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  • 1. International Journal of Information Management 21 (2001) 101–121 Internet billing: the experience from four UK utility companies Maureen Milroy, Feng Li* Department of Management Science, Strathclyde Business School, University of Strathclyde, 40 George Street, Glasgow G1 1QE, UK Abstract The deregulation of the utilities in the UK has forced most companies to improve efficiency and develop innovative services, often through the aid of new technologies. In the last two years or so, Internet billing is emerging as a strong competitive weapon in the energy sector. Using the evidence gathered from the literature and from four recent case studies in the UK, this research investigates the new technologies that are making Internet billing feasible, outlines the main models that are emerging and assesses the impacts it generates in terms of cost, organizational structure and customer relationships. Our research has found that introducing Internet billing is an extremely complex process, and so far all companies have adopted a staged approach to its introduction. At the moment, several billing models exist, and no one model appears to satisfy the multiple driving forces for its introduction. However, once a particular model is adopted it will have long-term implications. In particular, Internet billing will redefine the customer–biller relationship and the internal billing process, thereby generating structural changes to the utility companies. Due to the barriers of cost and security, the positive impacts of Internet billing will not be instantaneous, predicting that the unraveling of a complete Internet billing service to gain competitive advantage will be a struggle for any utility in the evolving networked economy. # 2001 Elsevier Science Ltd. All rights reserved. Keywords: Internet; Utility companies; Internet billing; E-commerce 1. Introduction The deregulation and privatization of public utilities in the UK have brought about major changes in these industries. Fierce competition has put enormous pressure on the main companies to provide better services and more choices for customers. In the energy sector (as well as a few other utility sectors), one of the latest innovations being introduced is Internet billing. Although Internet billing appears to have gained recognition in the US, little research has been carried out *Corresponding author. Tel.: +44-141-548-3612; fax: +44-141-552-6686. E-mail addresses: (M. Milroy), (F. Li). 0268-4012/01/$ - see front matter # 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 2 6 8 - 4 0 1 2 ( 0 1 ) 0 0 0 0 3 - 2
  • 2. 102 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 in the UK. Using recent evidence gathered from four utility companies in the UK and a wealth of secondary data, this paper investigates the new technologies that are making Internet billing feasible, discusses the various models that are emerging and assesses the impacts it generates in terms of cost, organizational structure and customer relationships. In the next section, some relevant literature will be critically reviewed and the main issues in Extranet E-commerce, the Internet billing process, and emerging models of Internet billing will be discussed. Then the empirical work for this research is discussed and emerging trends and main problems are examined. Following that the impacts of Internet billing on the utilities and other key findings from this research are discussed; the possible future prospects of Internet billing in the UK and the main barrier to its adoption are highlighted. It is still very early days in Internet billing and further research is clearly needed. 2. The principle driving forces for Internet billing In the utility sectors, deregulation has produced a more competitive environment, allowing access to markets that in the past have been excluded. Many companies are diversifying so they can offer ‘multi-utility bundles’ to their customers. Moreover, the playing field is no longer restricted to the UK, and many companies are expanding aggressively into the international market. One example is Eastern Electric, which in 1998 committed to purchase 34% of the Finland-based electricity supplier Savon Voima (Sunstrom, 1998). Deregulation also means that customers now have the opportunity to choose their service providers. For example, customers in the UK no longer have to obtain services from the local licensed public electricity supplier (PES). They can choose from any of the 14 electricity suppliers in the UK. A survey by Coopers & Lybrand in 1998 revealed that only 29% of customers would stick with their current suppliers and 55% would shift to others. Equally, in 1998 the UK gas market saw a 20% reduction in their customers as a result of cheaper alternative suppliers entering the market. There has also been further speculation that oil companies such as Shell and BP Amoco could move into the gas and electricity supply business, altogether making the utility markets increasingly volatile and competitive. Such changes have increased the need for the utility companies to satisfy customer demands in cost-effective ways. In the last two years or so, Internet billing, or Electronic Bill Presentment and Payment (EBPP), has emerged as a possible solution. This solution will enable utility companies to introduce a new service, allowing them to reach current and new customers on a global scale. The US utility companies are particularly geared up towards this, and it has been predicted that Internet billing will rocket in the US by the year 2002 (Fig. 1). Our research has found that UK utilities appear to be recognizing the importance of Internet billing in the US market, and it is possible that this trend may be replicated on a smaller scale in the UK in the near future. 3. Extranet commerce}the gateway to Internet billing The Internet is increasingly being deployed by utility companies to achieve cost reduction and service differentiation, through the ‘‘the sharing of business information, maintaining business
