Electronic Payment Programs and Utilities: Small Penetration and Awareness Create Big Opportunity

Consumers have enthusiastically embraced an expanding array of electronic payment options. In fact, the 2005/2006 Study of Consumer Payment Preferences found that each month consumers make 58 individual payment choices, whether by buying things in stores or over the Internet, or paying bills. Increasingly, they are choosing electronic payment methods over cash and checks, which accounted for only 45 percent of consumers’ monthly payments in 2005 — down from 57 percent in 2001.* For utility companies, electronic payment programs hold tremendous untapped potential to enhance customer service, streamline operations, and attract new customers.

Electronic payments offer the utility industry a simple, yet powerful customer service solution that has the potential to yield significant cost savings, improved cash flow and productivity. By expanding payment options to allow customers to pay their bills automatically, utility providers will gain a competitive advantage, while also improving customer service and enhancing customer satisfaction.

There are two types of electronic payment programs available to utility companies today:

• Card Payments, in which a consumer authorizes his or her utility company to generate a payment on a payment card account. Payments may be collected on a recurring basis such as monthly, quarterly, or at any interval the consumer and the utility company agree on; the billed amounts may be the same every time or vary from one payment to the next.
• Online Bill Payment, in which a consumer submits payment for recurring utility charges via a consolidated bill-paying site such as his or her financial institution’s online banking website, and/or through his or her service provider’s website.

Both solutions provide significant advantages to utilities and utility customers, as compared with cash and checks.

Leveraging the Rise in Consumer Payment Card Usage

The number of U.S. households now viewing and paying bills online reached 45 million in 2006, a number that Jupiter Research believes will climb even higher in the coming years. Reasons for choosing electronic payment include convenience, flexibility, or the chance to earn rewards from a co-branded or affinity card program. Service providers that bill customers on a regularly scheduled basis, including utilities, are offering an attractive payment alternative to cash and checks by accepting cards. And they are offering this payment option not only for initial payments but for recurring payments as well.

Payment card acceptance can yield significant operating efficiencies for utilities, including these:

From Customer Service Perspective:
Card acceptance can deliver a host of benefits to utilities such as increased satisfaction and enhanced customer relationships and retention.

• Research conducted in 2004 by Edgar, Dunn & Company shows that as many as 3 out of 4 calls into utilities contact centers deal with account, billing and/or payment issues.
• By expanding bill payment options and accepting payment cards, utilities can increase customer satisfaction and reduce the volume of customer service calls and costs associated with handling them.
• Further, card acceptance enables utilities to meet the growing demand for customer self-service. By leveraging electronic bill payment, anytime access to the Internet, and e-statements, utilities can service more customers, improve satisfaction and reduce customer attrition.

From Revenue Perspective:
Card acceptance also directly contributes to the bottom line of utility service providers, by reducing costs associated with rendering paper bills.

• Statistics from a 2001 Celent Communications study show paper-based billing can cost service providers between $0.70 and $2.00 per statement to process vs. $.03 per bill for an electronic payment.
• Utility service providers can also lower costs associated with processing queries via a call center, which cost an average of $6.62 per call according to the Celent Communications study.
• With a card acceptance program, utilities are guaranteed receipt of payment in full and on time, resulting in improved cash flow and faster revenue recognition.
  
• Utilities can also reduce exposure to bad checks, collections, write-offs and disconnect expenses.

Utilities are continually looking for ways to improve customer satisfaction, and many of the benefits associated with payment card acceptance tie into and support a utility’s strategy of servicing more customers through self-service channels and delivering options that increase customer satisfaction.

Recurring Payment (RP) Benefits Utilities and Utility Customers

To maximize the benefits of accepting electronic payments, utilities should consider implementing a recurring payments program. Also known as automatic bill payment or direct payment, RP is tailor-made for utilities, which bill and process millions of statements every month and incur significant administrative costs.

Utility charges are the second most common type of recurring bills, according to a 2005 MasterCard consumer research study. The study also found that while over three-quarters of Americans pay a recurring utility bill, only 37 percent of those surveyed are aware of the option to pay by credit card recurring payment and 45percent know they can pay their utility bills with debit card recurring payment. The opportunity to convert utility customers to electronic bill payment is substantial.

The 2005 MasterCard consumer research study also shows that within the utility industry there is a high level of consumer interest in recurring payment options: 29 percent of surveyed respondents would consider credit card recurring payment and 38 percent would consider debit card recurring payments. Research would suggest that this audience would respond favorably to a provider that offered these options.

