Matt Cone, biz development whiz at Microsoft, calls bill presentment a “$0 billion” dollar industry. This statement serves to bring people back to reality, for all its promise, bill presentment has yet to generate material revenues. And given e-billing roots as a cost-cutting tool for billers, it might have been slow to take hold had one thing not occurred. The run-up of Internet stocks, especially in the ecommerce and retailing sectors, during the past 12 months has dramatically changed the business case for e-billing, making it even more challenging for retail banks to compete.

Source: Company reports; closing stock prices on Feb. 3, customer totals year-end 1998

The new risk and reward equation

What does the Internet stock bubble have to do with bill payment? Internet investors are currently rewarding companies that show rapid growth on the Net, regardless of whether there is a rational profit motive. This makes bill payment, and banking for that matter, relatively untapped sources of traffic. The two pure Internet plays in retail banking, Net.B@nk and TeleBank, have seen their market values more than double in the past 45 days to valuations per customer significantly higher than even Amazon.com (see table above). Now, there is a strong incentive for Internet banks to rapidly build their customer base to boost market caps dramatically. Witness Ameritrade and E*Trade who’s combined market value of $10 billion is up almost 10-fold since Oct.

Second, because of the ubiquity of bill payment and the enormous transaction volumes, Internet portals have joined the gold rush for the 5.2 billion transactions see table from 21 million electronic bill-paying households (year 2002). And because of their enormous market valuations, Internet favorites possess a highly valuable currency in which to make acquisitions.
They could buy their way into an e-billing leadership position. Ironically, while bankers were looking over their shoulders at Microsoft, it’s really a bunch of Yahoos in northern California set to make off with the business.

Internet-Enabled Bills (billions)

Total number of consumer bills in the U.S., number that can be paid online, and number that are paid online.

Source: Total bills/Net-enabled bills, Intuit, 11/97; Payments (includes all remotely authorized bill payments whether or not the bill statement was presented online), OBR, 1/99 (+/- 25%)

If you are Yahoo!, Intuit, or AOL/Netscape and think about how Wall Street might value a bill payment play, you must get real excited. If you could get 10% of the nation’s bills presented through your Web, you’d potentially have 1.8 billion bills creating 5.4 billion transactions from 10 million households.

Transaction Volume Forecast (U.S.)

Source: Online Banking Report estimates (+/- 25%), 1/99
*Assumes three transactions per payment: (1) receive/read the bill; (2) pay the bill; (3) receive confirmation; EPB = electronic bill pay

But it’s not just the raw traffic that will make investors froth, it’s the nature of the traffic. Households logging in to the Yahoo! Bill Payment Center* will not only pay their bills, they’ll think about their financial situation and plan for the next round of expenses and investments.

While users are in this “ecommerce frame of mind,” it’s the perfect time to pitch loans, investments, tax planning, or consumer goods. And because users will need to be registered to pick up their bills, Yahoo! will be able to deliver customized financial product pitches at high CPMs, or the company may elect to simply pitch its own co-branded financial products which currently include the Yahoo/First USA credit card, the Yahoo/QSpace credit report, and the Yahoo/E-Loan mortgage.

Another factor is that financial services companies themselves account for some one-third of all bills generated. To be successful, a portal will have to cut deals with financial institutions and/or their service providers (Checkfree, Transpoint), or develop ways to pull the bills directly out of biller sites by logging in as the user, and pulling the statement information into the portal (see MaxMiles OBR 8/98). They could potentially do the same for bank statement information as well. The danger in this scenario is that your customers end up doing all their day-to-day financial work at portals and never come to your Web. One more reason to keep building email-based programs.

An oft-cited reason why portals will NOT succeed in banking and bill payment is the trust factor. Will users trust Yahoo! to take care of their bills and payments? Maybe not on their own, but consider a co-branded offering such as:

Yahoo! Bill Pay Center
powered by Citibank

The center would include an FDIC-insured logo, a VeriSign authentication scheme, privacy certification by TRUSTe, and an ironclad delivery and security guarantee from Citibank. This product will be more trustworthy than FortKnox.com. See the tables
for more on Web site trustworthiness.

*Speculation on the participants in the unannounced project include Checkfree, which will only say is has budgeted $4 million for an Internet distribution deal and TeleBank, which has said that a strategic integration with Yahoo Finance will be announced at the end of first quarter.   What’s a banker to do?

Consumers are looking to banks for e-billing. In a recent Transpoint-sponsored study of Internet users interested in e-billing, 40% percent indicated a preference for their bank as the source of bill presentment and payment, 19% preferred the biller’s site, and 12% selected an Internet portal.

Recent pilot results (see table right) and common sense seem to back up this research. The prospect
of paying a single bill won’t motivate users to go to
a biller’s Web site and enroll in a new service. Billers need partners to educate users, create market awareness, and provide the convenience of a single sign-up and access to multiple bills. It looks to us
like a two-horse race between financial institutions and portals.

Luckily, there is a legion of vendors looking to help banks win this race: from the major players, Transpoint, Checkfree, M&I, and Princeton Telecom, to a number of smaller vendors such as Trisense, and Brinkman. Next month we’ll provide a status report and contact information for each vendor.

Biller Direct Model Lacks Usage

Source: 1999 Guide to Internet Billing Systems, Longwood Information LLC, 1/99; *Many signups are actually from First Union’s bill presentment program

As analysts and consultants are fond of saying to banks, “it’s your market to lose.” We would put a more positive spin on the situation: e-billing is a potentially rich source of shareholder value you can dominate if you move fast enough.

At a minimum, to defend your turf in 1999 you must:

•  open a bill pay center on your Web or in partnership with others)
•  market the center to Internet users in your market (especially your customers)

Trust Builders

Source: StudioArchetype, Cheskin Research, 1/99; from online survey of 315 adults, full report is available at www.studioarchetype/cheskin/

The Elements of Trust

Source: StudioArchetype, Cheskin Research, 1/99; from online survey of 315 adults, full report is available at www.studioarchetype/cheskin/