Smart Money and Smart MeteringVersion 2.0

New technologies alter the payment

landscape in the Utilities market

This paper examines the dramatic impact that the technological developments

of Electronic Bill Presentment and Payment (EBPP), coupled with the increasing

use of mobiles and the introduction of Smart Metering, are set to have on the

Utilities market. Utility Providers are increasingly moving to Smart Money

Collection to bring the benefits of Smart Metering to the consumer and

remain in front of the changing market.

1. The Utilities Industry at the crossroads

2. What should utility companies be doing today?

3. How Utilities can move to achieve Smart Money Collection

4. New technologies set to fast-track epayments for utilities in 2011

5. BillingTree: a leader in EBPP solutions

“Billing is a hugely expensive process within a utility and billing systems cost an

incredible amount of money to replace. The introduction of smart meters places an

enormous amount of pressure on the technology that underpins a utility‟s meter-to-

cash value chain and will force utilities to replace their legacy billing systems.” –

Datamonitor, „Customer Satisfaction, Smart Meters and the Utility Billing Process‟,

April 2010

“The utilities market is one that is not yet fully recognizing the latest advancements

in electronic bill payments processing, but one that will become increasingly under

consumer pressure to offer customers epayment facilities. Supporting mobile text

payments and mobile pre-funding provides a convenient option for utilities to

quickly begin supporting consumers on-the-go. Billers can leverage this technology

to reduce costs associated with consumer contact, including time sensitive notices

and recurring check reminders, as well as the expense of traditional paper billing.”

Scott McCollum, President of BillingTree

Section 1 – The Utilities Industry at the crossroads

The Change

The twin need to reduce costs and at the same time become more environmentally

responsible is driving change in all industries.

Electronic Bill Presentment and Payment (EBPP) came

into the equation almost ten years ago as a means of

revolutionizing payment processes. Adoption has

recently begun to surge, driven significantly by the

Gen Yers – loosely defined as those consumers born

after 1980. The tech-savvy 'Generation Y' group of

homeowners are already used to ebilling and

epayments for Internet and cell phone use, and are

happy to pay for power and water in the same way.

In the utilities market we have an additional driver to

EBPP: Smart Metering is taking off, with deployment

figures increasing daily. This means that utility

providers have the added challenge of having to

manage the increased amount of data available

through this new technology.

The recent Datamonitor report identifies an imminent problem for utility companies:

“Billing is a hugely expensive process within a utility and billing systems cost an

incredible amount of money to replace. The introduction of smart meters places an

enormous amount of pressure on the technology that underpins a utility‟s meter-to-

cash value chain and will force utilities to replace their legacy billing systems.” –

Datamonitor, „Customer Satisfaction, Smart Meters and the Utility Billing Process‟,

April 2010

The evolution of EBPP and the addition of Smart Metering is driving a shift inside

utility providers to Smart Money Collection and we are seeing a significant change in

the requirements of ebilling and payment solutions within utility companies.

Developments driving change

The shift in how consumers view and pay their bills has been significant in the last

five years.

Federal Reserve figures show that there were 30.6 billion transactions via check in

2006 – which represents 33 percent of non-cash payments – to the value of $24.9

trillion.

Around half of all households in the US will use EBPP for some transactions, with Gen

Yers driving the take-up (Forrester EBPP forecast).

69 percent of US consumers view their bills online – with six million

households set to adopt by 2013

62 percent of US consumers pay their bills online – with seven million more

households predicted to register by 20131

A recent report from the AITE Group predicts that bills paid online will increase

by 18 percent between 2010 and 2013, but even more staggering, the number

of bills paid with a mobile device is set to grow by a huge 377 percent across

the same period.

Electronic payments now comprise two-thirds of all non-cash payments (Fed

Res Payments Study), with Debit Card payments up 17.5 percent and

Automated Clearing House (electronic checks) payments up 18.6 percent.

There were 85 billion electronic payments in 2009.

Developments driving change: the drive to customer service

Just as significantly, the internal shift in focus towards customer service has required

a change in operational processes. The time and costs associated with managing

paper-based payments need to be reduced to enable those same employees to

spend more time delivering the customer experience and differentiating the

organization in the face of increased competition.

1 Javelin Strategy and Research

Developments driving change: Saturday mail and the Credit CARD Act

Nationwide changes in other industries will also impact on the billing cycles of utility

companies. The proposed abolition of Saturday mail in 2011 would reduce the billing

cycle for paper-based bill presentation and payment by a further 52 collection days

per year. The lengthy – and increasing – Days Sales Outstanding decreases cash-flow

and increases risk for utility providers, who must find a way to stabilize their

finances.

