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© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 1© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 1
The Golden Age of Card Payments
Jan Jacobs, Online Resources, Principal Market Manager
Juli Comstock, Omaha Public Power District, Division Manager – Customer Services
September 25, 2012
Utility Payment Conference
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 2© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Agenda
Historical Perspective on Card Acceptance for Bill Payment
Durbin Amendment Ushers in the Golden Age
Cards and Consumer Behavior
How OPPD is Leveraging the Card Payments
Strategic Review
Questions
2
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 3© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
1st bank card introduced
1946 1990s 2000s 2005 2010 2011 2012
Billers began accepting cards
Billers offer web for card payments
Visa introduces flat rate interchange for specific billing industries
Mobile introduced for card payments
Durbin amendment lowers cost of debit cards
Golden Age Arrives
Customer Convenience
Cost Savings
Add debit cards to auto-pay
Paperless billing & recurring payments incented with cardsRates reflect post- Durbin costs
Payment system ready for uncertain future
Corporate card programs
Golden Age of Card Payments:
Unprecedented levels of customer convenience and cost savings are now possible!
Source: Federal Reserve, UPC, Payments and Interchange Management Consulting
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 4© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Historical Perspective
Why the Golden Age?
1990’s
Limited Card Acceptance Limited Demand
High Cost
Variable Cost Structure
High Average Payment
Early 2000’s Convenience Fees
Internet Card Acceptance
Competitive Biller Categories Begin Widespread Card Acceptance
Mid 2000’s Card Associations Recognize Bill Payment as Growth Opportunity
2011 Card Growth for Bill Payment – 15%
A post-Durbin Golden Age Arrives
4
Charge a Convenience Fee
No Fee0%
20%
40%
60%
80%
100%
90%
10%
45%55%
Utility Card AcceptanceSource: Chartwell
Investor Owned
Municpal
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 5© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Durbin’s Impact on Card Acceptance Cost
Savings are significant for some billers in some verticals
Card processing cost down as much as 40%
5
*Assumes an average bill payment amount of $150, a 60/40 split between large and small issuers and assessments charged by the card association of 0.11% of the payment amount
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 6© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 6
2004 2005 2006 2007 2008 2009 2010 20110%
10%
20%
30%
40%
50%
60%
70%
80%
Majority of Payments in Retail Stores Made with a Card, While Costs Stymie Growth for Bill Pay
Bill Pay
Retail Stores
% o
f P
aym
ents
Mad
e w
ith
Car
d
Source: Aite Group, Hatachi Consulting, ORCC analysis
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 7© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 7
Billers expect card growth
Will grow Will start to offer Will stay flat or decline Will discontinue Do not offer
Recurring debit card payments
Recurring credit card payments
PINless debit payments
One-time credit card payments
One-time debit card payments
Q. What does your organization expect for the transaction volume growth rate for the following payment methods in 2012?
Source: Aite Group
36%
38%
45%
71%
76%
10%
10%
2%
2%
2%
17%
17%
2%
2%
52%
50%
36%
10%
7%15%
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 8© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 8
The cost of card acceptance is painful
10%
13%
15%
17%
23%
23%
23%
31%
24%
65%
23%
54%
68%
51%
51%
33%
67%
21%
62%
29%
9%
26%
26%
35%
PCI compliance
Late/delinquent payments
Cost of walk-in payments
Cost of call center support
Cost of paper bills
Integrating technology
Slow consumer adoption of eBills
Cost of accepting cards
Q. How would you rate your firm's pain level in the following?
A lot of pain Some pain No or little pain
Source: Aite Group
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 9© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 9
Consumers increasingly prefer cards for other types of payments
Source: Aite Group, ACI
57%
3%
41%
11% 8%
80%
50%
2%
48%
6% 4%
90%
Cash Check Card Cash Check Card
Small-ticket items High-value goods
Payment Method Preferences
2009 2012
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 10© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 10
Are you a Smartphonatic?