  • 3. 103 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 1. The potential of EBPP (source: Singer et al., 1998). This exhibit is taken from Ouren, J., Singer, M., Stephenson, J., and Weinberg, A. L. (1998). Electronic bill payment and presentment. The McKinsey Quarterly, no. 4, and can be found on the publication’s Web site, Used by permission. relationships and conducting business transactions by means of telecommunication networks’’ (Zwass, 1998; Riggins & Rhee, 1998). This is forming a new technological platform for the networked economy. Such activities are generally referred to as E-commerce, which can be classified into three categories, namely, customer-to-business, business-to-business and intra- organizational, supported respectively by the Internet, Extranet and Intranet. The Internet currently generates customer-to-business transactions through for example, electronic mails and the Intranet is increasingly adopted as a cost-effective way of distributing information within a company. The Extranet is often viewed as a bridge between the Internet and the Intranet, strengthening the new business platform of the future from which innovative services can develop. Extranet commerce, a form of E-commerce has its roots in Electronic Data Interchange (EDI), which has been part of the business world for over 20 years. The main difference between Extranet commerce and EDI is that EDI operates through a closed set of standards which requires huge investment compared with Extranet commerce, which uses the same infrastructure and technologies as the already established Internet. Extranet therefore provides a gateway for synergistic relationships to be established between companies enabling them to strengthen business-to-business relationships. It has been predicted that by the year 2003, 86% of the E-commerce market will involve business-to-business transactions ( 1). The Extranet, located outside the corporate firewall, provides the same key services as an Intranet including communication and collaboration, internal information access and sharing, and application access. Additional advantages that the Extranet has generated are that it can provide inter-company business communication and transactions through its ability to conduct
  • 4. 104 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 2. The evolving Extranet (source: PC Week, December 1998). E-commerce in a secure, encrypted manner. It also allows customer and supplier access to information resources within the company, thereby providing worldwide service leverage. Since Extranet transactions can be conducted without an intermediary, it can maximize processing speed and improve the accuracy of data. The main aims of the Extranet are to integrate customers into the ‘‘mission-critical business processes’’ ( to establish a stronger communication bond through tighter customer relationships while still maintaining control over internal business processes. This suggests that the Extranet, as today’s mission-critical tool, has the potential to revolutionize the structure of utility companies and their internal processes in the new Internet- driven economy. Extranets are a logical extension of Intranets, but the survey of Fortune 500 companies in 1998 (Johnson, 1998) highlighted that 75–80% of businesses have Intranets and only 3% have an Extranet. Despite the fact that Extranets create an opportunity to conduct E-commerce, companies are slow to adopt this application due to its immaturity and security concerns. Research suggests that 80% of companies believe that security is the leading barrier to engaging in Extranet commerce ( However, as the technology evolves and matures, many current impurities will be eliminated. According to predictions by PC Week, the Extranet will be at the core of E-commerce by 2003 (Fig. 2). Since the opening up of the energy industry to competition, Extranet commerce has become a focused arena as a way to gain a competitive advantage. The Extranet opens up new channels of communication allowing these companies to reach new customers while cutting customer support costs and maintaining information integrity within the company. Hence, the deployment of the Extranet by utility companies is laying the foundations that will allow them to create innovative Internet-based services and conduct business-to-business transactions over the Internet. It will also provide a gateway for emerging innovative services, the prevailing one being Internet billing. 4. Internet billing unravels: processes and models While computer users have been paying bills electronically via home computers for more than 15 years, EBPP, ‘the full loop’, is a recent development. Internet billing ‘‘differentiates your
  • 5. 105 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 3. Internet billing stages (source: Fig. 4. Internet billing route (source: business as a leader by offering your customers cutting-edge electronic convenience’’ (Taylor, 1997a, b), while extending the web-based service spectrum. 4.1. The Internet billing process The process of Internet billing is based on the open Internet infrastructure known as the ‘Electronic market’ (Li, 1995). This innovation uses the Internet as a bill management tool. The process is complex as it involves electronic delivery, bill presentment, auditing and record keeping, payment options and the payment process. It also represents a learning process where the customer and the utility company learn together to gain mutual benefits. Generally Internet billing can be completed in five main stages (Fig. 3). This entire process follows a mapped out route (Fig. 4), which can be completed within two days. This is just the most basic process that utilities can adopt, and recently more complex processes have emerged in the US energy market in the form of electronic billing channels. Such complex
  • 6. 106 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 channels involve the introduction of third parties (such as Checkfree or TransPoint). The bill or multiple bills can be viewed, paid and personalized by the customer through a web browser. The presentation varies depending on the company. The bill contains real-time information and therefore keeps the customer updated at all times. As Internet billing is still in its embryonic stages, the available customer options are limited. However, various models of bill presentation are beginning to surface, and the situation may change soon. 4.2. Three emerging models At present, there are three main models: the direct, the invited pull and the consolidator models. Each model requires different formatting, a different infrastructure and software and gives the biller varying degrees of control. The direct model represents the billers’ website which customers must locate and access separately to pay each bill. This method is acceptable to the early adopter, but it appears inefficient for the customer market at large as there is no mechanism to consolidate the customers payment process}the customer can only pay one bill at a time as illustrated in Fig. 5. This model is attractive to billers as they maintain control over all transactions and it is relatively easy to integrate into their existing IT systems. Although it forces the customer into ‘self-service’ mode, at the same time it provides the customer with uninterrupted access. The main advantage of such a model is that it allows the biller to build brand awareness, customer loyalty and a demographic database that is not possible through adopting the consolidator model. Also, the bill is seen as the brand, therefore the name on the bill is whom the customer identifies with. Hence, using this model allows the utility to brand their electronic bill, not the third party or the bank. This model has been successful in the biller-to-business relationships where the biller represents a large proportion of the bills. Fig. 5. The direct model (source:
  • 7. 107 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 6. Consolidator models (source: The invited pull model is an extension of the direct model in that the customer can use client software to access various websites and download bills and statements automatically to their personal computers. Such a model is attracting many business customers who conduct in-depth data analysis on their bills. The invited pull model reaps all the benefits of the direct model, the only difference being this added functionality. The integration of the online bill into the customer’s normal monthly financial processing routine is critical for future success. However, research suggests that billers will not develop this model for at least another year until vendors address the technical barriers to its adoption. In this case the billers maintain a more dynamic relationship with their customers while the customers enjoy the convenience of personal delivery (Fig. 6). In contrast, the consolidator or aggregator model provides customers with a single access point from which they can pay all bills saving the customer time. Depending on the way the billing system is developed, it can reflect the thin or thick consolidator model. The thick model has the capability to hold all bill details; therefore, the customer never comes into contact with the biller when paying bills. In this case, the billing process is managed by a third party who may be a financial institution, software company, service bureau or any combination of these. However, billers also benefit as the process is outsourced. The thick consolidator model does not provide a smooth migration path to businesses, unlike the direct model. However, it is the best model should the utility decide in the future to evolve to the thin consolidator model. Checkfree is currently the leading thick consolidator in the US. As a third party it operates a closed system, which allows it to control all operations of the Internet billing process. Transpoint, yet another thick consolidator differs from the adopted model of Checkfree as it acts as a shaper-controlled consolidator. In this case, Transpoint controls the Internet billing architecture but offers portions of the value chain to other interested players such as banks, billers and payment and transaction service providers. This allows billers to become a small part of the Internet billing system but relieves them from the technical complexities. In comparison to the thick model, the thin model shows only the basic bill information on the consolidated website and provides a link back to the billers’ website for the complete bill details.
  • 8. 108 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 AT&T is currently developing as a thin consolidator as many billers are extremely reluctant to disclose confidential billing data to a third party. Most utility companies believe that ‘‘maintaining a direct relationship with their customers is important and should not be lost’’ (Duffy, Mgr AT&T Billing Strategy; cited in PC Week, June 1998). The thin consolidator can be thought of as a hybrid of the direct and thick models, combining their capabilities, allowing the customer to pay bills in one place, with the biller still controlling their financial and customer data. This model enables close seamless integration between the Internet bill and the customer, and is more open than the previous two models. Also, a standard-based consolidator has partially emerged where billers, banks and consolidators try to agree on a common architecture but implement it individually. This enables each party to benefit from its success. ‘‘Companies opting for the total consolidation model overlook the creativity that billers have when dealing with their customers’’ (Frook, 1998a, b). The demand for ‘consolidation’ is quite high for households and small businesses but decreases as the customer size increases. This suggests that a balance of the customer’s needs is required when deciding on adopting a billing model. Also, the third parties involved have the ability to capture ‘click streams’ for analysis, enjoy advertising revenues of a utility’s content and reinforce their own brand at the expense of the utility. Using this model the billers can also get ‘locked in’ to using only one service provider, limiting greatly their scope, highlighting again some of the drawbacks utilities may face by the adoption of the consolidator model. In summary, each model provides the biller and customer with several advantages and disadvantages, and Internet billing presents tremendous opportunity for both service providers and utility companies. The utility sector is currently in a state of confusion about how best to meet increasing customer demands for consolidation and integration and still satisfy their needs for reach and control. Two competitors have already set the pace in the US. Checkfree is well established as a service provider in the financial community and Transpoint has developed a very comprehensible end-to-end Internet billing system. To date, the US utility trend is moving towards the thick consolidator model, an example being Boston Edision who has recently outsourced their billing to Checkfree Corporation. Checkfree is the leading provider of bill payments services and have been delivering bills on the Internet since 1996. However, its position is constantly challenged. In the UK, although Microgen is beginning to emerge as one of the first UK service providers of EBPP from its launch of the service in June 1999, the model that will prevail is yet to become evident. 5. Research design and background of the case studies To explore the development of Internet billing in the UK utilities, a series of case studies were conducted. Due to the nature of this phenomenon, this research adopted a phenomeno- logical approach through comparative case studies. The case studies were conducted using semi-structured, face-to-face and E-mail interviews to capture accurate data about the Internet billing process and its impacts. Participative observation, conversation and communica- tion techniques were also employed to assess the underlying processes and complexities of Internet billing.