Similarly, the Credit CARD Act is having an effect on the way that consumers choose

to make payments. An increased confidence in using credit cards will see more of

them used to pay bills – much of which can be done online. Along with more diversity

in payment types will come changing preferences for alternative payment channels,

as EBPP grows. There are different profiles for bill payers, many of which will

demand, or at least benefit from, more flexible means of bill presentation and

payment.

Developments driving change: Smart Meters

Smart Meters are on their way to becoming the norm within the next 10 years. The

projections are for 60 million to be in place by 2020 (The Edison Foundation) – which

is equivalent to half of US households. Currently six percent of meters are Smart

Meters, but legislation that has committed $3.4 billion in grants to deploy more will

help to boost that figure. The amount of information that will be collected – and

therefore sent to the customer – as a result of smart-metering will be far higher in

volume and cost, if it‟s not done electronically.

Smart Meters will play an important role in driving Bill Payment and Processing for

utility companies online.

Developments driving change: mobility

Another development driving change is that of the growth of mobile payments. SMS

text is not just for payment reminders and payment authorization; for utilities, it

provides an opportunity to communicate with customers about any upcoming issues

that they need to be aware of – helpful information on planned power cuts or

possible power outages due to maintenance work is easily and conveniently sent via

SMS, and would be happily received by the customer who can then plan their

activities and energy usage accordingly. SMS provides a convenient and quick way for

customers to pay their outstanding bills.

Developments driving change: going green

All of these changes in regulations and consumer payment preferences are all set

against the backdrop of individuals looking to be more environmentally friendly – so

any changes that utility providers can make to boost their green credentials will give

them greater credibility with their customers. The potential environmental impact is

significant. If 20 percent of American households switch to EBPP, two million trees,

151 million pounds of paper and 100 million gallons of gas will be saved every year2.

2 NACHA PayItGreen Coalition

Section 2 – What should utility companies be doing today?

Utility companies currently spend at least $5 per customer, per year just handling

paper bills and statements – that is not inclusive of the cost of actually producing the

bills, stationery, equipment and maintenance.

Organizations can save 60-90 percent of these paper, processing and postage costs

by going electronic – which is significant enough on its own. However, there are key

business benefits, such as a reduction in Days Sales Outstanding by anywhere from

30 to 70 percent.

With increased cash-flow, decreased risk, lower costs and more employee availability

for customer service, utility companies can experience an enterprise-wide

transformation of profitability and efficiency through the effective deployment of

EBPP. Select utility companies are already taking steps to harness this shift, with

every one that serves over one million customers offering EBPP – although take-up

has been slow in comparison to other markets so far.

Where are we right now in the change?

Utilipoint research tells us that over 50 percent of utility providers already offer EBPP,

though the trend is that the larger the customer base, the more likely the provider is

to offer it. While every organization with more than one million customers offers

EBPP, that number drops to 81 percent when the threshold is lowered to utility

providers serving 100,000+ customers.

The majority of those utilities offering EBPP have not surpassed 6 percent penetration

into their customer base – only 20 percent of those companies have exceeded 10

percent uptake.

Billing is also mainly done on paper – 65 percent for Electricity providers, 68

percent for Gas and 76 percent for Water3.

The catalyst – 60 million Smart Meters by 2020

There are currently eight

million smart grids

deployed in the US (Parks

Associates). Companies

like SoCal Edison and

PG&E are increasing that

number every day. Over

six percent of American

meters are Smart Meters.

The projections are for

there to be 60 million by

2020 (The Edison

Foundation). This is the

catalyst driving EBPP in the utilities market, as one of the most traditionally viewed

industries in the country makes the shift to become more digitized – its billing and

payment processes should follow.

Another catalyst is that of the dramatic surge in the use of mobile phones for bill

payment. With growth in the number of bills paid with a mobile device predicted at

377 percent between 2010 and 2013, it is clear that utilities need to embrace EBPP

and mobile solutions in order to give customer the option to pay however they wish.

How can EBPP be made most simple for a utility company?

EBPP requires the integration of a number of different systems to ensure that bill

presentation is accurate and payment is efficiently processed. As many utilities will

be proprietary in their systems architecture, it is important that any EBPP system's

implementation is flexible enough to fit in with both utility providers‟ existing

environments and customer expectations – including across multiple channels.

To make the deployment both effective and cost-efficient, new roll-outs should be

able to maximize any existing systems. For example, using a central gateway portal

can provide an interface between external payment channels and existing billing and

payment solutions.

