How often have you stood cursing in serpentine queues for something as simple as paying a phone bill? While electronic bill payment is a reality in urban India today, the potential is still far greater than existing numbers, which are hardly enough to go to town with. But Srikanth RP and Rajneesh De say that the huge potential is exactly what the providers are greedily eyeing as they beef up services

The infamous events of September 11 and the following anthrax scare have wreaked havoc across industries as already contracting economies took an even greater hit. But for some sectors, the unfortunate events have turned out to be rather beneficial. For instance, the electronic bill payment (EBP) industry, estimated by many to be worth $100 billion worldwide. According to a recent Gartner report there has been a 20 percent increase in electronic bill payments since the anthrax scare following the WTC attacks. Even India apparently saw an increase, though its still early to estimate the exact impact in terms of figures.

Enormous potential

HDFC Bank’s Mudit Saxena says the challenge lies in integrating utility providers with banking systems

In fact, it seems quite surprising that the electronic bill payment market has not picked up in India when vast potential exists here after all, with India’s humungous population, any in-person method of bill payments definitely includes facing up to never-ending queues. According to independent industry estimates, the eight cities of Mumbai, Delhi, Bangalore, Kolkata, Chennai, Pune, Hyderabad and Ahmedabad account for 15,831,421 bills monthly or 189,977,052 bills per annum. These include for utilities like telephones, power, cellular services and insurance, among others. The city-wise breakdown shows Mumbai with 6,688,307 bills, Delhi with 4,704,449, Bangalore with 260,915, Kolkata with 1,775,365, Chennai with 419,914, Pune with 338,605, Hyderabad with 300,812, and Ahmedabad with 1,343,054 bills. While there is no clear estimate of the market size, with figures varying from Rs 150 crore to over Rs 1,000 crore, all players do agree that the market potential is immense.

Since consumers would prefer a service that offers the ability to pay bills for different utilities, service providers offering consolidated bill payment are expected to dominate this market space. Players like Billjunction (from the ICICI group), BillPay (from the HDFC stable) and even Citibank are now the leaders in this domain, while some smaller players are starting to make their presence felt.

Electronic bill payment primarily involves payment over the Internet, a slightly dicey prospect in India, considering the level of Net penetration here. However, service providers do not consider this to be a deterrent. Points out Bikramjit Sen, COO, Billjunction, “Sceptics who doubted our business model would be glad to know that Billjunction already has over 60,000 registered users across Mumbai, Delhi, Kolkata, Bangalore, Hyderabad and Chennai.” Currently Billjunction.com has tie-ups with players like MTNL, BSNL, Orange and Airtel in the telecom space, BEST, BSES and MSEB in electric supply, and LIC and ICICI Prudential in the insurance sector. Another successful player is HDFC Bank’s BillPay, which has tied up with a significant number of players like BSNL, Bharti TeleNet, RPG Cellular, BSES, MSEB and LIC. Both these players have a significant presence in almost all major regions in India. Besides these two giants, there are players like Billdesk, backed by Bank of Baroda (BSES and Bobcards), and Eazy2pay (BPL Mobile). Citibank too has a host of tie-ups with electricity companies, water boards, basic telephone providers, cellular service providers and pager companies.

While banks like ICICI Bank, HDFC Bank and Citibank have undoubtedly started this service as a value added service, Technonet Technologies’s Eazy2pay is emerging as a pure play EBP service provider out to get a share of the immense market potential. Says Ravi Datanwala, managing director, Eazy2pay, “We believe the market is big enough for all players. Considering one electricity ulility, one telephone utility, two mobile phone operators, one insurance company at the bare minimum, the number of consumers of these billing companies multiplied by 12 would be the total bills which can be effectively processed electronically. Even if we take a conservative Rs 30-40 per bill, the amount works out to be a pretty large number.” Adds Mudit Saxena, vice president, head-retail marketing and Internet banking, HDFC Bank, “The market is doubling every year. It is bound to grow exponentially with banks tying up with utility vendors regularly and customer adoption rates picking up.”