Source: Aite Group
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 11© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 11
Smartphonatics on bill pay methods
63%
68%
69%
77%
78%
Was able to save on postage costs
Biller started accepting credit or debit cards
Biller waived the fee for paying with a card
Got cash/other incentive
Received rewards for paying with a card
Percentage of Smartphonatics “very likely” to change bill pay method for following reasons
Source: Aite Group
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 12© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Cards play an important role in changing bill pay behavior
24%
25%
30%
31%
36%
38%
41%
41%
38%
33%
37%
32%
36%
33%
35%
37%
37%
32%
33%
26%
26%
Want an environmentally responsible way to pay
Biller moved to paperless bills
Biller started accepting credit or debit cards
Were able to save on postage costs
Biller waived the fee for paying with a card
Got cash/other incentive
Received rewards for paying with a card
Likelihood of changing bill pay method for following reasons
Very likely Somewhat likely Not likelySource: Aite Group, ACI
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 13© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 13
Debanked starting to avoid checking accounts
Don’t agree at all41%
Don’t know about this
40%
Agree some12%
Agree a lot7%
Q. To what extent do you agree with the following statement: "I have a checking account but am thinking
about switching entirely to just using a prepaid debit card."
Source: Aite Group
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 14© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Exploiting Opportunities in the Golden Age of Card Payments
Omaha Public Power District
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 15© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Agenda
About OPPD
Customer satisfaction leader
Current Challenges
Payment Trends
The Case for Recurring Payments
Future Payment Channels
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 16© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Omaha Public Power District
• Publicly owned electric utility• 5,000-square-mile service area• Serve a population of 784,500• Total Revenues of $1.1 billion• 12th-largest public power utility in U.S. in # of customers served
Customer Class
Count
Residential 308,412
Commercial 43,564
Industrial 206
Total Retail 352,182
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 17© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
The Public Power Advantage
Local control
Elected Board of Directors
Lower rates
Customer-owners – not stockholders – are at the forefront of decisions
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 18© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Customer Satisfaction Leader
Consistently rated top electric utility in Midwest/Midsize Residential Customer Satisfaction survey
Typically score 10% higher than other utilities regarding “usefulness of options to pay bill”
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 19© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
OPPD Bankcard Payment History
1992-1993 1999 2002 2003 2007 2012
Offi
ce
Walk-in Offices
“Black box”
Terminals Pilot
Phone Reps
IVR
MyAccount
One-Time Pay
Timeline
Payment Channel
Phon
eop
pd.c
om
Online Payments thru Client Console
Automated Self-Service Phone Payments
Self-service bill payment through log-in with stored funding information
Self-service online one-time bill payment
“Black box” Terminals
Notes: 1) None of the above channels currently offer recurring payments.2) All online payments are processed thru ORCC since 2007.
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 20© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Current Challenges
Fort Calhoun Outage
2011 Flood Mitigation
EPA Regulations
Rising Employee Benefit Costs
General economy impact on customers
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 21© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Maintaining Customer Service Margin
• Minimize rate increases
• Provide safe, reliable power
• Support energy efficiency
• Provide low effort options
Customer Service
Billing
Payment
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 22© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Payment Trends at OPPD
Mail-in32%
ABP & EDI24%
oppd.com14%
Web – Cus-tomer Bank 13%
Phone-IVR4%
Phone-Rep5%
Branch9%
Observations:• Mail-in payments have dropped an
average of 10% each year for the past 3 years.
• Web payments made from the customers’ home bank increased an average of 29% over the past 3 years.
• Phone payments increased 24% with the closing of branch offices in 2010.
• Branch payments increased slightly due to local bank charging fees for paying OPPD bill at their locations.
• Increases in postage costs as well as charges to customers for paying at banks will continue to increase electronic payments.