From the customer’s perspective, an RP program also offers tangible benefits. In addition to the convenience and security of knowing the utility will be paid on time, without the hassle and cost associated with writing, mailing or delivering paper checks, a customer might earn a free vacation out of a year’s worth of utility payments made via RP linked to a payment card with a travel rewards component.

Allowing Consumers to Pay Their Way, Including Online

In addition to payment card acceptance and RP programs, utilities may also accept electronic payments online. An online payment program allows customers to submit payments directly through the utility company’s site or through a consolidated bill-paying site, such as their bank or financial institution.

A 2007 Jupiter research study on consumer preferences for paying recurring bills found that an equal percentage of online consumers now pay recurring ills online than pay by writing and mailing checks. The study identified that fifty-four percent of online users who pay recurring bills now do so online, via a variety of methods, including one-time (as needed) and recurring payments made via direct transfer from a DDA account, or made using a credit or debit card online. Online banking and bill payment enrollment, in fact, has become part of the standard account opening process at most banks.

Connecting with a sophisticated electronic payment processing network can help utilities streamline online payment processes and save money by providing a single channel to virtually every consumer who pays bills electronically through their online banking service. For utility companies, that eliminates the tangle of multiple one-off payment originators and ACH connections. Instead, they receive one consolidated payment and posting file. Working with an electronic payment processing network also eliminates the inefficiencies and lowers the costs associated with processing paper exception items from lockbox providers. By connecting with MasterCard RPPS, customer account information may be edited automatically for accuracy and received in one consolidated payment and posting file.

Streamlining the payment process can result in significant cost savings and greater efficiencies for utility providers. One of the nation's largest energy suppliers realized this first hand when it found itself flooded with check-and-lists from more than 2,100 financial institutions every month. The time-consuming and labor-intensive ritual of manually entering those payments into its system—a tedious and error-prone process—dramatically slowed payment posting while elevating costs and customer inquiries. A link to the MasterCard RPPS network helped this company transform its resource-draining, paper-based payments operation into a model of efficiency.

Now, the company receives hundreds of thousands of payments totaling tens of millions of dollars via the network every month. The check-and-lists, transformed into electronic payments, have been all but eliminated. Today, the network connection enables the company to process twice the volume of payments it did just six years ago with half the number of employees. Moreover, the payments that used to take 7 to 15 days to post as check-and-list items are now processed automatically in just hours.

With the support of the network connection, this supplier has earned distinction as one of the industry's most productive and cost-effective companies. While its operating and maintenance expenses measure just 53 percent of the industry average per customer, it serves 43 percent more customers per employee than its industry peers.

What drives the impressive turnaround illustrated by this case study is the network, which functions as a central hub that collects payments from multiple sources and routes them to connected billers. With its single connection, the network offers billers and lockbox providers access to virtually every consumer who pays bills via an online banking site. Moreover, consumer bill-pay service providers and walk-in payment companies also connect with the network, allowing billers to electronically receive payments from these sources, as well.

Adopting Electronic Payment Solutions

Across all service industry segments billers are working to identify means of moving toward effective customer self-care, and electronic payment solutions are a great first step in this direction.

To capitalize on the electronic payment opportunity, utility providers must deliver clear, concise, and consistent messages on their websites, in direct mail and telephone solicitations that reinforce the fact that they accept credit and debit cards for bill payments. This also requires a commitment to customer education, marketing, and communication programs regarding the electronic payment options available to customers, including online payments and recurring payments.

To achieve true customer self-care, utilities will progress through the four phases of Electronic Payment Solutions adoption which include:

• Development – Customers register a recurring payment or enroll in online bill pay, resulting in a reduction in billing calls and inquiries to the utility’s customer service center.
• Introduction – Increased customer enrollment/registration results in a deflection of an even greater number of customer inquiries from the utility’s customer service call center to online self care.
• Growth – Increasing numbers of customer service inquiries are deflected from call center, combined with reduced payment processing costs and reduced use of paper statements.
• Maturity – Paper statements are eliminated; customer self-care is achieved.

Utility companies wishing to implement payment card acceptance, recurring payments, or online payment programs should contact their financial institution, for more information and to inquire about industry-specific programs such as the MasterCard Utility Industry Program. Such programs offer special rates specifically for the utility industry, making it even more beneficial for utilities to accept payment cards and offer this payment option to customers.
Utilities that receive regular payments from customers have become more receptive to new payment options that reduce costs, increase efficiencies, and generate a positive return on investment. Payment card acceptance, recurring payments, and online payment programs can help utilities accomplish all those goals, provide a differentiator in competitive markets, and deliver valuable benefits to customers.