Pricing strategies

Billjunction’s Sen says the concept is fast catching on in the country—increasing users bearing witness to the trend

In order to get customers used to the concept of EBP, Billjunc tion.com started offering the EBP service free of cost in May 2000. At the time it started, the number of transactions was a mere 600 transactions a month. In July 2001, the company decided to go in for a paid model. Accordingly, customers were charged Rs 39 for 5 bills, Rs 59 for 10 and Rs 99 for 20 bills. Industry analysts doubted the viability of this model as experience has shown that Indian customers have typically never preferred paying for online services. Billjunction however reversed this stereotype and is now clocking a remarkable 12,000 transactions per month. Billjunction also has an advantage over HDFC or Citi because its service is not tied to the respective parent bank. This is because Billjunction uses RBI’s Electronic Clearing Service (ECS) mechanism to enable bill payments. The consumer can avail of multiple bank accounts, and there is no mandatory requirement of an ICICI Bank account. But does this make much business sense? Sen clarifies, “Billjunction may be an ICICI group company, but we are not the marketing arm of ICICI Bank. We have our own sustainable revenue model and deliberately do not try to convert our customers towards our parent bank.” However, rival HDFC Bank still has an advantage in that the BillPay facility is a free model.

Explains Saxena, “Unlike other banks, BillPay is not restricted to payment of bills over the Internet alone. HDFC Bank customers can also pay their bills through the ATM, landline phone using PhoneBanking and SMS-based MobileBanking, apart from the NetBanking service. This, coupled with our tie-ups with over 40 major utility providers across the country offers a unique proposition to the customer. We are present in 48 cities through our tie-ups, making us a leading player in the market.” Eazy2pay on the other hand offers its customers free services for the first three months and a flat rate of Rs 100 per month annually. Players like Billjunction go the extra mile and inform the customer whenever a new bill arrives, send e-mails when bills are overdue and also notify you when bills are paid. In addition, an online record of bills is maintained. Players like Eazy2pay provide services like reconciliation of accounts and provide MIS reports. Billjunction offers a service for corporate and SME segments, on top of its retail one.

Banks like ICICI Bank, HDFC Bank and Citibank have realised that EBP is a strategic decision and not just a value-added service. Electronic bill payment can play an important role in a bank’s strategy and use the online interaction as a way of promoting other services and products. By forging various tie-ups with various vendors, banks have a new revenue stream. Banks who will be involved in processing bills of multiple utilities at a single location can use EBP as a strategic tool for acquiring customers and cross-selling other products. A lead in the EBP market would be a key advantage for new as well as established players, as it will give them a foothold in other financial markets like the debit or credit card market and e-commerce.

Roadblocks on the way

Despite the growth of EBP in India, there have been many issues which have affecting the EBP market. One of the main issues is undoubtedly the low level of Internet penetration and overcoming customer disdain for online payment. Says an official spokesperson for Citibank, “Considering the low volume of transactions, building a business model which will make electronic billing a profitable venture is a major challenge. Also, there are no clear answers to issues when a customer disputes an electronic bill payment transaction.”

In addition, there are technology issues like providing online instantaneous credit to the bank account of the utility company, and confirmation from utility to customer on completion of a transaction. The EBP market is also affected by the minimal number of players who can develop a plug-and-play module to integrate banks with utility companies.

Ravi Datanwala says confidentiality will have a major role to play in deciding the success of this business

The utility providers have different billing and payment systems involving different software and processes. Explains Saxena, “The challenge is in integrating different utility providers with banking systems.” Besides these, customers and utility service providers have to be educated about the conveniences of this facility. Adds Datanwala, “Other common issues are confidentiality of the billing information and the time taken to update the customer database after reconciliation.” In addition, security and payment integration with multiple payment processors or banks are some of the main obstacles.

All the EBP players, who are fully aware of the customer psyche, have taken appropriate measures to deal with security concerns. For example, Citibank follows industry standards like 128-bit SSL encryption, lockout after eight subsequent attempts, time-based session expiry and a digital certificate from Verisign. In addition, every development goes through an ethical hacking test before going live. Players like HDFC Bank, ICICI Bank and Eazy2pay also offer the same level of encryption. Besides this, Eazy2pay stores all data in the database server using a proprietary algorithm to prevent misuse of data.

A key area where the payment of bills online would make a huge difference is undoubtedly the payment of income tax online. Indians who are used to stand in long, never-ending serpentine queues for payment of income taxes would lap up such a service if announced. When then has no vendor come forward for a solution which offers filing of income tax returns online? One of the primary bottlenecks to file IT returns online is the requirement to submit original documents. But players like HDFC Bank are optimistic that there will be a movement forward. HDFC Bank recently became the first private sector bank allowed to collect direct taxes at branches. Says Saxena, “The process therefore, as far as private sector banks are concerned, has just begun.” Currently the physical cycle is being completed. For the electronic cycle to be completed, it will obviously take some time, with the tax department taking into account several factors before they can introduce the facility. Notwithstanding all these obstacles, there has definitely been positive movement in the EBP market, as seen above, and the future is certainly bright. A day may soon finally emerge when the Indian customer does not have to take a day off for paying his phone bill or file his income tax returns.