It comes as no surprise to anyone that online banking and bill pay customers are more profitable than non-adopters. This correlation, driven by the favorable demographics and lower attrition of online adopters, has clearly been established since the early days of the Web.

What's far more difficult to prove is causation. Does online banking/bill pay actually lead to more profits? The main hypothesis: by locking customers into an electronic service, they are not only less likely to move their accounts, they will also consolidate deposits and other financial activity at the provider of the online services. We'll get back to that.

It's not surprise that ebill users are more profitable
But first, here's some new correlation data from SunTrust that can help you benchmark your own performance or serve as a proxy for your business case. The study was released in late 2007 and was underwritten by ebill provider, CheckFree. The research company, Aspen Analytics, published a short white paper on the project here. And Forrester's Cathy Graeber published a research note three weeks ago here.  The two companies presented their findings in a webinar this week (replay here).

One interesting aspect of this study is that ebill customers were segmented into casual users that viewed one or two ebills per month and heavy users that looked at 3 or more ebills each month. The heavy users owned 5% more SunTrust products and were 20% more profitable to the bank (see chart 1 below).

Source: Aspen Analytics/CheckFree, Nov. 2007
Projections based on 13 months of SunTrust data captured between Feb. 2006 and Feb. 2007

Even more dramatic was the correlation between online product usage and attrition, defined as the closure of the primary SunTrust checking account. Offline customers were six times more likely to close their accounts in the six-month observation period
than heavy ebill users (see note 1). Source: Aspen Analytics/CheckFree, Nov. 2007

The bottom line: 5-year NPV for heavy ebill users was 36% higher than those that used bill-pay only and nearly double the online-banking-only population (no use of bill pay
or ebilling). 

 
Source: Aspen Analytics/CheckFree, Nov. 2007

But does ebill use CAUSE profits to increase?
The correlation data above illustrates the importance of taking good care of bill pay/ebill customers. However, to justify incremental investment, you need to know the expected payback, i.e., how much more revenue/profits can you expect by moving customers into ebilling.

This study made a concerted effort to determine if the use of free ebilling services can leads to more profits. The researchers normalized the population across hundreds of product, tenure and demographic variables drawn from SunTrust's own CRM files and from appended Equifax info. But absent full before-and-after interviews with the subjects, it's still just a model it hard to fully test. There could be important factors outside the SunTrust/Experian datasets that account for lower attrition. For example, perhaps the well-heeled online banking customers who closed their primary SunTrust checking account in late 2006 stayed away from ebills because they had a sense they would be moving in the near future, so why bother setting up ebills.

But with these caveats in place, it does appear this study demonstrates that moving customers into the heavy ebill category causes them to be more loyal, at least in the short term. Cathy Graeber, the Forrester VP participating in the webinar, certainly thinks so.

The following chart shows that about half the decline in customer churn (36 points) has nothing to do with ebill usage but should be attributed to the favorable customer profile of ebill users. However, the remainder of the decline (32 points), is attributable to being heavily involved in ebills (viewing 3 or more per month). Put another way, ebilling decreases the expected attrition of this type of customer household by almost 50%. 

 
Source: Aspen Analytics, The E-Bill Effect:  The Impact on Customer Attrition from Banks that Offer E-Bill, Nov. 2007
Note: Ebill customers in this example are heavy users looking at 3 or more ebills per month.

Bottom line
If those results hold true for other banks' customer bases, it could justify significant investment in ebilling activation programs. For example, if you value an active checking account at $200 per year and it costs $100 to convert them to ebilling, and you achieve a 33% reduction in attrition, the net gain is $230 per new ebill account over five years. Convert 10,000 users and the NPV would be more than $1.5 million (see note 2).

Even if you discount the results due to research bias (it was after all underwritten by the leading ebill provider) or you take issue with the methodology, it does appear that the companies have proven a material reduction in attrition by frequent ebill usage.

And to give it the final "common sense" test. It does seem logical that someone who's taken the trouble to set up online banking, online bill pay, and register three or more bills for delivery, would tend to be less likely to ditch their checking account for that sexy deal across town.  

