MSFDC’s Web site was well-prepared for launch date.

Microsoft, with more than 150 million users of its software products, and First Data Corp. processor of 150 million credit card accounts, announced a joint venture, MSFDC, that will compete with CheckFree and others in the growing field of digital bill payment. But MSFDC’s approach is radically different, focusing on Web-based bill presentment with a business model based on the biller paying the tab rather than the consumer (or consumer’s bank).

This approach promises to speed consumer adoption, which in turn will finally get billers interested in making the necessary electronic connections. Finally, a solution to the age-old “chicken and egg” conundrum. Which comes first, billers able to accept payments electronically, or consumers wanting to make electronic payments? It no longer matters. The combined Microsoft/First Data entity has the credibility, resources, and customer base to bring both chickens and eggs to the table by the time the service launches in 1998.

While the focus is bill presentment, the service also includes “pay anyone” bill payment so that users know they can get all their bills paid online, not just the ones presented online. Pay anyone bill payment will function in the same manner as competitive services from CheckFree, Travelers Express, and others. Users initiate payment requests online and MSFDC remits the payment to the merchant in the fastest way possible, either electronically or by mailing a paper check. Banks offering the service will be charged fees competitive with other bill pay processors, $0.40 per payment plus or minus a couple cents which banks can pass on to users or absorb.

Bill presentment is more complicated, but far more appealing to everyone involved: end-user, biller, bank, and MSFDC. Billers use Microsoft software to send statements to the MSFDC data center in Denver. Bills are posted to customer mailboxes on the MSFDC server. Users accessing the service through a bank would first log-in to their bank’s Web, then select pay bills to be transported to the MSFDC Web. The transition would be seamless with all screens retaining bank branding and navigation. After authorizing payment, users would be returned to their bank’s Web.

In the background, MSFDC would debit the user’s bank account that evening and send a message to the biller alerting them that payment had been authorized and a debit item had been submitted. At that point, the biller could elect to update the user’s account to show payment was on the way, or they could wait another 24 hours until “good funds” were assured. Either way, it will provide needed relief to bill pay users, and their bank providers, tired of the tedious tracking of “electronic” payments languishing on a postal truck or in the biller’s exception-item bin.

Whether MSFDC pulls it off is yet to be seen, but given the track records of its parents, we think they will. Here’s why:

• It’s Bank Branded: MSFDC could have gone directly to the end-user in the same manner as Microsoft Expedia and Investor. But this would have required a significant investment in time and money building consumer trust. Instead, it appears MSFDC will remain largely behind the scenes, acting as a secure electronic messenger (not unlike the postal service delivering letters and payments). Instead of facing competition from 20,000 U.S. financial institutions, MSFDC has 20,000 potential partners serving 100% of the banking market. The crucial selling point in getting billers off the dime.
• It’s Free: More precisely, billers are picking up the tab instead of consumers. It’s the only proven model for Web success, and it will speed adoption like no amount of advertising and promotion could. Assuming MSFDC can deliver the user base, billers will save considerably more than the $0.30 they are anteing up to MSFDC.
• It Saves Banks Money: Bill payment has been a customer service headache since it was invented. Now banks can offer a state-of-the-art Web service for no cost and minimal customer service expense. With true next day payment, customer service should be a breeze. In fact, once the bugs are worked out, we think your overall expense on an MSFDC bill presentment payment will be negligible. Maybe even less than the support costs of traditional hand-written checks.