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Banks outsource electronic bill payment

Indian banks are outsourcing the task of creating and maintaining an electronic billing infrastructure, says Sushma Naik

We have tie-ups with nearly 100 billing companies in 15 cities M N Srinivasu Director BillDesk	The EBP market is just about 5 percent of the overall billing market Bikramjit Sen Chief Operating Officer BillJunction

A huge population that has to pay bills coupled with inefficient delivery and payment collection systems have for long made bill generation and collection a hurdle for service providers. Against this background, electronic bill payment (EBP) solutions offer a simple mechanism that lets consumers view and pay their bills online from their bank’s, or a third party’s, website. With most Indian banks embracing electronic delivery channels, there is an opportunity for banks to become the front-end for EBP services. As of today, many Indian banks already offer their account holders the option of paying their electricity, telephone and mobile bills online.

Although it is desirable for a bank to offer all this, setting up an EBP service is a complex undertaking. It involves putting in place arrangements with multiple companies operating in different domains. Over and above that, banks have to ensure that their core systems integrate with those of the service providers who generate the bills. This requires investments to be made in hardware and software, as well as dedicated operational resources to ensure that the system delivers.

Some banks are taking a shortcut by outsourcing their EBP requirements to specialist bill management service providers such as BillDesk and BillJunction. A single agreement with a bill management company gives a bank the opportunity to offer EBP services without having to invest in creating a new technology infrastructure. Some of India’s leading private as well as public sector banks—HDFC, ICICI, Citibank, ABN Amro, SBI and Punjab National—have already outsourced their EBP services to specialists. Earlier, Citibank used to provide EBP services on its own, but after realising the savings it could reap by outsourcing the process, it farmed out its EBP requirements to BillDesk.

Call in the specialists By outsourcing EBP to specialist service providers, banks gain access to standardised business processes and are able to offer an online payment service to their depositors right off the bat. In the past, banks had to invest substantially in software and make agreements with different service providers—a time-consuming process, to say the least. Compared to this, a single agreement with an EBP provider can help a bank cut through the hassle of managing and maintaining an EBP infrastructure. Observes Ravi Shankar, Head, Direct Banking, Yes Bank, “EBP companies are a smart way for a bank to provide [an online payment] facility to customers without wasting time and effort.”

Taking the outsourcing route, BFSI companies get to launch fully operational bill payment services in weeks rather than months. Banks do not have to worry about developing business processes, managing day-to-day operations, or conducting multiple interactions. Says M N Srinivasu, Director, BillDesk, “Banks are at an advantage as we have tie-ups with nearly 100 billing companies in 15 cities.” BillDesk provides the entire stack of EBP services such as process management and customer management.

Huge opportunity

As India is a vast country with hundreds of banks that operate regionally or nationally, with each region having its own set of service providers, the potential for independent EBP service providers to grow is considerable. As of now, it is private banks which are the keenest adherents of this trend. With the exception of a few progressive banks such as Shamrao Vithal, the market for outsourced EBP services in the co-operative sector is still largely untapped.

Says Bikramjit Sen, chief operating officer of BillJunction, “EBP service providers have barely scratched the surface [of this opportunity]. At this stage, the EBP market is just about 5 percent of the overall billing market.”

As the customer base of a large bank runs into several lakh, EBP service providers who have a pay-per-use transaction model stand to gain. Depending on the customer base, both banks and utilities are charged anything between Rs 4 to 7 per transaction. In case of a low frequency of transactions, the service provider will charge a minimum annual fee as security. While banks may end up shelling out lakhs of rupees for the service, they still save on the cost of reconciliation and printing cheques.

Says Anand Rao, Head of Direct Banking at UTI Bank, “Banks may spend anything between 30 lakh to a crore on outsourcing EBP, but that is hardly an issue.” Some banks are attempting to create a new revenue stream by charging their customers a small fixed-fee per transaction, and most banks offer EBP as part of their Internet banking service.

Banks have the option of going in for a hosted model or implementing the outsourced solution within their premises. Most banks prefer to install the software on their own servers if they have already invested in a billing software, and only need the services of the EBP provider for tie-up and integration. Either way, the EBP services are managed at the back-end and the interaction is done through the bank’s interface. For service providers, this is a big draw as timely bill payment without reconciliation hassles can help reduce their outstanding payments.

Driven by competition

Banks and utilities are pushing EBP as it helps them acquire and lock in customers. Says Rao of UTI Bank, “It is a customer retention strategy.” His rationale is that as other banks are already providing this service, UTI Bank’s depositors expect the same from their bank. Rao believes that the EBP facility has accounted for a 30 percent rise in the acquisition of new savings bank account holders. What’s more, revenue per customer goes up as customers who use EBP services keep their accounts active. Utilities are also looking to drive down costs by asking customers to make their bill payments online. MTNL, for example, is offering discounts if a phone bill is paid in this way.

Though the market for EBP services will grow at a rapid clip, it is still restricted by the lack of Internet penetration in India. However, service providers are hopeful as PSU giants such as MTNL and BSNL are talking of spreading Internet access—and they can take advantage of the increased reach.

sushma@expresscomputeronline.com