Notes:

Definition of customer segments:

• Overall = Entire SunTrust customer base
• Offline = SunTrust customers that do not use its online banking or bill pay/ebills
• Online = SunTrust customers who use online banking but NOT bill pay/ebills
• Bill pay only = SunTrust customers who use its online bill pay system, but NOT ebills
• E-bill = SunTrust customers who use its ebill service and view 1 or 2 bills per month on average
• 3+ E-bills = SunTrust customers who use its ebill service and view 3 or more bills per month

1. Attrition was defined as anyone who closed their primary SunTrust checking account between Sep 2006 and Feb 2007 and did not open a new one during that period. It's a pretty short window, so that's one limitation of the findings that you should be aware of. Over a two or three year period, their could be much different results.

2. $200 saved x 5 years x 33% attributed to the ebill program = $330 gain less the $100 cost to convert to ebilling = $230. Across 10,000 customers the total net gain would be $2.3 million. Discounted at 12%, the NPV is more than $1.5 million.

Although, remote deposit capture has captured a significant share of larger businesses, consumers have had fewer options:

• USAA has offered in-home scanning, called Deposit@Home, for more than a year (previous coverage here), but its customer base is limited to current and retired members of the military.
• DepositNow, a unit of BankServ, allows anyone to use remote deposit services, but it's geared towards businesses and costs at least $29/mo, far above what consumers or even smaller businesses will pay.
• A number of banks also make it available to small businesses and the very wealthy, but consumer rollouts have been nonexistent. The cost of a dedicated scanner makes it uneconomical for the mass market.

CheckFree aims to change that with a new service targeted to consumers and very small businesses (press release here). The key is using existing consumer scanners and multi-function printers. USAA has proven that this technology does indeed work, so we expect CheckFree's service will pass technical hurdles.

It's hard to predict consumer demand, but given that around 20% of U.S. households maintain a full- or part-time business endeavor, we expect strong demand if the price is reasonable and technology is extremely easy to use.

Remote deposit services could be used as the cornerstone of a premium online banking offering (note 2) attractive to microbusiness (note 1) owners and consumers who still receive paper checks a few times per month.

Notes:

1. We define a microbusiness as one with $50,000 or less in annual revenue, typically a part-time, home-based business. For more information see Online Banking Report #107/108: Small and Microbusiness Banking Online.
2. See Online Banking Report #109 for ideas on how to create a premium online banking channel.

September, October and November are traditionally great months for new product announcements. True to form, at least five major U.S. mobile banking announcements appeared last week. Brandon McGee posts a quick synopsis here.

Of special interest were the announcements by Firethorn/CheckFree and Monitise/Metavante, all of which will be presenting at our upcoming FINOVATE conference in New York City on Oct. 2 (see note 1).

Firethorn
Firethorn ended a relatively quiet stretch with an important announcement, the addition of Ogden, Utah-based America First Credit Union to its mobile banking consortium which includes Wachovia Bank among others (see previous coverage here). The top-10 credit union has more than 400,000 members and gives Firethorn a reference account in the credit union and non-mega-bank categories. The service is expected to go live in early 2008.

We've had the pleasure of hearing the Firethorn story several times, but going into the critical fall marketing period, it will be interesting to hear an update on the Firethorn rollout with AT&T and Verizon Wireless.

Monitise/Metavante Joint Venture
Although disclosed in March of this year, the Monitise and Metavante joint venture was officially announced last week (here). Monitise crosses the Atlantic with mobile banking and payment solutions already widely deployed in its United Kingdom home market under the MONILINK brand. Its client list reads like a who's who of U.K. financial and telecom players: BT Global Services, T-Systems, HSBC, First Direct, Alliance & Leicester, Royal Bank of Scotland, NatWest, Vodafone, Orange, O2, T-Mobile and Hutchison 3G. The JV's Oct. 2 presentation at FINOVATE marks the first time the new entity, Monitise Americas, will be on stage to DEMO the new service expected be available by year-end.

Note:

1. Our FINOVATE 2007 DEMO conference is expected to sell out some time next week, so if you want to reserve a place you should register ASAP at www.finovate.com.

As a one-time bill payment product manager, I've long appreciated the difficulties of making online payments live up to the hype. It was one of online banking's "dirty secrets" in the 1990s that if you wanted your bill paid quickly, you'd usually be better off whipping out your checkbook and dropping the "ink on dead trees" into the so-called snail mail (see note 1). 

Thankfully, those days are behind us. Thanks to CheckFree, Metavante, Online Resources, MasterCard RPPS, and smaller companies such as iPay Technologies, Billeo Inc., Princeton eCom (now owned by Online Resources), and Yodlee, we have reached the point where most bill payment transactions are fully electronic from consumer initiation to posting by the biller. The paper has finally been wrung from the system, at least on the remittance side. There's still some work to be done on the actual billing statement itself.  