  • 9. 109 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Primary data were gathered from four different utility companies. Because of the sensitive nature of relevant issues, the companies will remain anonymous in this paper for confidential reasons. These four companies were chosen as they were geographically distant from each other, providing good UK coverage from which the status of Internet billing could be as- sessed. Although they have a different business focus, they are all multi-utilities, actively en- gaging in acquisitions or mergers making comparisons more meaningful. The primary evidence was supplemented by comprehensive secondary data gathered from various sources. All four companies are currently engaging in Internet billing at various stages. A brief overview of each participating company is presented in this section before discussing the main findings. All four companies emphasized the need to grow and diversify through acquisitions for future success and stability, and the need to provide customers with more choices and innovative services. The first case, Company A, is one of the leading multi-utility companies in the UK. This has been achieved through a series of acquisitions in the electricity, telecommunications and water industries in different regions. Offering a broad and innovative mix of electricity, gas, telecommunications and water services, the brand name of the company is associated with trust, integrity, innovation and a high quality of service, placing emphasis on providing value for their customers. In 1999 alone, the company spent more than £100 million on computer systems and customer service innovations to position them well in the industry. The main achievements of this company in the energy sector include offering a ‘dual fuel’ product and billing service, acquiring a large Internet service provider (ISP) in the UK and utilizing the Internet to attract and register new customers. Today, the company is well positioned in the utility industry and is constantly seeking new service opportunities. One of its main ambitions is to become the first utility in the UK to offer customers a complete Internet billing service. Like Company A, the second case, Company B saw the need to become a combined utility to survive in the emerging competitive market. This was achieved by acquiring a major electricity company in 1996 followed by a water company. This allowed Company B to become a true multi- utility offering water, electricity and gas to their customers as well as being involved in other services. In 1997 the company broadened its scope by taking a stake in a Water company in China, adding an international dimension to its business portfolio. The company believes that its combination of competitive prices, versatile contracts and high quality customer service will enable it to grow within the energy market. However, its competitive edge lies in offering a long- term, innovative and flexible approach to its outsourcing business. There is even the possibility that the company may sell its electricity and gas business in order to increase focus on its outsourcing business. More details will be given later in the paper. Company C was established following the merger of a water company and an electricity company. A number of further mergers and acquisitions with three other electricity companies are on the cards in order to achieve economies of scale. This company is already an international multi-utility providing water, wastewater and electricity services at several parts of the World. The company is split into a number of divisions with each division being made up of operating companies. As this study focuses on Internet billing as a new utility service, only the billing and management services division was analysed. This division is a spin off from the utility company, which manages all activities associated with customer relations, incorporating customer contact, billing and payment services and field services.
  • 10. 110 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Company D is one of the UK’s leading integrated electricity and gas companies emerged through various UK mergers. To gain International presence, this company is currently looking to acquire a medium sized utility in the US and also a number of electricity companies in Australia and Thailand. One of the main focuses of this company is on service improvements and innovations and its future success depends on responding to customer needs, building relationships and continually enhancing services through the aid of emerging technologies. This company aims, like Company A, to become the first UK energy group to sell electricity and gas over the Internet. 6. Internet billing: main issues from the case studies Although Internet billing is still in its infancy in the UK, the case studies highlighted a series of important issues. In this section, some of the issues are discussed. The case studies revealed that two main forces are driving the march towards Internet billing. One is the in- creasing power and pressures from the customers and the other is the rapid and con- tinuous development of the Internet and related technologies and services. In particular, all companies recognize that their current paper-based bills are inadequate in the networked economy; therefore, the UK utilities may mirror the US Internet billing trend over the next few years. All four companies acknowledged that in order to survive in the increasingly competitive environment they must lower prices, raise the quality and expand portfolio of services. The geographical expansion and the expansion into other utility areas to offer multi-utility services have further increased the need for Internet billing for both the customers and the utility companies themselves. 6.1. Current electronic services Our research revealed that all four companies use different forms of electronic and Internet services (Fig. 7). The most mature technology is EDI, which has been widely used to conduct Fig. 7. Current electronic/Internet services.
