3. Framework

3.1 Characteristics of transactions

The purpose of this section is to establish the characteristics of transactions that could affect the requirements of an online system. We have assumed that the government is seeking to implement an electronic interface that will allow households and businesses to make payments to government. We have further assumed that internal transactions between government agencies and payments from government to consumers are not part of this system. The SSC has advised that government to consumer payments are generally made via direct credit. Hence, there is little advantage to an internet based system for these payments. Table 4 describes some specific significant transactions undertaken by government with households and businesses.

Table 4 Transaction Descriptions

Inland Revenue		Collects regular tax payments from households, businesses and other persons (such as farmers). The level and time payments are made is set by statute. Inland Revenue has a high level of control over the payment method. Information and statements must also be collected, some regularly, some irregularly. Security of information is important.
Customs		Collects customs duty from importers (mostly businesses and some individuals). The size of payments is set down by statute. Payments depend on often irregular shipping patterns. Information must be collected and audited. Customers may be based overseas. Security of information is important.
LTSA		Collects motor vehicle levies (including road user charges and registration fees) and charges for provision of driver licences. Fees are regulated. Fees are primarily paid on a regular basis. Although information storage is important, relatively little new information is collected at each transaction.
Courts		Collects fees for court use and fines and penalties imposed by courts. Payments are irregular and variable in size. Security of information is important. Matching of transaction information with fees and fines imposed is also important. Ability to pay easily, and probably by a range of methods is useful to maximising collection.
MAF		Collects revenue from the sale of forest products from Crown forests. Payments are likely to be frequent and variable in size, depending on volume of produce and price prevailing in the international market. Marketing may be important, e.g. for up-selling other products to existing customers.
Fisheries		Levies for the cost of fisheries management and collects penalties imposed for over-fishing. Quota payments are regular, and of uniform size, transaction matching is important. Penalties are likely to be irregular and variable in size.
Police		Collects traffic infringement fees and revenue from the sale of unclaimed property. Security of information is important. Transaction matching is important. Payments are likely to be irregular, the level of traffic infringement fines is regulated. Other payments may be variable in size.

Source: New Zealand Treasury

From this table of examples, it is possible to garner a set of criteria that define the key features that transactions between government and public may have.

• Volume of transactions - different technology may be needed depending on the number of transactions it is expected to cope with.

• Regularity of transactions - some departments transact at set intervals with the same customers. This generally means that they know the customers in advance. Others do not know who their customers will be and may only transact once with a particular customer. Some have control over the timing of payments while others have none.

• Uniformity of size - fees and some fines are of a well-defined size, others will vary depending on the specific transaction.

• Security - while all information held by an individual or business by a third party can be assumed to be confidential, it is likely that the desired security of information will vary depending on its nature. This suggests that a hierarchy of security techniques may be called for to reflect the differing imperatives associated with diverse data that is held.

• Information collection - some agencies use the opportunity of a monetary transaction for collecting other information. It will be important to these agencies that an e-billing system can provide this same data collection function.

• Transaction tracking - some transactions require the user to pay up-front for a service, in this case it is relatively simple to follow through a request and payment with service provision. Where payment occurs ex-post, it is important that information identifying a transaction remains with that payment.

• Control over payment method - sometimes agencies want to be very specific about how a bill may be paid. In other instances, it is preferable to give the consumer a wide range of options in order to ensure that bills are paid promptly. The cost of payment options may also be a factor.

• Who the customer is - if different customer types (household or business) have different expectations, or preferences in paying bills then it may be desirable to reflect this in the options offered. Also, the customer may or may not be known in advance.

3.1.1 Direct versus consolidated billing

A key question is whether government wishes to pursue a 'direct' versus 'consolidated' model of electronic billing.

a) Direct billing

The direct model involves an unmediated transaction between the customer and the biller, where the billers are individual government agencies. Under this model the biller uses its own corporate web site to present bills to customers and/or send bill summaries via e-mail.

Customers will register with the biller, visit the biller's web site to review bill summaries and then pay the bill, typically using the services of a payment processing agent. In the case of a consumer dealing with multiple government agencies (not unusual, particularly for corporates), this will necessitate multiple registrations, a requirement that international experience suggests yields low rates of consumer uptake and satisfaction.

It is possible to come up with ways of addressing this by having an 'invisible registration system,' that automatically lists all clients with all sites and billers, once approval has been gained. But the complications associated with such a system deserve careful analysis in their own right, and in the end, of course, such an approach shades into a consolidation model. We have not pursued these ideas further.

b) Consolidated billing

The alternative, consolidated, model of Internet bill presentment and payment does away with the need for multiple registration by establishing a central billing agent or consolidator. The consolidator aggregates billing information from multiple billers and prepares bills for presentment through banks or Internet portals. The consolidation process can be 'thick' (i.e. gather transaction details as well as billing data to allow customer transaction query), or 'thin' (i.e. bill summary information only).

Although more complex in terms of its requirement for scaleable aggregation and distribution software, the consolidated approach allows for one-stop bill presentment. This offers considerably greater convenience to the government's various customers, particularly for those customers with extensive and recurring dealings with a variety of government departments. Coupled with the reduction of consumer compliance costs and the realisation of greater efficiencies, the consolidated model appears to offer considerably greater incentives to transact business electronically. From an agency viewpoint also, the fact that development costs and their associated risks are borne mainly by the consolidator may be a significant consideration.