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 23© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
• Customer Convenience …low effort
• Call Center Processing Cost
• Call Center PCI Compliancy
Increased operating costs
Increased operating challenges
• Combine with Paperless Billing
If all MyAccount customers went paperless = $450,000 savings
The Case for Recurring Payments
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 24© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Managing Payment Card Costs
• Steer customers to low cost channels
• Monitor fees and consider charging payment fee
• Participate in flat industry biller rates when applicable
• Channel business customers to low cost payment methods
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 25© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Future Payment Channels/Promotions
• Mobile Payments• Third-Party Payment Channels
• Retail Establishments• Home Banking
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 26© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Conclusion
• No turning back …customers expect bankcard options
• Current regulations allow cost management of fees• Billers need to find their balance
Costs
Customer Satisfaction
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 27© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Design Strategy with the End Game in Mind
27
Cater to Preferred Card Types
Give Your Customers What They Want
Incent Low Cost Customer Behavior
Ensure Processing Cost or Consumer Fees Reflect Durbin Rates
Prepare for the Unexpected by Deploying a Flexible Solution
Corporate Card Costs
Customer Satisfaction
Retention Delinquency Postage & Printing
Call Center Calls
Interchange Adaptability
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 28© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Catering to Preferred Card Types
Commercial, small business, purchasing, and rewards cards come with a higher rate -- interchange rates can be more than 2.5% of the bill payment amount.
The biller’s pain is the issuers gain – was this the intended purpose of corporate card programs.
In response, some billers only offer card payments to their residential or consumer based clients. Payment interface changed to offer card-based payment options for residential or non-
commercial based accounts.
28
“We pay $1,000 to accept a $30,000 corporate payment”
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 29© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Give Customers What They Want - Adding Debit Cards to ACH - AutoPay Most billers only accept ACH
in their auto-pay direct debit programs
76% of all utilities offer a recurring ACH program, while only 35% offer a recurring credit card program
Now that the cost of accepting cards has decreased, it’s more affordable for billers to raise customer satisfaction
Debit cards are the most preferred form of payment by customers
Billers should explore adding debit cards to their recurring payment options
29
Source: Phoenix Marketing International, Mercator Advisory Group, Chartwell
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 30© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Use Card Acceptance to Incent Low Cost Customer Behavior
Offer card payments to customers that sign up for recurring payments. Customers that sign up for recurring are:
18% less likely to leave
Have a 70% lower delinquency rate
Offer card payments to customers that agree to go paperless
Billers that tie card acceptance to paperless billing can reduce their delivery cost by $0.40-$0.50 per bill
Offer card payments to customers that enroll in online services
Customers that receive electronic bills at the billers website are 39% less likely to call a customer service representative at the biller than customers who receive a paper bill
30
Source: ORCC survey of 1,000 households, Blueflame Consulting, Aspen Analytics, American Banker
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 31© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Ensure Processing Cost or Consumer Fees Reflect Durbin Rates For billers that choose not to charge a consumer fee, make sure your
arrangement with your card processor allows you to take advantage of the Durbin rate
For billers that have a consumer fee program for card acceptance, make sure the fee is reasonable given the new cost structure
31
Cost savings due to Durbin experienced by Large Utility
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 32© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Prepare for the Unexpected with a Flexible Payment System
32
The future may bring changes to Legislation
Consumer payment preferences
Bank fees
Interchange rates and fees
Select a flexible payment system Have your end game in mind of maximizing customer convenience
and minimizing the cost of your program
Technology can leverage new routing capabilities provided by Durbin Amendment
Large number of standard configuration options to make it easy to adapt to the unexpected
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 33© Copyright 2012 Online Resources Corporation – Proprietary & Confidential
Will Your Organization Enter the Golden Age?
33
Key Questions Yes or No?In the past 6 months, have leaders from across the organization come to agreement on an updated strategy for accepting cards?
Is your organization using card payments to cater to preferred customers? (e.g. corporate card cost savings)
Do card payment options incent desired consumer behavior? (e.g. paperless billing, recurring payments, web self-service enrollment)
Are post-Durbin rates are reflected in your cost structure?
Has your organization deployed a payment system that is easy to change to keep up with new opportunities? (e.g. long list of standard configuration options, easy to do work with)
Total # of Yes 0: Time to evaluate your plan1 – 3: You’re on the right track4 – 5: You’re reaping the rewards
© Copyright 2011 Online Resources Corporation – Proprietary & Confidential 34© Copyright 2012 Online Resources Corporation – Proprietary & Confidential 34
Questions?
Thank-you for attending our session!
Jan Jacobs Juli ComstockOnline Resources OPPD(609) 61061134 (402) 636-3704 [email protected] [email protected]