Luckily, we have six of these payment innovators appearing at our upcoming FINOVATE 2007 conference to be held in NYC on Oct. 2, although Yodlee will be showing its online personal finance manager and Online Resources will be DEMOing its virtual collection technology. If you are interested in attending the conference, please register now, since there are only 37 seats remaining. Here's the link.

Billeo Inc.
Billeo is an outside-the-box-thinking online payments facilitator that uses the power of Web-based tools to make it easier for consumers to track and manage all their payments, both at the point-of-sale, and one-time and recurring bills. Blue-chip clients include Visa and Target among others. The Santa Clara, CA-based company won an OBR  Best of the Web in 2005 for its toolbar-based interface. The venture-backed company's innovative streak lands it on the pages of NetBanker quite frequently (see previous coverage here) and we look forward to seeing the next generation of its service at FINOVATE in three weeks.  

CheckFree
CheckFree literally created the market for online bill payment in the United States and has worked tirelessly to help convert what was once a large paper-pushing operation into a finely tuned, almost totally electronic, process. They've been the leader not only in creating a smooth back-office system, but also in smoothing out the rough edges in the payee sign-up process, in the customer interface, and in moving billers towards bill presentment. CheckFree, which closed on its acquisition of platform-provider Corillian just a few months ago, has been swept up by Fiserv in a proposed acquisition pending shareholder approval. Every year the company raises the bar for online bill payments, and I look forward to seeing what they have in store for FINOVATE attendees.

iPay Technologies
We've written about iPay Technologies in Online Banking Report a number of times, but unless you've shopped bill payment providers in the past few years, you may not be familiar with the nimble Elizabethtown, Kentucky-based firm. The privately held, 250-person bill payment specialist now handles payments for more than 1,000 banks and credit unions with a total user base just under 500,000. The company is a full-service provider offering not only bill payments, but also person-to-person payments, interbank transfers, gift-oriented payments, and even old-school telephone bill payment. If you haven't met the management team of iPay yet, you are in for a treat. Dana Bowers and her team are a delight, and I encourage everyone to talk to them during the FINOVATE breakout session.

Metavante
Metavante, wholly owned by Marshall & Ilsley, but on a path to be spun out later this year, is involved in almost every aspect of banking from risk management to loan originations and of course payments and online banking. The company's Products and Services page lists 78 items. I've had the opportunity to participate in its user conference the past three years, and it's mind-boggling to see the breadth and depth of its products displayed in one event. Its latest is a joint venture with leading UK-based mobile-provider Monitise, another FINOVATE presenter (press release here). On Oct. 2, Metavante will be demonstrating its Immediate Payments service, something that customers have long valued. It will be interesting to see how Metavante delivers on this tricky payment capability.

Note:
1. For those of you new to the bill-payment business, the reason snail mail beat online payments was that prior to the turn of the century, the majority of "online" bill payments were actually sent via snail mail, often from remote locations, that took longer to traverse the country than if the consumer had sent it themselves.

Every day another announcement reinforces my belief that mobile banking is here to stay, and today is no different. For those who have not heard, a recent press release is noteworthy: “mFoundry and First Data Team Up for Mobile Solutions.”  This announcement by itself is impressive; however, when you also consider the other partnerships in place, such as last November's “CheckFree and Firethorn Partner To Deliver Mobile Banking and Bill Payment Services for Financial Institutions,” you realize the true scope of what is unfolding. 

Let me step back just for a moment to frame what is taking place. As of June 2006, according to fdic.gov, there were 8,767 commercial banks and savings institutions operating within the United States. In addition, there are 8,535 credit unions, according to cuna.org, as of May 2007. This represents a total of 17,300 U.S. financial institutions. Now, let’s look at some of the figures quoted in the press releases listed above. 

According to the First Data press release, “As a component of this relationship, First Data's STAR(R) Network and mFoundry expect to offer mobile banking opportunities to more than 5,400 financial institutions.” CheckFree, which already served thousands of financial institutions itself, was just acquired by Fiserv (pending approval). When we dig into that press release we see that, “Fiserv currently serves almost 6,000 core processing clients and all top 100 banks in the U.S.”