The apparent desirability of the consolidated versus direct billing model gives rise to the question of whether the State Services Commission considers it practicable and desirable to mandate a single system for use by all governmental agencies. This will have obvious implications for the selection criteria and application of electronic billing tools. We note also that there are previous examples of similar sector-wide initiatives that have been taken. Some consideration of these (an obvious example is the single banking relationship contract that the government centrally arranged with WestpacTrust), may provide some insight into the diverse costs and benefits of consolidated billing.

3.2 System criteria

Having specified the broad characteristics of transactions that could be undertaken on the internet, the next step is to identify the criteria that an electronic billing system would need to have to complete such transactions.

3.2.1 Volume

The volume of transactions completed affects the required speed of the system. The greater the volume of transactions the faster the system needs to be.

The volume of transactions may also affect the cost. Agencies are likely to seek cost conscious transaction methods. If the system has a high fixed cost, it will become more attractive the greater the volume of transactions.

3.2.2 Regularity

Whether payments are to be made regularly or irregularly, the system must be readily accessible. If payments are likely to be regular, there may be a need to allow 'search of transaction history,' so that the customer can review previous payments.

3.2.3 Uniformity of size

Where payments are of irregular size, the system must be flexible enough to allow payments to vary. Where payments are uniform in size then there may be advantage in allowing customisation so that customers can select the type of payment that they are making. This illustrates the importance of enabling customers to retain control of the size of payment that they authorise.

3.2.4 Security

Where the government holds information about private individuals or businesses it is important that systems are in place to ensure that that information remains confidential and that there is clear accountability for any breach in such security protocols.

3.2.5 Information collection

Some agencies are likely to seek the ability to customise the transaction with the customer in order to allow provision of information by the customer of relevance to the transaction (such as change of address).

Other customisations may be desirable, such as the ability to consolidate transactions in a way that is consistent with the management accounting requirements of the agency. Some agencies may wish to use the transaction with the customer to increase awareness of other products or services that the entity offers. Paper billing presents this opportunity by allowing additional inserts, for example.

It may also be useful to have the functionality to allow customers to feed-back through the internet transaction, for example, those seeking clarification of a bill, or further information, or extra services.

The system should have the flexibility to be able to respond to changes in the needs of customers or the agency.

3.2.6 Transaction tracking

As with all financial systems it is necessary that any electronic system allow details of transactions to be identified throughout the process, and ex-post to be securely audited to ensure integrity of the system.

3.2.7 Control over payment methods

Agencies seek to retain control of the methods by which customers can pay in order to create an audit trail and in order to control costs. If some payment methods are unacceptable, for example credit card payments, then the ability to customise the e-billing system becomes important. It assumed, however, that multiple payment methods will be provided for, to allow maximum flexibility, and to encourage consumer uptake.

3.2.8 Who is the customer?

Different customers have different requirements, and it is important that these be considered or there will be a low rate of uptake of any new payment system.

For example, business customers may require that the system is compatible with normal business practice, such as their own audit procedures that allow only certain people to authorise transactions. Business customers are likely to have a higher rate of uptake if an electronic system can connect with their own software.

Household customers are likely to focus on ease of use and accessibility of the system. They may also focus on cost.

3.2.9 Summary

Having motivated the system requirements from the transaction characteristics, we can now identify the requirements of the consumer, the specific government agency, or government as a whole.

This is given in table 5 below.

Table 5 System Requirements

		Customers	Agency	Government
Speed		X	X	-
Reliability		X	X	-
Accessibility		X	-	-
Ease of use		X	-	-
Fit with normal business practice		X	-	-
Connectivity with normal software		X	-	-
Cost		X	X	-
Flexible		-	X	-
Security of information		X	X	X
Auditable		-	-	X
Accountability		-	-	X
Ability to customise		-	X	-

Source: NZIER

3.3 Drivers of demand

There are a number of drivers of demand for e-billing that can be identified from the perspective of customer and government agency, respectively.

3.3.1 Cost

Cost is obviously vital. There are several elements to the cost of e-billing. The first cost incurred is the capital expense facing the agency. Also up front are the training and system creation/adjustment costs that inevitably accompany any significant systems implementation. The agency also takes ongoing administrative cost into account when making a purchasing decision. From this perspective, a product that can be purchased off the shelf, with out-sourced backroom responsibility is likely to be more desirable.

The customer also faces cost incentives when deciding how to pay a bill. There is an initial cost associated with set up, including accessing the internet and setting up the appropriate authorities with the bank. The cost of each transaction relative to other ways for paying will also affect whether a customer uses this payment method.

3.3.2 Uptake

Uptake by private businesses is also likely to affect demand for e-payment of government bills. There are two reasons to expect the private sector to have an impact. Firstly, the cost of e-billing is likely to be lower if the complementary technology has been widely adopted by the private sector. This is because cost-reducing innovation will already have occurred in house, and is likely to occur more quickly as more people are seeking such innovations. Furthermore, the wider the uptake, the higher the volume of transactions being processed by the service provider, potentially lowering their marginal cost.

Secondly, the wider the uptake in the private sector, the more customers are likely to already be familiar with the technology, increasing use of this payment method for government bills.

3.3.3 Features

System features will be a driving factor in the level of demand, and supply of this payment type. The previous section discussed system requirements. These points can be reiterated here. Customers have certain requirements when paying bills (such as reliability, convenience and security).

The proposed system would need to meet these requirements and those of government. If the product can connect with the internal billing or accounting system of government or its customers then this will also boost demand.

3.3.4 Risk

Finally, risk will affect the uptake of e-payment billing methods by government agencies. The government sector is generally risk averse, and is less likely to adopt a system that has significant implementation or support risks. This means that it will be important that products are demonstrably able to fulfil system requirements and that the level of risk that the supplier will later leave the market, stranding the product, is low.

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