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Indian banks should outsource bill payment services
 As
India rapidly develops, more and more bills are being generated. For banks,
that is a business opportunity, but the numbers involved could also turn the
opportunity into a logistical and customer service nightmare. M N Srinivasu
says outsourcing is the answer
The emergence of electronic channels as a medium of customer interaction and
transaction fulfilment has enabled banks, both globally and in India, to extend
the array of services they offer. With these channels offering the potential
to complete financial transactions more quickly, accurately and at a lower cost
than traditional paper based methods, banks are looking to accelerate the use
of these channels. While the e-transactions market in India is still nascent,
it is clearly moving from potential to reality; and electronic bill payments
is one area where the interest is beginning to build steadily and consumer adoption
increasing strongly.
The why
This is not surprising—a very large bill paying population, inefficient
bill delivery systems, inconvenient payment collection mechanisms and high costs
of collections—all contribute to making the current bill payment and collections
processes very cumbersome. Electronic payment mechanisms that allow consumers
to view and pay all their bills at a single location offer tremendous convenience
and meet the regular transacting need of consumers. Billing companies also benefit
because it slashes their cost of interacting with the customer, reduces paper
handling and lowers expenses related to payment processing and errors.
Banks are the trusted centres for payments for most consumers and are in the
best position to present consolidated bill payment services, across multiple
billers, to their customers. Banks gain significantly out
of offering such a service. Operational efficiencies and cost savings flow directly—from
lesser queues at the bank payment counters, through reduced processing volumes
and through elimination of reconciliation issues and repetitive work.
More importantly, electronic bill payment services serve as an excellent means
of retaining and attracting customers and allow banks an insight into their
customer’s ‘share of wallet’. In addition to being a source of
revenues, bill payments also provide an essential base of information. By supplying
data on customer account activity, they provide banks an effective way to assess
credit worthiness and to identify potential opportunities of cross-selling and
providing enhanced value to customers.
It is not surprising therefore that electronic bill payment
mechanisms are gaining currency, and rate as one of the key services that the
banks wish to pursue aggressively. Most leading banks in India today see bill
payments as an integral part of their online suite of services.
Service complexity
However, offering an efficient and robust bill payment service is a fairly complex
affair. It requires independent business arrangements and interactions with
multiple billers across the country, integration with their different technical
platforms and establishing and managing a regular process of data interchange
and reconciliations with these billers. The complexity is enhanced multifold
given the disparate service and processes of different billers, their legacy
systems and their differing and evolving technical and operational requirements.
These translate to the need for significant technology investments, dedication
of operational resources, development of related business processes and continuous
customisation and technology upgradation. Not only does this add up to an expensive
and people-intensive operation, but also diverts attention of the bank from
the core business goal of offering such a service.
Outsourcing benefits
This is where outsourcing has proved to be an effective solution. Instead of
attempting to do it all, banks have been better served by pursuing partnerships
and collaborative outsourcing—with this they have a full-service line without
the extra expense of investing into related technology or developing a capability
in an area that is not core to their historical focus.
A single outsourcing arrangement with a bill management service bureau smoothens
the entire process and eliminates the complexity for the bank. A service bureau
offers pre-packaged technology and business process management for simple and
effective service offerings by banks.
Banks not only gain access to best-in-class technology and business processes,
but also importantly, are able to offer the service to their customers in an
accelerated time frame. Outsourced management enables banks to launch their
bill payment services, fully operational with best-in-market capabilities, in
weeks rather than months.
Outsourcing the bill payment service management to experienced service bureaus
offers banks established alliances, leading edge technology, operational efficiencies,
control of processes and assurance of service delivery. Importantly it provides
a single, centralised interaction point for the bank and establishes a high
degree of standardisation for the bank’s activities. Banks don’t have
to worry about developing the business processes, managing day-to-day operations
or multiple biller interactions; instead they simply focus on customer management.
A key advantage to banks from outsourcing is the cost-advantage factor. Not
only do banks not have to make large technology investments that would otherwise
have been required, but they are also able bring down their fixed costs of operating
by leveraging the cost structure of the vendor. The business model and cost
structures of service bureau companies are better suited to the realities of
the new payments environment than that of the traditional players. Outsourcing
helps banks to drive down their costs and match up on competitive ability.
Choosing the partner
Choosing the right outsourcing partner is of strategic importance to banks.
The largest and the best banks in India, today—including State Bank of
India, Bank of Baroda, Corporation Bank, ABN AMRO Bank, Union Bank of India,
IDBI Bank, ING Vysya Bank, etc—have all outsourced their bill payment businesses.
Reliability of service delivery, assurance of the highest standards of data
confidentiality and security, best-in-class technology and business processes,
and neutrality of service provider have been some of the key factors that have
driven their choice of the outsourced partner.
For banks, electronic payment services offer enormous potential and address
a huge market. Importantly, in an environment where the value chain of the traditional
payments business is being rapidly deconstructed, offering electronic payment
facilities helps banks capture part of this value and protect against the erosion
of the revenue streams from paper cheque processing, cash management fees and
other revenues associated with traditional payment processing.
The way forward for banks is to quickly offer these services and work towards
building customer awareness and build service adoption levels. By being at the
forefront they can transition and enhance customer relationships. Collaborative
outsourcing associations can help galvanise these actions. In the end, outsourcing
of the bill payment business process by banks is a marriage between the advantage
of their a long standing trusted brand and the advantage of the flexibility
of service bureaus to rapidly reconfigure to match the market. Banks that best
combine and leverage this will prevail.
The author is director of BillDesk. He can be contacted
at vasu@billdesk.com
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