Now, I understand that there are overlapping institutions and that not everyone will provide mobile banking; therefore, I will not attempt to estimate the number of institutions that will implement the Rich UX solution via their preferred vendor. However, I’ve worked with scores of vendors over the years and they all agree on one thing – the toughest part of signing a new institution is simply getting a foot in the door. So once you realize that Firethorn and mFoundry have literally thousands and thousands of “open doors,” you begin to see why the estimates of quick mobile banking uptake are more and more likely.

Source: CheckFree, 9/02 except EPP rev. est. by *Financial DNA 2/02 EPP = electronic payments and presentment

Atlanta-based CheckFree is the dominant third-party electronic bill-payment processor, controlling an estimated 2/3 of the market . Founded in 1981 by its current CEO, Pete Kight, CheckFree has grown to 3,000 employees and $493 million in revenues (FY02), up 14% from the previous year. Pro forma net income was $17 million in FY02, compared to a pro forma loss of $15 million in FY01. CheckFree offers a wide variety of electronic bill payment and ACH processing services for consumers and small businesses. Its clients include 9 of the top 10 consumer banks along with major consumer financial services players such as Yahoo , MS Money, and Quicken.

Number of Customers

Currently, 6.6 million consumers are signed up to pay bills online through CheckFree clients; however, only about 5 million are considered active, having paid a bill during the past 90 days (see Table 1). The vast majority of users come to the company indirectly through partners. However, the company does maintain a lightly promoted consumer-direct business featuring “Scout the bill retriever.”

Total payment volume last quarter (May/June/July 2002) was 88 million, or 29 million transactions per month. Annualized, its current volume is running at 350 million transactions per year, more than 2% of the 15 billion bills paid in the U.S. each year.

The company is also the leading third-party bill consolidator with total bill presentment volume of 1.3 million per month, representing an annual run rate of more than 15 million bills, about 0.1% of the total U.S. bills dropped in the mail each year.

Table 1

CheckFree Transaction Volumes, FY 2002

Source:  CheckFree 9/02

1.   Volume = average monthly transactions in April, May, and June 2002; Subscriber and biller totals are as of 6/30/02, CheckFree’s fiscal 2002 year-end.

2.   Active subscribers have paid a bill within the past 90 days

3.   Number of financial institutions and other clients who have enabled both bill viewing (presentment) and bill paying.

4.   Primary billers deliver at least 100,000 bills per month

We don’t spend much time writing about CheckFree, Metavante, and the other major epayments vendors. Most readers already have a relationship with those companies as clients or potential clients. Plus the major vendors receive extensive coverage in trade publications.

However, several startups whose names have not yet appeared within the pages of American Banker are worth a look. This month we introduce two newcomers: iPay LLC and PayCast. Keep in mind the extended coverage is not meant as an endorsement. We’ve known both chief execs for several years and have positive impressions of their operations, but we’ve not done the due diligence necessary to qualify a payments vendor.

Working with a relative newcomer has its pros on cons. On the plus side, nimble new suppliers can provide you with a fresh outlook on the market, lower costs, and more flexible terms. However, you generally take on more financial and operational risk, not to mention cultural differences that can be trying for both parties.*

But it’s almost always worth your time to talk to the new kid in town, if for no other reason than to introduce some competition into contract negotiations with your current vendor.

*Working with a startup to launch online banking via Microsoft Money in 1992-1994, I personally experienced the highs and lows. Highlight: watching an entrepreneurial team do in one-month what it took a year to do at the bank. Lows: running interference internally for the entrepreneurial business practices at odds with standard banking practices, e.g. explaining to your auditor why the backup tapes are stored in the president’s basement. – Editor

Checkfree

www.checkfree.com

Checkfree’s added a welcome new element to the usual electronic bill payment features and benefits: tracking.

Three key benefits are touted on its demo:

•  Pay everyone you pay now
•  Get bills that do more
•  Find out who got paid and when

Checkfree (Atlanta, GA) has been talking to analysts and investors in general terms about a new person-to-person product line launching next year. CTO Ravi Ganesan briefed us on the effort, which he said is conservatively slated for a mid-Q2 2000 launch (could be earlier). It will leverage Checkfree’s dominant position in payment processing, problem resolution, and customer care.

Checkfree will launch the service in phases with the basic payment engine put in place in second quarter 2000. Enhancements will rapidly be added including escrow services, gift check programs, services for larger merchants, credit card charge options, and so on.