3 NACHA PayItGreen coalition, 2010

When I deploy Smart Meters, how will I manage the extra information?

A new data storage system may be needed, but certainly the database needs to be

made highly accessible – for both customer and for billing transparency.

The additional information has to be shared with the customer – for legal as well as

service reasons – so being able to give them visibility of it is critical. A database

stored in the cloud, which can be securely updated and accessed by the customer

and the billing systems, provides a very simple way for integrating Smart Metering

information into today‟s processes.

How can I ensure maximum consumer buy-in for these new initiatives?

Without consumer buy-in however, these initiatives will not see the light of day.

Consumers must see the benefits to them of using EBPP systems – and be

encouraged to do so.

Too many businesses have seen backlash for trying to charge consumers for paper

bills that unless you have an entrenched customer base, it‟s a risky move. T-Mobile

for example met with consumer resentment when in 2009 it started to charge $1.50

to customers requesting a paper bill – on top of an existing $2.00 surcharge for an

itemized bill.

However, the flexibility that EBPP

affords the whole billing process

means that a system can be

more tailor-made to a

customer‟s individual

requirements. A customer should

find that an electronic method is,

in fact, more convenient, more

interactive or more

accommodating than paper-

based options.

The secret behind ensuring that these benefits are identified is clear

communication and education, and if needs be, incentivize the take-up of

EBPP, not penalize the paper tiger!

Section 3 - How Utilities can move to achieve Smart Money

Collection

The average Days Sales Outstanding for utilities customers still receiving paper bills

is 45 days. EBPP can reduce the DSO cycle by as much as 70 percent.

The chart below shows the time to pay for the EBPP customers of a major utility

company. Almost all payments are made within 30 days – rather than an average

completion of 45 days – which significantly enhances the cash flow of a utility

provider.

For utility organizations servicing half a million households, these are some cost

saving forecast scenarios after implementing or increasing use of EBPP:

Achieving an EBPP uptake of 20 percent (100k customers):

- $0.5million saving per year in processing costs

- 3.8 million days saved from DSO cycle

Achieving an EBPP uptake of 40 percent (200k customers):

- $1million saving per year in processing costs

- 7.6 million days saved from DSO cycle

Achieving an EBPP uptake of 60 percent (300k customers):

- $1.5 million saving per year in processing costs

- 11.4 million days saved from DSO cycle

An additional benefit in all of these scenarios is the increased customer satisfaction

and resulting customer loyalty resulting from a billing and payments system tailored

to their needs.

What technology will help ease the transformation?

Any billing and payment solution that can ease the transition into an electronic

strategy must involve integration of existing systems – because the utility industry

uses a mix of proprietary solutions – have the flexibility to be a premise-based or

virtual deployment, and contain customizable features to appeal to all customers.

The payment process is complex. A centralized payments

gateway is a critical tool for any organization with an

existing investment in other systems, or silos of

information that need to be accessed in an EBPP strategy. A

system that can sit in the middle of these processes,

linking together any number of IVR (self-service), web

payment, telephone payment and check conversion

solutions ensures a single electronic payment processing

strategy, across the multiple touch points required by

customers.

Add to this a drive in mobile payments, and utilities have

yet another channel through which to communicate with

customers effectively. Utility companies need to integrate

mobile channels into existing processes so to ease this

process even more.

The flexibility of deployment of any new system is

essential to its success. One that‟s deployed via a SaaS

method will enhance the integration with other enterprise billing and payment

systems – especially if they‟re based across multiple locations.

More consumers are now willing to use Automated Clearing House (ACH) systems for

their payments. It constitutes a compromise of sorts between the traditional

preference for paying via check and the new desire to move to electronic payments.

The automation of checking – turning it into an electronic payment method – is both

customer and enterprise-friendly.

Whatever the measures being deployed, ensuring that the protocols are in place

within the technology to customize the systems – at least at the interface level – to fit

in with customer preferences, is an important stipulation for consumer buy-in.

Section 4 –Mobile solutions – Text and Pre-funding set to fast-

track electronic billing and payments for utilities

Two key developments, pre-funded accounts and mobile payment solutions

including SMS text billing, payments and notifications – already being deployed in

other markets – are set to drive the adoption of epayments in the utilities market,

bringing both financial and customer service benefits to utilities.

2011 will see utilities

reaping the benefits of

such an increase by

integrating innovative

ways of applying the

Internet and mobile

phones to provide

customers with more

convenient, flexible and

timely ways to make

payments.

