Revenue collection via the Internet: transaction cost components

Internet electronic commerce is claimed to have a significant effect in reducing the cost of doing business, yet the uptake of this medium for government service delivery in Australia has been relatively slow. This paper proposes a new business model for government revenue collection called "ecollect" and identifies the cost components within the context of transaction cost economics. A pilot study grounded in real-world operating constraints, was conducted using 2 payment schemes, to uncover the main transaction cost components. The results indicate that the 3 main costs to the provider are contracting, establishing an Internet presence, and integration with existing back-end business systems. Two additional factors emerge: the consumer cost of participation and the cost of risks for each of the participants. The processes involved are synthesised to provide a mud map for businesses, particularly government agencies that are planning to implement Internet payment schemes. Electronic service delivery Numerous forecasts of increases in the volume and value of business trade on the Internet are an indication of the expectations that the popular press and trade magazines hold for electronic commerce. A recent Forrester review sets the on-line business value at US$1.3 trillion by the year 2003 (Reuters, 1998). The new advantages offered by electronic commerce are not limited to increased economic value for the business sector. They are paralleled in the public sector with unique opportunities for doing business in new ways, and different avenues for interacting with the general public [see for example, Fergusson and Quinton (1997), and Schorr and Stolfo (1998)]. The Australian government has an active and encouraging voice in promoting Internet electronic commerce as a way to gain competitive advantage, particularly with respect to international trade (Department of Foreign Affairs and Trade (DFAT), 1997) and small to medium size enterprises (DFAT, 1995). It is only recently that a number of State and Federal governments have stated their commitment to on-line delivery of all service by the end of 2001 (Kelso, 1998). The high expectations and the considerable publicity surrounding electronic commerce has not been matched by development of Internet based government transaction systems, nor by public uptake of Internet payment opportunities. Typically, the Internet presence of Australian governments and agencies has been confined to information provision and dissemination rather than to interactive service delivery systems. There are a few exceptions to this. One example is Maxi, (Victorian State Government) which offers a number of transactions and some secure payment options [at http:// www.maxi.com.au]. The second is the West Australian Department of Transport's licensing and registration system that allows for credit card payments over the Internet [at http://www.transport.wa.gov.au/licensing/indexpay.html]. A recent Australian Bureau of Statistics survey on usage of the Internet reported that the volume of Internet payments was well behind the telephone, Electronic Fund Transfer at Point of Sale (EFTPOS) or automatic teller machines (ATMs). Approximately 2% of adult Australians that used electronic means to pay bills or transfer funds used the Internet in the three months to May 1999. The breakdown of the actual method of payment is shown in Figure 1. It would appear that the reality does not as yet match the hype. There is sparse evidence of public demand to support the various proclamations and propaganda declaring that government services will all be on line within a few years. Figure 1 Electronic Payment Methods The ecollect model A significant factor affecting the uptake of electronic commerce is the real and perceived cost of "doing business" over the Internet (Murchland, 1995). The notion of what "doing business" is so broad that it is essential to narrow it down to a working definition. A useful starting point is Timmers' (1998) electronic business models. These models are classified according to architecture of service, description of potential benefits and description of revenue sources. The most relevant ones for government transactions are procurement and service provision. The "eprocurement" model is used to represent the tendering and procurement of goods. The "eshop" model is also applicable to service delivery though to a limited extent; it can be modified to promoting services and information rather than physical or "soft" goods. The benefits to be derived from the latter model include cost reduction for both provider and consumer, and greater convenience for the consumer. In this paper an ecollect business model is proposed as a particular case of the eshop model. The purpose of the ecollect model is that of revenue collection by government agencies. In its simplest form an Internet revenue collection activity depends only on a unique bill identifier and a mechanism for electronic payment. It assumes that there is no requirement for payee (human) authentication. The main potential benefit of conducting business in this way is to reduce the cost of revenue collection. 1 Source: ABS Catalogue No. 8147.0 Use Of The Internet By Householders, Australia, May 1999 electronic and telephone payments