Approach: Checkfree will try a new twist on electronic billing and payments: Appealing to small business recipients of funds, not the senders. Rationale: Small businesses and individuals will willingly go through the hassle of registering for a new payment service if it will help speed up the transfer of money INTO their accounts.
 

Checkfree made this discovery during focus groups assembled to figure out why small businesses, with much more to gain through electronic bill payment, lagged consumers in adoption; and why small business managers, who claim they will use electronic bill pay, often fail to follow through.

Checkfree’s hypothesis: Small businesses see electronic bill pay benefiting the other party in the transaction. Checkfree believes that if they can get small businesses signed up to electronically receive funds, the businesses will also start sending money the same way. It’s innovative thinking, and a sign that Checkfree may maintain its payment industry leadership.

How it Works:

1. Any user, consumer or business, that wishes to receive money electronically registers in a Checkfree-enabled community (Yahoo!, bank, credit union, start-up) to receive payment through a new service temporarily dubbed MoneyWeb. The size of the transaction will be capped to reduce fraud and money laundering exposure.

2. Once registered, the user can slap a unique identifier on their paper billing statements, email messages, Web site, etc.

3. Anyone wishing to electronically send money to a MoneyWeb user simply enters the recipient’s MoneyWeb identifier and the amount to be paid on a MoneyWeb-enabled site.

4. The funds are debited from the payor’s designated bank account that evening via ACH (electronic transfer) and put into a Checkfree holding account.

5. After Checkfree is assured the debit has cleared, funds are then credited to the recipient’s bank account. Total time elapsed will be two to three days. Checkfree has the option of decreasing that time as they become familiar with a participant’s buying behavior. Funds are “good” to the extent the law allows. Payors can still disallow the transaction later if they claim they were defrauded by the recipient of the funds.

6. Emails will be exchanged along the way alerting recipients that money has been sent to them.

Bank Advantages:

•  Direct transfers: A huge advantage of this program compared to Confinity’s, is that registered users don’t have to do anything to receive money. Funds are automatically deposited to their registered bank account via the standard ACH mechanisms. This makes it easier to use, but reduces float income for the sender’s bank.
•  Experience and reputation: Checkfree processes 14 million transactions per month. In the time it took you to read this issue, they have handled more transactions than Confinity has in its entire operating history. As Checkfree CTO Ganesan said, “It’s easy debiting and crediting accounts via ACH when (the transaction) goes well; the hard part is handling the transactions that go bad.” From customer service to tech support, Checkfree has an advantage in handling the messy service side of the payments business.
•  Security and audit compliance: Checkfree’s systems are watched, audited, checked, and rechecked by most major banks, technology consultants, and government regulators. The likelihood of a hacker or embezzler seriously penetrating Checkfree’s armor, is remote. It’s harder to say the same about a start-up.

Contact:

Ravi Ganesan, CTO

4411 East Jones Bridge Road

Norcross, Georgia 30092

Phone: 678-375-3000 Ravi_Ganesan@atl.checkfree.com

Referral Tracking: One more example of Confinity’s savvy. The company make is easy to track whom you’ve sent money to and whether the person has taken the steps to qualify for a $10 referral fee. It’s smart business, PayPal gives users the tools to not only make referrals but to follow-up with their friends to make sure they use the system.

If you work for a smaller bank or CU, you may be thinking, is this appropriate for us? Absolutely. As good a product as we think this will be for DotBank, Confinity, and Checkfree, it will be even more successful when offered by a bank as part of its online banking program. We’ll explain why after we outline how a bank could incorporate personal payments into their online banking program:

The Ideal Bank-Based P2P Product

1. Personal payments should be tightly integrated with other online banking and bill payment functions.*

2. Users type the recipient’s email address, payment amount, and actual name (for authentication) into a Web-based form (see mock-up on next page). The email payment consists of a personal message from sender A to recipient B along with your bank name and potentially a guarantee of good funds (see mock-up next page); giving the transaction the credibility that will take Confinity years to earn.

3. The recipient receives a message informing them that sender A has authorized recipient B to draw x dollars out of A’s bank account. Unlike Confinity’s PayPal, where funds are moved immediately into Confinity’s account, the ideal bank program keeps the money in the sender’s bank account until recipient B initiates a retrieval transaction. The bank and its customers maintain their historical hold on the float.

