In Bill2phone, a consumer receives a bill from their LEC on their regular monthly billing cycle. An additional page of eCommerce charges is appended to that bill by the clearing house in accordance to LEC guidelines as defined in a Billing and Collections (B&C) Agreement between the two parties. These charges are placed on the unregulated portion of the consumer's bill. Consumers remit payments for those purchasers directly to their LEC who further remits payment to the clearing house, who acts as a clearing and settlements provider to participating eCommerce Merchants.
Placing third party charges onto a telephone bill with B&C functionality has been in practice since the time of Bell System Divestiture and the Modified Final Judgement in 1982. As part of the breakup of AT&T, it was mandated that the resulting RBOCs, and subsequently most LECS, would allow other providers of telecommunication services to place their third party charges onto the LEC bill. The intent and result was to increase competition in the industry.
As telecommunication services are highly regulated and billing systems are complicated, an industry emerged as did standards (EMI) to simplify the process of taking the third party telephone records and placing those charges onto the 1400 US LEC bills. In the 1990s there were many long distance telecommunication providers, operator assisted telecommunication service providers, IXCs, and so forth who wanted to avert or defer the cost of implementing a costly billing system of their own, and by doing so, get to market more quickly. IXCs also understood that a single bill to the customer was desired. Companies like ZPDI, USBI, Integretell, Enhanced Billing Services (ESBI), OAN, ACI and many others emerged to reduce the integration complexities of these many to many relationships.
Billing for third party charges had for the longest time been restricted to telecommunications charges, Customer Premises Equipment(CPE), and Enhanced telecommunication charges (e.g. ISP services, voicemail). In 2005, the LECs having expanded their own initiatives into IPTV (IPTV: e.g. AT&T U-verse, Verizon FIOS), and Video on Demand, and with increasing penetration of DSL connectivity into the household, allowed for more content types to be billed to their bills. While there is no uniform standard for what is an allowable content type, it is safe to say that most digital content delivered over the internet has been acceptable as long as it meets the interests of the LEC consumer base.
As it is now possible to bill for digital content using the phone, a variety of changes to the standard data and financial procedures had to be implemented to satisfy the needs of the entire value chain: Consumers, eCommerce Merchants, Clearinghouses and LECs.
Similarities and differences between Bill2phone and credit cards
For illustrative purposes, Bill2Phone and similar services work very similarly to credit cards from the following value chain perspectives:
- Online consumers choose a Bill2Phone payment option. They are prompted to enter their telephone number and data that uniquely identifies them (e.g. last 4 digits of social security, LEC billing code, birthdate, etc.).
- Merchants collect information from the user to uniquely identify them. They attach appropriate purchase data (e.g. date, amount, product description, tax, email, etc.) and communicate that data via a secured Payments Gateway and associated API calls (Authenticate, Authorize, Settle, Sale, Credit Order, etc.) to a Payments Processor or clearinghouse. A fee is assessed the merchant for processing transactions throughout the value chain.
- Clearing houses authenticate the user against various public and private databases and then authorizes the transaction based on preset spending limits as determined by the LECs. Translates the API call into a telecommunication industry standard (EMI) format defined by the Alliance for Telecommunications Industry Solutions’s (ATIS) Ordering and Billing Forum (OBF). The resulting EMI record is sent to the LECs for processing in their normal billing cycles. Remitted payments from the LEC are subsequently
remitted to the merchants less their processing fees.
- A LEC processes the EMI records for placement on the end user telephone bill, collects payment from the end user and remits payment back to clearing house.
Billing to a phone bill is different from using credit cards in a variety of ways:
- The consumer is not offered a revolving credit line. The charges are expected to be paid in full at the time of the next billing cycle. Failure to pay in a timely manner can result in some user services from the LEC being withheld, and subsequent collection proceedings.
- Merchants are typically paid after the money has been remitted by the consumer to the LEC. However, most providers of this service have facilities for forward-funding money to the merchant to assist in cash flow.
- User credit lines typically range from $100–$200 per month. The intent of the service is to allow for sufficient micro payments ($0.99 -$50) on a single transaction basis or for subscriptions.