  • 11. 111 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 8. Distribution of impacts of the Internet (adapted from Appel, 1999). services to large customer, although no equivalent electronic services have been offered to smaller customers. Since all four cases have adopted the Intranet as an internal communication medium, they are currently exploring the Extranet to service all business customers. Company D, and to a lesser extent Company C, have great concerns over Extranet security, and currently, they are investigating various encryption technologies in order to mitigate any security risks. In comparison, Company A has less security concerns as it has been working with external computer specialists, conducting ‘ethical hacking’ to ensure high level security. Likewise, Company B believes that its firewall is very secure. The general feeling is that net security is a barrier to Extranet commerce but it will be overcome as the technology develops. How this will affect the introduction of Internet billing will remain to be seen. All four companies recognize the importance of adopting emerging technologies for prod- uct innovation, operational effectiveness and customer relationship management. Company A has adopted a policy that it should not adopt any new technologies until they have passed the ‘early adopter’ stage. Such in-depth information was not directly obtained from the other case studies, although from their current status of Internet billing, it is evident that this policy also applies. To analyse this issue, we adopted a framework developed by Boozallen in 1998 as shown in Fig. 8. The case companies are currently exploiting the Internet by opening up new channels such as the Extranet to their customers. Company A is by far leading in the adoption of new technologies as it has already opened up a ‘new channel’ for its customers through its Extranet lines termed Business-to-Business. Company D, followed by C are slightly behind primarily due to their heavy security concerns. Company B is just recognizing the potential of the Extranet possibly due to its size and lack of focus in this area in com- parison to companies C and D. However, all four utilities will have the opportunity to leverage Extranet commerce to open up a new interactive avenue between their customers and themselves.
  • 12. 112 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Fig. 9. Prediction of UK Internet billing. 6.2. The pace of development: the march to Internet billing Currently the four utilities are at different stages of development in Internet billing. This is mainly due to the complexities involved in developing such a service, the focus of the utility and the investment being made to support new technologies. Using the information gathered from the case studies, Fig. 9 clearly illustrates this varied development. Unlike the US utility market, none of the UK utilities are close to launching a complete Internet billing service. Company A and D hope to become the leaders, but there is doubt as to whether the payment mechanism will ever be included in this UK service. At present Internet billing appears to be more expensive and inconvenient than paying bills via direct debit, although Company C is developing the entire Internet billing service, including the payment mechanism. This is the main differentiating factor between Internet billing in the UK and the US, as the US operates a different banking system whereby paying over the Internet is a more cost-effective option. Currently, all utilities are focusing on developing the service primarily for business customers only, although, they are already investigating this service for their domestic market. Company A appears to be in the forefront as it is considering extending the service to other divisions. Company B, following the same route but at a slower pace, hopes to begin trials early next year, as its IT architecture is already in place again for business customers. In comparison, Company D and C appear somewhat slower than the other two case companies but were very reluctant to discuss future trials, developments and service launches. However, they both emphasized that they would also launch such services to business customers first followed by offering to the whole market. This confidentiality suggests that they may launch this service ahead of their competitors. From the analysis, it is clear that a staged approach is emerging in unraveling Internet billing in the UK. This approach follows the trend of piloting and launching to business customers, gas and
  • 13. 113 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 electricity only, followed by other extensions such as water prior to the service being launched for domestic customers. The reasons behind such an approach relates heavily to the costs of implementing such a service and that business customer demand is much greater for this service than the requirements of the domestic customers. 6.3. Model confusion: which one will conquer? From investigating the Internet billing models adopted or proposed by the four case study companies, there appeared to be at first a trend towards the direct model. Company A, B and D are all working towards this model due to the importance of brand reinforcement and control this model gives. As all three utilities are concentrating on the business customer, the payment of one bill at a time is adequate. However, they are beginning to see a problem with this model when the service is offered to the domestic market. At present the direct model benefits both the customer and utility but in the future these companies may need to reconsider to satisfy the additional needs of their domestic customers. However, Company A pointed out that its model is unlikely to change as it sees billing as such a fundamental part of their business, one that they are reluctant to outsource. In contrast, Company B and D have indicated that in the future a more consolidated approach may better fit the needs of their whole market. This suggests that integrating a third party may become an integral part of their billing process. As reflected in the literature review, the direct model is readily accepted by the ‘early adopter’ which mirrors the actions of these three utilities. However, Company A is moving more towards the invited pull model as it highlighted that its customers are already beginning to integrate the Internet billing system with their internal systems. This contradicts the literature as it was suggested that such a model would not be considered at present due to technical barriers. Hence, Company A appears to be heavily focusing on customer integration as well as internal process integration due to its reluctance to outsource. This is not the case with Company B and C who are very much in their infancy in developing the service and are not convinced that the direct model is the best solution. Following the past literature, Company C appears to have adopted the consolidator model by using its spin off service provider as the third party. This is primarily due to lack of in-house expertise and knowledge of the Internet