4. To claim the funds, recipients click on an imbedded link that takes them into a secure area on your bank’s Web:
– New users must register and be authenticated
using a combination of email, snail mail, and
credit card authorizations depending on the size
of the transaction, nature of the payment, etc.
– Previous users simply point and click to move
the funds into any U.S. bank account or have a
check mailed to them.

5. Pitch your bank and/or online banking services to recipients.

Source: Online Banking Report, 11/99

*For most financial institutions, the degree of integration will depend a great deal on how your Net-banking platform vendor decides to support the feature.

Following is a mock-up of how the service might be delivered on your Web, followed by an example of the email payment advice generated by the program. It’s much like PayPal’s system except we’ve added the ability to personalize the heading and message.

Mock-Up of Web-Based Entry Form

*We recommend an extra layer of password protection for functions that allow funds to be moved out of the user’s account (see OBR 4/99). Better yet, allow users to set the maximum dollar amount allowed before the extra password is required.

Mock-Up of Email Sent to User

To: Linda Culp

From: Kate Schultz kate@netbanker.com

Subject: Here’s the $20 I Owe You

This message contains an electronic money order for $xxx. The funds are waiting for you in a secure and private area at yourbank.com. To retrieve the money, click on the link below and follow the simple two-step process (after registration). It’s free and only takes a minute or two, far faster than depositing a paper check. For more information on yourbank.com epayments, click the Help button after following this link:

http://pay.yourbank.com/cigi-bin/abcd

Linda, if you have questions, please reply to this email, or call me (206) 517-5021.

Thanks.

Kate Schultz

P.S. Once registered, you too will be able to zap money via email from yourbank.com.

Source: Online Banking Report, 11/99

Such a system has a number of benefits for users:

P2P User Benefits

Recipient (of funds)

•  Receive money faster than mailed paper checks
•  No paper checks to deposit
•  No need to track the deposit to see if it clears; and no fees to pay if it doesn’t
•  Assurance of good funds
•  Electronic records can easily be maintained by filing email notifications in a computer folder
•  No need to reveal bank account numbers to senders

Sender (of funds)

•  Easier/faster than writing a paper check
•  Cheaper (most likely) compared to the $0.33 to $0.50 cost to write and mail a paper check
•  Better communications: recipient receives an immediate email notification of payment and can easily respond with questions
•  Electronic records can easily be maintained by filing email notifications in a computer folder
•  Money can be sent worldwide
•  For ecommerce, recipients know you have sent good funds and can ship the goods faster
•  No worry about accidentally sending a NSF check

Source: Online Banking Report, 11/99

In partnership with Confinity, or built in-house, you could be the first on the block with email personal payments. Not only will it put you on the PR map, it could be both a profit center and lucrative source of new accounts.

Why? New accounts come from the viral nature of the program. For someone to send or receive funds, they must be registered with <pay.yourbank.com>. They don’t actually have to open a traditional bank account (that would severely hamper usage). But must tell you who they are and what account they are using. Armed with that information, you could pitch special offers for years to come.

Bank Benefits from P2P Products

•  lower transaction costs than paying Checkfree to mail a paper check
•  viral way of getting your name in front of new prospects
•  a good way to help small merchants, especially those that don’t accept credit cards, receive payments faster and more conveniently
•  a potential source of fee, loan, and other income
•  good copy point for the online banking brochure
•  an easy-to-use and easy-to-explain feature that could boost activation and usage of online banking and bill payment across the board
•  excellent PR and promotion possibilities

Checkfree/Yahoo

bills.secure.yahoo.com

Yahoo! launched its much anticipated bill pay center, a co-branded effort with the preeminent bill pay provider, Checkfree. Banks can breathe a sigh of relief. It’s a good, solid service that will appeal to hardcore Yahoo! users (if they can find it), but it’s no market share grabber, as it might have been. It seems Yahoo!/ Checkfree are looking at the business as a fee-based profit center rather than a traffic-building loss leader.

Checkfree’s new “icon” and transaction guarantee.

Say What?

The screenshot above clearly demonstrates that Yahoo! operates in a different legal and regulatory environment than a bank. Can you imagine what
your compliance officer would say if you proposed running this copy? “Try (yourbank) Bill Pay as low as $2 per month,” given that the only way to pay $2 is to sign up for the service and then not use it! A typical customer, paying five to 10 bills per month, will pay $4 to $6 per month.

Weak Features:

•  Most significantly, the service is premium priced, $7 per month for 25 payments, then $0.40 each; or $2 per month plus $0.40 for every payment.

