By Mark Evans

When one of Canada’s largest retailers was approached to discuss its involvement with Epost, a service that lets consumers view and pay their bills online, a spokesman politely declined.

"It hasn’t been that successful yet," he said. "We just haven’t seen many people sign up."

The retailer’s reluctance to create some much-needed publicity for Electronic Post Office’s Epost is a symptom of a quandary facing the growth of the online bill presentment and payment market: retailers and other companies that send out bills are wary about jumping on the electronic bandwagon until more consumers use these services. And consumers are being cautious until more retailers get involved.

It is a classic Catch-22 playing itself out online.

The potential

In an online billing system, bills are sent through e-mail or viewed on a Web page by consumers or businesses. Payment is typically made online but could also be completed by cheque or in person.

If Internet bill presentment and payment lived up to its potential it could be a smash hit. Unlike trying to sell furniture or pet supplies online, bill presentment and payment has all the ingredients to be a killer app for the Web.

Companies that send out regular statements were expected to eagerly adopt online billing and payment systems to reduce printing and mailing costs, improve customer service and provide new marketing and cross-selling opportunities. For consumers, online bill presentment and payment offered a way to save both time and money.

Many got excited about this market’s potential. In Canada and the U.S., more than 19 billion paper bills are mailed yearly to businesses and consumers. If bill presentment and payment service providers managed to move just 10 per cent of that online, an attractive and viable market would be created.

The harsh reality

So far, however, that market has not materialized as expected. In the U.S., the Gartner Group estimates that only 100,000 out of 130 million people who use the Web visit a single Web site to see and pay their bills. A big part of the problem is that U.S. service providers such as Spectrum EBP and CheckFree charge consumers a monthly fee for the privilege of paying bills online.

Undeterred by the discouraging situation south of the border, Canadian service providers are boldly moving forward with strategies to win over the bill-paying public. Epost, which is owned by Canada Post, Bank of Montreal and Telus, was started in 1999 and burst out of the blocks this summer with a $1 million advertising and marketing campaign aimed directly at consumers.

Epost’s biggest rival is e-route, whose investors include Canadian Imperial Bank of Commerce, Mouvement des caisses Desjardins, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Financial Group. e-route, which is marketing its online service under the Webdoxs brand, has adopted a lower profile.

Peter Melanson, chief executive officer with Toronto-based Electronic Post Office, said the time is right for online bill presentment and payment in Canada. He said the combination of high consumer recognition of the service, the fact that 4.2 million Canadians bank online and a banking system that is far less fragmented than in the U.S., makes Canada fertile territory.

The lack of success in the U.S., he contends, is more a matter of bad management and strategy than a lack of interest from consumers. "To me, it seems inconceivable that U.S. companies had any take-up at all. The Internet is supposed to make it faster and cheaper, but they wanted to charge people to have their mail delivered."

Canada, he said, is a completely different market

Strong numbers

Melanson’s confidence reflects Epost’s ambitious strategy. By early summer, it had registered 150,000 people, and expects to attract about 500,000 by the end of the year. Melanson said Epost anticipates profitability by the fourth quarter of next year, and he even admits that an initial public offering will be considered in the future.

Over at Webdoxs, the goals are a little less brash. Despite having more than 250,000 registered users by July, the company is hoping for 350,000 to 400,000 by year-end. Financially, it does not expect to break even until the end of 2003.

Epost and Webdoxs have adopted different market strategies. Epost is leveraging its Canada Post affiliation and positioning itself as the virtual version of the post office. This means it will digitize everything from bills and account balance statements to sales flyers and frequent flyer programs. As long as the consumer agrees to accept it, Epost is willing to deliver it online.

Webdoxs, however, seems content to focus on the bill payment market—providing a service that complements the banking services offered by its shareholders. Jim Sallas, Webdoxs’ president and chief operating officer, said at this stage he’s not concerned about Epost’s strategy or its growth.

"I’m not looking over my shoulder at Epost," he said during an interview just after taking the helm of Webdoxs this summer. "My concern is convincing billers and consumers to come on board. Once 98 per cent of consumers are doing things electronically, then we will worry about Epost."

Epost and Webdoxs also differ in their service delivery. Epost has created an e-billing portal at http://www.epost.ca, where users can sign up to receive bills from the companies on the service. e-route offers the Webdoxs service through its banking/investor partners—letting each bank present it as a bank-branded service.

Unlike in the U.S., Epost and Webdoxs are both free to consumers. They make money by charging companies a fee for each bill delivered electronically. Melanson said that Epost charges about 40 cents a bill, compared with the 75 cents to $2 that a company would pay to mail a paper bill. Webdoxs said it can cut a company’s mailing and printing costs by more than 50 per cent.

The lure of efficiency

For large companies using Epost and Webdoxs, the promise of lower printing and delivery costs—a core tenet of the online value and sales propositions—has not proved to be a critical factor. Bell Canada and Hudson’s Bay, for example, say the efficiency of their billing systems and the volume discounts they get from Canada Post make paper-based billing cost about the same as doing it online.

Bell Canada, which mails out more than 10 million paper bills a month, has decided to join e-route. Bruce Derraugh, vice-president of e-marketing and distribution, said the decision was driven by Bell’s overall strategy to enhance its marketing and customer service programs, rather than cost savings. Allowing customers to see and pay bills online, Derraugh said, is just another way to encourage people to deal with Bell.

Derraugh said the cost savings will become visible when many more Bell customers start to pay bills electronically. Bell expects 10 to 30 per cent of its customers to pay electronically by 2006, compared with just five per cent now.

Bell’s faith in the online bill presentment and payment market is shared by Toronto Hydro Electric System, which plans to move online this fall with e-route. Roman Dementavicius, IT systems delivery manager for customer care, said the utility is confident it can get 10 per cent of its 430,000 customers to use the Web to view and pay their bills.

While 10 per cent seems like a modest goal, Dementavicius said it must be seen in context, given that 60 to 65 per cent of Toronto Hydro’s bill payments still come through the mail. Toronto Hydro also recognizes it will have to be patient in waiting for results.

"The return on investment will not be as quick because other venues have shown there is a slow take-up on electronic bill presentment," he said. "We hope to see a return on it and would like the program to pay for itself over time. It remains to be seen what kind of take-up we’ll see on the customer base."

Forging ahead

Though still early in the game, Epost and Webdoxs have a lot of work to do: only 10 per cent of the country’s 400 largest billers have decided to use either electronic service. Many of the largest monthly billers, including Enbridge Consumers Gas and Rogers Cable, are still on the sidelines.

And although Epost and Webdoxs are more than happy to point to their growing list of billers, these numbers are partly made up by smaller companies and utilities. Epost, for example, includes the County of Oxford, Visions Electronics and Columbia House, while Webdoxs has Cambrian College, City of Leduc and the Region of Peel’s water and sewage unit.

That said, Epost and Webdoxs need to convince companies to take the initiative by putting their bills online.

Kevin Restivo, an analyst with IDC Canada in Toronto, said that over time the online bill presentment and payment market will establish a strong foothold in Canada. "It is a matter of convincing consumers they need to use electronic bill payment and that the Internet can be used for more than just e-mail," he said. "It’s a natural evolution of how people will use the Internet."