billing service and its underlying processes. Although it has not started testing Internet billing, it proposes to reflect the thick consolidator model as the company has been working with the third party as an integral business partner over the last three years. As the third party was formed by Company C itself, it feels that its creativity and image is not lost as the third party is not viewed as a complete external partner. It perceives this model to give them the capabilities to ‘lock in’ their customers while the customers enjoy the convenience of paying all their bills from one website. This opposes the logic behind that of the other three utilities. To sum up, from the analysis some interesting discoveries have emerged which both compliment and contradict the literature. Company A is moving towards the invited pull model, blindly overlooking the other models available. Company B and D are currently adopting the direct model although could migrate to one of the consolidator models through time, joining Company C. This suggests that no strong pattern has become clear as to which model is best suited to Internet billing in the UK.
  • 14. 114 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 7. The impacts on Internet billing on the utility companies The adoption of Internet billing will have major impacts on the utility companies and their relationship with customers. The evidence highlighted some similarities and contradic- tions between the UK utilities and the past literature. In this section, some of these issues are discussed. 7.1. The biller–customer relationship The purpose of the bill is not just to obtain payment but it is also to sell, market and empower the customer. Hence, the shift from paper-based presentment to EBPP will transform the biller–customer relationship. Internet billing creates the opportunity for an interactive bill. This interactive capacity will create new means to serve customers, hence will revamp the relationship between the biller and customers. Such an impact has been highlighted by the literature. For example, Hong Kong Telecom, who have already adopted Internet billing, the main reason was to make payments easier and to allow customers to understand their relationship and value to Hong Kong Telecom. By doing so the company can ‘lock in’ customers through service customization. Given the critical importance of customer services to most organizations (De La Rosa, 1999), the role of Internet billing in improving customer service cannot be ignored. To maintain a stable customer relationship, billers may have to take their customers on a ‘learning journey’ to allow them to discover facilities of Internet billing and to recognize the strong links it creates. This will help develop customer loyalty, which in the long run will strengthen the biller’s customer base. However, it is extremely important to consider what the customers want and their comfort level with the Internet when deciding which particular model of Internet billing to adopt. Failing to do so may adversely affect current customer relationships. A Datamonitor survey (Electricity UK, 1999) suggested that all utilities were focusing on high customer importance and experience when developing innovative services (including Internet billing). This was strongly supported by the empirical findings. Company A indicated that its experienced customers, whom they regarded as large multi-site customers, are already integrating the Internet billing system into their internal systems. They believe that this is strengthening the company’s brand as well as building more dynamic and open relationships with customers. The interactive element, which Internet billing brings to their customers also changes the biller– customer relationship slightly, as the customers become more independent of Company A while enjoying a better quality service. In order to secure relationships with customers when developing their Internet billing system, Company A engaged heavily in a lengthy pilot trial with only a few customers. This enabled the company to massage customers into the service, increasing customer comfort levels while at the same time developing customer loyalty. Company D, although it has not released any Internet billing trials, predicts that the customer– biller relationship will only be strengthened through the emergence of Internet billing. The company believes that it is an opportunity to ‘lock customers in’, hence build healthier relationships. Company B agrees with this prediction but only if the customer expectations are met. Thus, as implied in the literature review, the case examples highlighted that the unraveling of
  • 15. 115 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Internet billing will impact the customer–biller relationship in a very positive way if the demands and expectations of the customers are fulfilled. 7.2. Organizational transformation As EBPP systems are introduced, conflicts have arisen over how these billing systems should be structured. Microsoft and First Direct argue that corporate IT departments should out- source such services and all billing and payments should be managed by a third party. In contrast, America Online, AT&T, Checkfree, Cybercash and Intuit argue that multiple partners should share the work but the data should remain in-house. However, irrespective of how the system is developed, it will lead to changes in the structure and billing process of the utility companies. Internet billing streamlines the traditional billing method as it eliminates paper, printing, postage and waiting for billing operations. It involves banks, the bill issuers, customers and the creditors, and they must work closely together in the form of electronic alliances (Li & Williams, 1999). Such alliances can help stabilize relationships between billers and vendors and raise barriers to entry into the market. Microsoft and First Data Corporation have joined together to create an electronic bill presentment and processing standard. This partnership has been strengthened by the investment from Citibank, a banking arm of the Citigroup Bancassurance Conglomerate. Northern Trust Co. and Sun Microsystems have also followed this path by partnering to test a web-based bill presentment application for the business-to-business market. Developing Internet billing partially with an outside partner tends to streamline the organizational structure of the utility as the number of internal dependents decrease, but at the risk of sharing confidential information externally (Graham, 1999). Complete outsourcing of the Internet billing process is another option open to the utility. This service automates the traditional billing process through a third party, which would dramatically change the structure of the utility company. Outsourcing the billing process may bring several benefits to utilities, as it decreases their technical involvement allowing them to focus on core business areas. However, this can also have costly effects. By outsourcing, the utility loses tight control of their processes while at the same time divulge confidential Fig. 10. E-business model.
