Recurring payments (RP) made through payment cards offer electric utilities a simple and highly effective way to reduce costs, improve cash flow, and enhance customer service. Also known as automatic bill payment and direct payment, RP lets customers authorize vendors to automatically charge the amount owed to a payment card on a regular basis.
RP is tailor-made for electric utilities, which mail millions of bills every month and have to process a corresponding number of paper payments, incurring significant paper, postage and administrative costs. Statistics from research firm Celent Communications show that paper-based billing costs service providers between $0.70 and $2.00 per statement to process. Electronic payments can slash the cost to as low as $.03 cents per bill.
Much of the demand for recurring payments has been driven by an increasing consumer preference for electronic payments. According to the Federal Reserve, checks currently total 45 percent of all non-retail cash payments, down from 55 percent in 2001, while credit card payments have increased from 21 percent to 24 percent and debit from 14 percent to 19 percent.
A recurring payments program can yield significant operating efficiencies for utilities, including reductions in collections, write-offs and disconnect expenses. Additional benefits include:
“- guarantee of payment in-full and on-time;
“- improved cash flow and reduced exposure to bad checks and write-offs;
“- ability to increase customer retention and gain market share in deregulated states;
“- higher incremental retail sales;
“- reduced customer attrition; and
“- increased revenue per customer.
RP also enhances customer care. In the utility segment, as many as three out of every four calls into contact centers deal with account, billing and/or payment issues, according to research conducted by Edgar, Dunn & Company. With a recurring payments program, the volume of those calls and the costs associated with handling them can be dramatically reduced.
In addition, RP enables utilities to meet the growing demand for customer self-service, giving customers the convenience and security of knowing their bills are paid on time while eliminating the hassle and cost associated with writing and mailing paper checks. With anytime-access to the Internet and interactive voice response systems for real-time payment posting, utility customers can avoid service disruption, late-payment charges, and shut-off and reconnection fees.
In fact, according to Richard K. Crone, director with Edgar, Dunn & Company, “The use of electronic payments lays the foundation for achieving all the benefits of customer self-service while providing the opportunity to reduce costs for the average large utility by at least $5 million to $10 million annually.”
Yet, a 2003 MasterCard Recurring Payments Study shows that despite all the customer service benefits, cost savings, and positive ROI recurring payments programs deliver, the utility sector lags behind other industries in the percentage of customers using recurring payments. The study showed that 22 percent of utility customers use some type of recurring payment method to pay their utility bills, compared with 50 percent of insurance industry customers, 62 percent of health club memberships, and 43 percent of customers for online Internet services.
In addition, the study showed that recurring payments can also offer a competitive advantage to utility providers in addition to achieving cost savings and productivity gains. One-third of utility bill payers would consider switching service providers if the option of paying bills automatically using a payment card was offered, if all factors were equal.
Across all industry segments, billers have become more receptive to new, more efficient payment options that displace paper-based processes, reducing costs, increasing efficiencies and generating a positive return on investment. Today, achieving savings from paper turn-off by implementing customer self-care, e-statements and electronic bill payment and presentment is a top priority. A recurring payments program can help utilities accomplish all those goals while playing a key role in delivering unmatched customer service and enhancing customer satisfaction.
As consumer payment preferences continue to shift away from paper, embracing the flexibility, convenience and security of payment cards, utilities should throw the switch and power up their own recurring payments programs.
Johnson is vice president of acceptance development for MasterCard International.