the customer to visit the biller's Internet site and exposes the customer to cross selling. Unfortunately this approach also has a major flaw. It requires the customer to visit as many different biller sites as the individual has billers. Most consumers are unlikely to find this approach convenient.

Consolidated billing presents all the consumer’s bills at a single site. This approach affords greater customer convenience. However, it also has one disadvantage from the biller’s point of view. It does not expose the customer to cross marketing by the biller.

Likely Consolidators

Who are some likely consolidators? Banks that offer home banking services incorporating online bill payment are extremely interested in offer bill presentment through those services. And they have a great deal to lose if consolidated bill presentment occurs elsewhere. If a consumer can go to a non-bank consolidator site and pay all his or her bills, he/she has much less reason to use home banking services. The market for such services would very likely disappear. Hence, a number of banks are active participants in the CheckFree and TransPoint prototypes.

For example, in March 1999, PNC Bank, headquartered in Pittsburgh, announced plans to pilot a fully integrated, Web-based, electronic banking, bill delivery and payment service for PNC Bank customers. Its customers can review, view and pay a wide range of bills over the Internet. They have access to both their bank account and bill information in a single log-on session. An insurance company biller would be just another biller in this service. Although the service would deliver bill payments to the insurer in an efficient manner, it would significantly curtail the marketing uses to which billers can put their mailed bills. CheckFree is reportedly revising its service in a manner that would allow direct access to the biller’s site within the context of consolidated bill delivery.

Banks themselves are highly vulnerable to a migration of the consolidator role to portals. This column has frequently noted the campaign being waged by various Internet players to become the consumer’s Internet portal of choice. A portal is a site that serves as the consumer’s gateway to the Internet. It presents information about Internet resources in an organized fashion; news; weather reports; and stock quotations. It includes a search engine. The user can personalize the portal according to his or her own interests. Internet access providers tend to have alliances with portals and specify their allies as the default Internet site first accessed by a consumer logging onto the Internet. Other portal operators seek to offer such an attractive menu of services that consumers will select them to be their Internet access point, substituting for the site selected by the Internet access provider. AOL/Netscape, Microsoft, Yahoo, selected traditional media companies such as CNN, and a host of other organizations seek to operate as Internet portals.

Now there is significant evidence that both CheckFree and TransPoint are entering their own contracts with portals. CheckFree has a contract with what it terms a "high-traffic Internet aggregation site." CheckFree’s partner, Intuit, sued CheckFree over this approach to bill presentment. Intuit is the operator of Quicken.com, and a major provider of household financial management software that serves as front end to home banking programs. CheckFree responded to the suit by saying, "Regardless of the outcome of this action, CheckFree will be supporting bill presentment and payment through Internet portals and will be fairly compensated for its efforts."

TransPoint will consolidate bills from many billers and send them to "the consumer’s online banking Web site or one of the popular Internet portals such as MSN."

Portals and Presentment

Portals have every reason in the world to want to offer bill presentment services. Even if they do so, banks will still control most of the payment part of the transaction. However, their visibility to consumers is significantly diminished. The banks are periodically given to worry about whether Microsoft will one day replace them. TransPoint’s announced relationship with portals gives them another reason to do so.

Although insurance companies do not run home banking services and therefore do not have to worry about a potential migration away from these services, they do need to pay great attention to the growing power of portals. Portals already have the ability to steer Internet traffic to insurers that pay for portal presence. When bill payment capability is added to these sites, consumers will have even greater reason to use them; their ability to influence insurance-related Internet traffic will grow. More insurance companies should participate in the two bill presentment pilots.