  • 16. 116 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 information which may be useful to the outsourcing company. To a certain extent, the utility depletes their identity by outsourcing but gains a more dynamic and focused company through a leaner structure. The findings from this research generally support these views. As Company B and C have not yet fully developed an Internet billing prototype, they had no comments on structural impacts. However, the two more focused utilities voiced different views. Company D believes that Internet billing would only have a significant impact on the company structure if the services were broadened (for example, if customers were paying online or solving their own queries). Currently, the company is also investigating the possibility of forming alliances. If this develops, the organizational structure will be streamlined and certain processes will be automated or outsourced. Company A at present has no plan to form any alliances when adopting Internet billing. Through the development of their Internet billing service, the billing process was tightened and certain activities and people were eliminated (e.g. some processing clerks). Internet billing is seen as part of the broader E-business initiative. To maximize returns on investment from electronic business activities and to assess its impacts, the company developed an E-business framework to facilitate a common view (Fig. 10). This model implies that the higher the level of maturity, the higher business value from the deployment of Internet technologies through for example, brand image, additional revenue, improved customer services and reduced costs. The Internet billing service is approaching a high maturity level, characterized by internal and external process integration and interactive services. The introduction of electronic payments, for example, will lead to further process changes not only within the company but also along the value chain. To maintain tight control of the billing service, the company has adopted the direct model, which differs from most US utility companies. 7.3. An evaluation of Internet billing costs Widespread confusion exists about the benefits and underlying costs of different Internet billing models. In developing any model, a range of equipment, software and service costs would be incurred by the utility. Using the direct model or the invited pull model would only incur costs to perform data extraction and for web-compatible presentment. The utility will also lower the costs of direct debits and gain greater availability of funds to invest by cutting out the third party. In some circumstances, the utility may enjoy a ‘quantity discount’ from their partnering bank lowering the cost of running the service even further. In comparison, the consolidator model tends to be more costly if the utility chooses to work with more than one bill provider. This model increases implementation costs as third parties charge for set up costs, maintenance fees and also transaction costs (from the presentment of the bill to the consumer to the corresponding payment to the biller) when the service is operational. However, despite the costs involved, the service can greatly reduce handling costs to the utility company, and Linder (1999) projects that by 2000, Internet-enabled customer service support will cut the labour costs per contact by 43%. By developing new web-based services utilities can gain great cost benefits when a critical mass in the number of customers using the service is reached (Utility Week, April 1999). All four companies regard costs as a highly confidential area in the development and implementation of Internet billing. Company B and C were reluctant to make detailed comments.
