Note 7: Rating, Pricing and Bill Generation

Posted: 29 October 2005

Transaction-level pricing (Rating)

Rating performs the heavy lifting for billing. Rating combines network information, customer details and marketing (rate) information to determine the specific amount a customer is to be charged for a given transaction or transaction sets. The initial determination may be modified by later bill processing to reflect discounts and taxes.

Where a biller operates in a competitive market (assuming no changes in the network), it will reflect any (re)packaging of existing offerings in rating. Marketing imperatives may dictate frequent repackaging with short lead times. The speed with which changes can be made, and the versatility of the available rating methods determine the level of support billing can provide to marketing. A biller which does not compete for customers will still require accurate rating for its mass markets, and possibly customised offerings for its larger corporate customers.

The more detailed the information passed from the network, the more options there are for rating differentiation. For example, if a transaction's date is known then day-of-week rating can be applied; a transaction's time can support peak and off-peak price offerings.

Rating may be applied uniformly across a large customer segment (e.g. consumer), or be tailored for high-value customers (e.g. large corporates). Each transaction must have the appropriate rating approach determined. Different transactions for the same customer are likely to be charged differently. Subsequent transactions may be rated differently based on the totals of transactions to date. To enable timely transaction processing, billers with high-transaction volumes usually require substantial infrastructure (i.e. IT hardware).

Rating may be performed after the fact (e.g. charging for water) or in real-time (e.g. prepaid phone calls). There is a substantial difference in complexity between these two approaches. Achieving real-time processing requires high-availability, high-speed infrastructure to ensure that the correct price can be supplied quickly at all times. Rating for 'after the fact' transactions can be performed with some latitude as the rated price of (say) phone calls is not required to execute the network events (i.e. connect the phone calls).

Bill Generation / Bill-level Pricing

This function aggregates and forms bills to customers for transactions and/or activity performed within a given time period. The billing frequency may be at the customer's choice, be driven by industry norms, or be based on negotiated terms. Interim bills may be prepared when a need to convert unbilled charges into debt is identified. Final billing may be performed when a customer's network connection is terminated. Operationally, the bills for thousands of customers are usually prepared at the same time.

It is advisable to perform validation within a billing cycle to review the correctness and reasonableness of the customers' bills. Validation asks whether bill totals are reasonable, taking into account a given customer's market segment, and their historical activity.

Bills that fall outside of industry and business specific 'correct and reasonable' tests may be held for review by the biller's staff before their release. Bills for sensitive or important customers may be held and reviewed to minimise the impact of any errors.

Bill-level discounting may be performed using the customer's aggregated purchase information. This discounting provides a customer (marketing) benefit by rewarding high-spending. A deduction (discount) is made from the amount calculated in transaction-level pricing (rating) and the nett amount is presented on the customer's bill.

Some bill-level discounts may require a repricing of individual transactions during the bill generation process. This generates a high and immediate processing load. Repricing performed during bill-generation is less common though the full range of pricing methods can be made available. The initial pricing performed in rating is performed gradually (through the month) and operates with a lower (average) peak load. The time-critical repricing performed within the bill generation process necessitates a more expensive infrastructure (i.e. IT hardware) to supply the additional processing capacity.

Once all charges for the period have been finalised, rounding is performed to transform high-precision amounts (four or more decimal places) into charges that can be presented to, and paid by, the customer in an understandable format (e.g. two decimal places). This can also include the rounding of the bill to support easy payment by the customer. For example, in Australia, due to the lack of one and two cent coins, bills may be rounded legally to the nearest five cent multiple. The rounded amount could also be carried forward and applied to the next bill.

At the completion of this step, the amounts to be charged have been calculated, and the information to be presented on the bill sourced (e.g. marketing messages, prior payment details). The next function formats these details for presentation to the customer.

Tags: Billing, Rating, Pricing, Bill Generation