Many service providers

– Internet, phone and financial services – are already realizing the benefits of

engaging with their customers through new channels such as SMS text integrated

into their customer service operations, but many utility companies have yet to deploy

similar communications tactics. Yet prepaying for services such as electric and water

can make controlling finances much easier, while providing a risk resistant

alternative for those providing the services.

In the context of a distinct increase in Smart Meter deployment, it is clear that

utilities need to start preparing themselves to be able to deal with these new

technologies as more data will be on hand to distribute effectively.

Mobile payments a key driver

With such an increase in mobile billing forecast, utilities should not ignore this

rapidly emerging channel to use toward their advantage. SMS text can be used in a

variety of different ways, such as to send timely payment reminders to encourage

customers to pay on time; to send immediate confirmations to let customers know

that their payments have been received; to get instant traction with delinquent

customers by sending shut-off avoidance messages to inform customers when their

payments are critically overdue; and to send payment authorization

messages in order to process a bill payment.

The use of SMS text also transfers these benefits directly on to the customer,

enabling them to pay bills quicker and more conveniently, at a time that best suits

their needs. Utilities can also reap multiple benefits across other communication

channels – the use of SMS text helps to alleviate pressure on inbound call queues and

consequently reduces waiting times for customers, which in turn enhances the

customer‟s experience.

Added benefits of SMS text

Utilities can go one step further in using SMS text to their full advantage. By using it

to communicate with customers about any upcoming issues that they need to be

aware of, customers can receive helpful information on planned brown outs or

possible power outages due to

maintenance work easily and

conveniently. Such information

would be happily received by

the customer, who can then

plan their activities and energy

usage accordingly.

Pre-paying for services

enhances customer service and

drives loyalty

The other major driver in 2011

will be the rise in the use of

pre-funded accounts, which

offer another option for making payments easier, and reduce the element of risk for

utilities. Pre-funded accounts may be managed via a mobile device further

entrenching the smart phone as a driving force in the future of service based billing.

Prepayment for services has gained significant acceptance in the US led by the cell

phone industry, where a report from IDC indicated 65 percent of new customers in

Q4 of 2009 opted for prepay service plans. The same economic factors driving the

shift in cell phone plans has impacted prepayment demand for other services that

traditionally rely on short term credit or deposits. Utilities can consequently reduce

the risk of an unpaid bill by introducing pre-funded accounts for particular

customers who they have identified as being unlikely to be able to pay on the spot.

Customers can draw down funds allocated for a specific service, thereby minimizing

risk for the utility company, while also eliminating the need for upfront deposits,

which are largely unpopular with new account holders or the un-creditworthy in

particular.

The billing and payment landscape is constantly evolving, with customers today

demanding more alternatives to manage corporate and household budgets, and

seeking rewards for being customers in good standing. Pre-funded accounts enable

utilities to offer loyalty programs to customers: they are capable of improving their

prepaid payment adoption through customer rewards for example for maintaining

positive balances, opting for paperless billing or setting up recurring account top

offs and bill payments online.

Utilities already adopting mobile payments

One company already reaping these benefits is Tennessee-based Pulaski Electric

System, which has integrated the BillingTree mobile payments suite into its existing

collections processes. The energy company services 15,000 electric customers in

Giles County in the State of Tennessee, and has always been at the forefront of

energy supply. It launched its state-of-the-art 100 percent fiber-optic network

known as Energize in early 2007, and continues to offer its "triple play" of video,

voice and data services to a growing number of residents and businesses across the

county.

“Initially, I expected the 20-30 age group to sign

up for the mobile program, but we had customers

well into their 50s and 60s signing up as well. It

has been very well received by our customers. We

publicized it through the radio and of our walk-

ins the day of the launch, 30 percent of customers

signed up.

- Daryl Williamson, Vice President of Customer Support at Pulaski Electric Systems.

At Pulaski, we provide every avenue possible for the customer to take care of

business with 15 percent of customers accepting bill notifications via the web and 10

percent of them paying online. We anticipate similar results through the text

program.”

The use of SMS text has also been shown to be extremely effective in utility

companies across Europe, with many already using SMS text to their advantage.

Companies including E.on, the world's largest investor-owned power and gas

company, has already leveraged the benefits of automated text notifications in order

to effectively communicate meaningful information with its end customers.

Judging by Europe's success in the use of SMS, this new channel has huge potential

to be a similar success in the US as more utility companies embrace it.

The future of EBPP

Utilities are realizing that by implementing new payment channels such as SMS text

and pre-funded accounts, customers have more flexibility in managing their

personal payment processes, and feel more in control of their payments.