  • 17. 117 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 Company A and D pointed out that developing Internet billing involves a lot of investment but the return on investment was debatable. Although the costs of developing this service through the direct and invited pull models were higher, both utilities preferred to accept this penalty as this prevented confidential information leaking. Company A highlighted that their security technology is making the service very expensive to develop, restricting the service to business customers only in order to gain any financial value. Only when a secure and low cost security method is developed will the company expand the service to domestic customers. All four utilities are of the view that development and implementation costs of Internet billing would be paid for by the customers by building the costs into their overall contract price. However, the customers see this service as ‘reducing the cost to serve’, as they will be able to automatically check data. Like the US companies, the UK utilities believe that Internet billing will provide large cost reductions in the production and sending of paper bills and in the consumption of data. However, the current legal requirements of document production may depress this benefit and the implementation costs can only be recovered when sufficient number of customers use the service. Company A believes that there is an acceptable level of business customer demand for Internet invoicing but not the complete Internet billing service. All other companies were not at a stage to comment. 8. Conclusions and future research Using recent evidence gathered from four utility companies in the UK and a wealth of secondary data, this paper investigates the new technologies that are making Internet billing feasible, discusses the various models that are emerging and assesses the impacts it generates in terms of cost, organizational structure and customer relationships. Since deregulation, the utility sector has experienced great volatility and there is strong pressure to improve and develop services in order to retain their market position and to survive. The increasing adoption of the Extranet is creating immense opportunities for the utilities by opening up electronic avenues to their customers, generating new communication channels from which new services can be developed. The adoption of such technologies is making the development of Internet billing feasible. Today, Internet billing is becoming a common innovation in the utility sector, which has a steep predicted growth rate over the next three years (Singer et al., 1998). The development of Internet billing was very complex as it involved multiple parties either internally or externally. At the moment, the UK Internet billing service is still in its embryonic stage, not yet incorporating the payment mechanism, and both the US and UK experience suggests that the utilities are taking a staged approach to Internet billing. However, when fully implemented, Internet billing may fundamentally change the way companies interact with their customers. It accelerates the billing process, causing process integration, and as indicated by Company A, leading to significant business transformation. The study highlighted three emerging models of Internet billing, although it is difficult to determine which model will dominate in the future. The evidence from the US has stressed the trend towards the consolidator model, which at present reaps the greatest benefits. In contrast, the UK utility sector seems to favour the direct model. The complexities of the process together with the high level of customer demands and expectations are difficult to satisfy through one model. At
  • 18. 118 M. Milroy, F. Li / International Journal of Information Management 21 (2001) 101–121 this stage, Company A, B and D are all developing the direct model, and Company C seems to be taking the consolidated approach, like the US, but it is impossible to derive the model of the future. The direct model, especially the invited pull variation as adopted by Company A, is more likely to encounter serious problems in the future if it needs to migrate to another model. Company B and D have identified this model ‘trap’ during the interviews, and they have already recognized that partial outsourcing to a third party, which points to the consolidator model, will potentially better suit their company needs and their customers in the future. The benefits of Internet billing are manifolds. It offers a new value service to premium customers through improved data accuracy, quality and efficiency and is perceived as a powerful marketing tool. Internet billing also has the potential to reduce administrative and transactional costs, and enables the utility company to reach customers on a global scale in real time. Several barriers to the adoption of Internet billing were identified. Evidence suggests that initially security is an inhibiting factor, although it may well be more of perception than reality, and will be eroded in time. Currently, robust solutions are being developed. For example, Paysense, an Internet solutions provider, has developed a system that provides complete anonymous communication over the Internet as it ensures sensitive data such as name and bank details are never sent over the Internet. This suggests that security has been recognized in the business world as a major barrier. However, businesses are investing heavily in this area to try and alleviate the problems. Despite these solutions being available, until businesses and customers perceive the Internet as a safe communication platform, Internet billing will remain an immature service. As the process of Internet Billing is very complicated, another major barrier is for billers to figure out what technologies and services to use as currently there is a huge disparity between different EBPP solutions. The technical complexities such as customizing and maintaining the infrastructure and deciding upon the appropriate model may also prove to be a drawback due to lack of expertise. In following the thick consolidator model the billers often regard the sharing of sensitive business information with partners as a major obstacle in setting up the Internet billing process. An even bigger barrier is the costs involved in developing Internet billing. Currently, the utilities are reluctant to develop full Internet billing services as the implementation costs may not be recoverable. Through Internet billing, billers can streamline their processes, enabling more convenient communications with customers while reducing errors and the cost of the payment processing and bill delivery operations. A higher level of process integration can also be achieved, creating a more dynamic and flexible environment. More importantly, using the Internet for this process provides a new medium for target and one-to-one marketing therefore promotes corporate image. In the long run this improves service quality, reliability and ease of payment, which together will improve competitive positioning while facilitating better customer service. Further reading Appel, M. et al. (1999). Internet E-commerce: is it for real? (cited 24 July 1999). Available at: Barling, C. E-commerce security debate (cited 16 July 1999). Available at: special reports/server-desktop.shtml. Baskerville, R., Smithson, S., Nguenyama, O., & Degrass, J.I. (Eds) (1994). Transforming organisations with information technology. Amsterdam: North-Holland/IFIP. Bell, J. (1993). Doing your research project: A guide for first time researchers in education and social science (2nd ed.). Buckingham: Open University Press.
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