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Payments expert Fred Brothers predicates future industry success on new paradigms |
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| Error-proof systems, real-time processing, monetized services, and mobile commerce will define the new wave
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Taking the pulse of industry trends, Fred Brothers, founding partner and electronic commerce consultant, eCom Advisors, analyzed the dynamics of the fast-evolving payments industry in his symposium presentation. His overview—often optimistic, sometimes cautionary—addressed conditions for the four primary stakeholders in electronic bill payment: consumers, financial institutions, service providers, and billers. Consumer expectations A 13-year industry veteran, Brothers sees the industry moving from the early adopter phase to the late adopter phase, characterized by pragmatic consumers who are "completely intolerant of systems that won't fix their mistakes for them." The next wave of adopters will want even more—"error-proof systems." To bring these consumers into the fold and keep them there, providers will have to meet their "instinctive expectation...that the payment happens instantaneously," he said. Critical to the effort will be a new mass-market paradigm for error elimination: self-healing networks. E-bills, which help reduce common data errors, will greatly facilitate error reduction. In addition, a real-time model for debit timing (the scheduling of funds withdrawal) and a fully variable approach to remittance speed, "the Siamese twin of debit timing," will also be important factors for the late adopters. Trends for financial institutions "'Free to everyone' has been incredibly, wildly successful. It has driven unprecedented consumer adoption," said Brothers. "It has also dramatically increased the cost of electronic bill payment for financial institutions." He added: "We firmly believe that FIs will eventually charge some consumers for EBP," Brothers added, whether through explicit fees or indirect charges, such as higher minimum balance requirements. He enumerated a variety of revenue-raising opportunities, from charges for payments to other FIs to fees for use of integrated personal financial management tools. Mobile commerce will play a major role in the industry's evolution. "We absolutely believe that mobile banking, billing, and payment will become very important—a lot sooner than you think," Brothers said. "Mobile commerce . . . is happening here and it's happening fast." Competitive climate for providers Competition among providers is intensifying, according to Brothers. "Consolidation and revenue challenges at certain providers have created the need to win business," he said. "We think it's inevitable big, core outsource banking providers servicing the midtier and smaller financial institution markets will enter EBP in a much bigger way." Bridging the last mile for billers Brothers noted that exception items—electronic payments that drop to paper—transfer processing costs to the biller. In addition, according to Brothers, electronic billing via consolidated sites today increases rather than decreases biller costs because it does not adequately suppress paper. Common benefits from electronic presentment and payment should induce billers and financial institutions to resolve these issues. The 20% to 25% of payments that still go by paper cost more than the 75% to 80% that move electronically. However, bridging the "last mile of electronification"—i.e., reaching the remaining small billers and the consumer-to-consumer market—represents a cost of $1 billion annually for financial institutions. What's more, "the price structure in the industry doesn't incent providers to invest heavily in electronifying payments. If you electronify a paper payment, both the top line and the bottom line fall for the provider," said Brothers. He suggested that large financial institutions with a significant small-biller presence should perform concentration—that is, open up their internal networks. "We need to develop small biller networks. We need to open up remittance endpoints that are traditionally closed—i.e., some of the providers—and open up their closed biller directories, as well," he said. For billers, as for the other stakeholders in electronic bill payment, the overriding message from Brothers might be his observation that "yesterday's model will not sustain tomorrow's growth"—and that without significant changes in the industry's processing paradigms, tomorrow's growth is not certain. 
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