Last year, BillingTree identified the utilities market as one not fully recognizing the

latest advancements in electronic bill payments processing, but one that would

become increasingly under consumer pressure to offer customers epayment

facilities. Supporting mobile SMS text payments and mobile pre-funding in a new

suite provides a convenient option for utilities to quickly begin supporting

consumers on-the-go. Billers can leverage this technology to reduce costs associated

with consumer contact, including time sensitive notices and recurring check

reminders, as well as the expense of traditional paper billing.

The rapid mainstream adoption of SMS text messaging and demand for increase

mobile commerce alternatives is shifting EBPP from what previously was almost

exclusively on the desktop to the hand-held device. The future of electronic

payments is expanding to also require optimized web-payment forms for use on

smart phones. The predicted growth in mobile payments is staggering, and the

technology is there now for utilities to implement new and innovative ways for

customers to pay their bills in order to maximize the likelihood of payment – on

time.

Section 5 – BillingTree: a leader in EBPP solutions

The proven leader in on-demand payment processing, BillingTree‟s solutions simplify

the billing and receivables process and make it as easy and inexpensive as possible

to accept payments. Its software-as-a-service (SaaS) model delivers industry-leading

payment solutions, proven integration, and point-and-click simplicity.

BillingTree pioneered the integrated approach to payment processing through a

seamless interface to software and telephony solutions that businesses use today.

What‟s important is that this approach doesn‟t require new software, hours of

training or lengthy implementation – the solution enables utility providers to focus

on providing their services.

BillingTree provides access to powerful payment gateways that cover every available

channel for accepting payment. Its product line simplifies the cumbersome process

of receiving and applying payments via an integrated approach that enhances

accounting, receivables, and billing software with payment-acceptance functionality.

The company has integrated a variety of payment solutions into its EBPP solution for

the utility market to provide a tailored industry solution. This integration means that

users are able to accept one time and recurring payments without leaving their native

business applications. In addition, transactions that are accepted through peripheral-

payment channels, such as website payments, IVR transactions, or check conversion,

can be automatically posted into the application. BillingTree's most recent addition to

its wide variety of payment solutions is its Mobile Solutions suite, with integrated

text payment facilities.

Paper check conversion and the resubmission of NSF check faces along with state

mandated bad check fees through RCK are technologies that BillingTree offers that

enable utility providers to better manage the payment process.

The BillingTree credit and ACH payment-processing gateways provide an electronic

payment-processing solution for corporate billing via the Automated Clearing House

(ACH) Network and major Credit Cards (Visa, MasterCard, American Express and

Discover). The Automated Clearing House (ACH) electronic payment network is often

used by individuals, businesses, financial institutions, and government organizations

because of its more efficient and lower cost cash management capabilities, compared

to Credit or traditional paper payments.

BillingTree's ACH-processing gateway creates a NACHA approved ACH-formatted file

of payment transactions generated by the payment-capture solution. The ACH-

formatted payment file is submitted to the ACH-Payment Processing Network for

electronic processing and results in cleared funds in as little as 24 hours.

Utilities can manage all of their Credit, ACH payments, Returns, and Corrections

through a single portal. They can integrate directly with their current software to

process in near real time or batch upload commonly formatted files (comma- or tab-

delimited) that contain transaction details – so employees don‟t have to key in every

single transaction manually.

Through its core solutions – BillingTree AgentBill; BillingTree OnlineBill Suite;

BillingTree ivrBill; BillingTree Deposit; BillingTree CheckCollect; and BillingTree

Collect – BillingTree offers a unique, customizable and fully integrated payment suite.

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About BillingTree

The proven leader in on-demand payment processing, BillingTree empowers customers with competitive

advantage through a simplification of the billing and receivables process. By delivering the most

innovative technology while making it as easy and inexpensive as possible to accept payments,

BillingTree has revolutionized the payments landscape. Its software-as-a-service (SaaS) model delivers

industry-leading payment solutions, proven integration, and point-and-click simplicity. BillingTree‟s

focus on innovation has allowed us to help more than 2,000 customers eliminate manual processes and

automate their payment cycles. BillingTree – Growth is our Business. For more information, visit

www.mybillingtree.com or call 877.4.BILLTREE.

Contact: Dave Yohe

Corporate Marketing

BillingTree

Tel: 602.443.5948

dave@mybillingtree.com

Claire Russell

PR for BillingTree

Tel: 561.228.1940

crussell@iba-

international.com