Bill payment has been a traditional business for banks, given that utility, energy, and insurance bills must be paid each month. Direct debit is a customary method to pay bills.
What is the problem with direct debit?
To be a part of a direct debit service, billers had to be onboarded with one-off integrations. These integration projects take at least 6 months and are expensive both on the corporate and banking side. On the consumer side, the consumer must sign up for the direct debit service and they will get the bill on a different channel (via post or e-mail) from the biller, and the bill amount is deducted from the bill payer’s account monthly.
Direct debit has also the disadvantage that the bill amount is deducted automatically on a given day of the month, and consumers cannot influence when they are paying the bill. In certain countries, rejected direct debits incur significant banking fees for customers. So, people, who are not sure whether they will have enough money in their accounts at the given date will rather not sign up for direct debits.
Direct debit does not provide a communication channel, so companies track late payments with payment reminders, while consumers do not have the opportunity to indicate that they will be able to pay either a partial amount or pay the bill later.
The above hurdles on both sides result that although direct debit is quite common, its growth could not keep pace with the growth of electronic payments: in the EU the annual growth rate of total electronic payments was 8%, while the annual growth rate of direct debit was only 4% [1].
What are the consequences for banks and billers?
According to a 2020 McKinsey article 40% of the 15 bn bills in the US are skipped or paid late, largely thanks to the fact that more than 60% of consumers pay their bills with one-time bill payments, instead of using automatic or recurring payments [2].
This means late payments with suboptimal working capital levels and increased costs of late payment tracking for billers.
How does e-invoicing change all this?
E-invoicing will bring about a positive change for banks in many ways, as e-invoice data will be available in a standardized format, and as a consequence:
1. Integrations will become much easier on the corporate side, as invoice data can be used for integration and the payment details can be generated from invoice data;
2. The reach of bills paid in the bank can be extended virtually to all billers because the integration barrier will be lowered;
3. Banks can also provide bill presentation services in the bank for retail and SME customers, as invoice data formats will be standardized, therefore providing such a value-added service will become feasible for the bank.
There are already examples of banks providing such a service: In Switzerland, PostFinance provides invoice delivery services for billers for both business and retail customers. For business customers, the invoice is sent to the recipient’s accounting software, while for retail customers bills are sent to the online banking application. This way consumers can view the store and pay their invoices within the bank.
Combining e-invoicing and request-to-pay
E-invoicing in itself can increase efficiency by 60-80% for accounts receivables processes for billers, but combined with request-to-pay, the efficiency increase can go up to 95%. If the request-to-pay message is generated from invoice data, the automatic reconciliation of bills and payments happens with 100% data accuracy.
From the consumer perspective, request-to-pay schemes provide a communication channel for consumers to indicate if they can pay in part or later on.
Request-to-pay has the advantage that consumers do not have to sign up for the service if the request-to-pay functionality is available in online banking channels.
Why is it worth for the bank to provide bill presentment services?
By storing bills in the bank, the bank will have access to detailed bill data. Invoice data enables a myriad of use cases in banking. Using invoice data, the bank can help navigate its customers with everyday spending decisions, offer savings opportunities, savings and investment alternatives or event-based credit, while making its operations and pricing more efficient. Invoice data helps providing a 360 degree customer-centered view of spending patterns instead of “simply” executing payments.
A couple of examples, of how the bank can use invoice data:
- Invoice data provides a unique insight into the consumption patterns of consumers, which can be analyzed for loyalty programs and carbon footprint of the customer;
- Invoice data can be used as input for the bank’s PFM application for providing savings suggestions and spending optimization along with investment opportunities;
- Invoice data can be used for data analysis for cross-sell, upsell opportunities, and risk management.
How can Partner HUB help you providing next generation EBPP services?
Partner HUB provides you a white label solution for next-gen EBPP services that you can integrate into your online and mobile banking channels. For more information, please reach out to Partner HUB at katalin.kauzli@partnerhub.hu.
[1] Source: ECB payments statistics and https://www.ecb.europa.eu/press/pr/stats/paysec/html/ecb.pis2021~956efe1ee6.en.html
[2] McKinsey: Bill payment trends in the United States