•  The product is plain vanilla Web-based bill payment, with none of the value adds one might have expected at Yahoo! such as, email alerts, bill presentment, linkages to online banks, and so on.

•  The user interface is surprisingly uninspired. We understand Yahoo! has built a $45 billion business on based on a straightforward and relatively boring interface. But Yahoo! Bill Pay is worse than boring, it’s so sparse that it’s hard to use. We don’t understand why it wasn’t modeled on the excellent interface at Checkfree’s MyBills.com site (see screenshot).

•  So far, the product is difficult to find on Yahoo! It’s not listed in either the Banking or Finance centers. Even searching on “bill payment” doesn’t lead you directly to the service. EDocs had an exclusive on the banner space when we tested (9/16/99). You have to scroll through to the fifth page of search results to find the link to Yahoo! Bill Pay. However, searching on “pay bills” or simply “bills,” does return Yahoo! Bill Pay as the first link.

Boring. The Yahoo! Bill Pay user interface leaves a lot to be desired. Here the first screen that greets a new user upon successful login.

•  In both of our test emails, the company responded the same day. However, because the responses are not sent to an Internet email address, but instead are posted to the users Yahoo! Bill Pay account, they lose much of their effectiveness. There isn’t even a message at login notifying users they have mail.

Mediocre Features:

•  The eight-screen demo is slow and uninspired.

•  No third-party guarantees (e.g., Travelers SafeWeb) or security reassurances (e.g., Verisign).

•  The sign-up process is easy enough, although Yahoo! users have to go through a separate sign up for a Security Key if they don’t already have one. Input is completely electronic but users are told they must wait up to 10 days for a snail mailed Payment Activation Code. (It only took three days in our test.) There are valid security reasons for using snail mail, but the company could have used credit bureau info to verify our application and authorize an initial dollar amount of payments immediately.

•  Although, the payee list contains only 200 names (as of 9/9/99), that doesn’t include the thousands of credit card issuers that are pre-programmed into the system. Users simply select Visa or MasterCard as payee, enter account number twice , and Checkfree’s system automatically recognizes the correct issuer. Users can easily set up their own payees using

Excellent: In comparison, Checkfree’s own WebBillPay features an excellent user interface www.mybills.com

a Web-based form. New payees can be paid immediately, there is no waiting for merchants to be approved or set up offline.

Good Features:

•  Checkfree’s revised payment guarantee is a winner, although it stops short of being the clear-cut promise needed to instill broad consumer confidence in the service. Any financial institution using Checkfree can post the company’s icon, although we’re not sure it adds much to an existing bank’s credibility. In fact, it might be a slight negative, since users probably don’t know (or care) that Checkfree is processing their payments, not the bank.

•  New account setup and customer service were flawless. In our test, the initial Payment Activation Code was mailed promptly the next day (a Saturday) despite the fact that we submitted our application at 4:30 p.m. Pacific Time on Friday afternoon. In addition, two emails sent to customer services were answered accurately the same day.

•  A generous three-month free trial is included.

•  FAQs were concise and included an imbedded inquiry form to ask additional questions (see screenshot on next page).

Contact: At Checkfree, Matt Lewis is EVP Product Management and Marketing, (770) 441-3387. At Yahoo!, Tim Brady is VP Production and Executive Producer, (408) 731-3300.

Checkfree uses an old data entry trick, requiring customers to type their account numbers twice
(on different screens) to catch typos.

Yahoo! Bill Pay FAQs include an imbedded email query form after each answer.

Checkfree

Esther J. Pigg, VP Product Mgmt.
Hayden Reed, VP Payment Solutions
4411 East Jones Bridge Road
Norcross, GA 30092
(770) 441-3387
www.checkfree.com

Electronic Bill Payment Volume: 10 million payments last month across 2.6 million consumer accounts for an average of 3.8 bills per customer per month; more than 5 million, or 50%, were electronic. That percentage is expected to improve substantially as all clients migrate to its new system by year-end.

Claim to Fame: Invented the electronic bill pay industry; still maintain the dominant position, and are expected to open a bill pay center with Yahoo!

Status Report:

•  In an extremely favorable investment analysis recently published by Deutsche Bank Securities, it was estimated that Checkfree was poised to capture 90% of the bill pay business from a total market size of 12 to 19 million bill pay users by 2004.
•  One cloud on the horizon, the lawsuit filed by minority owner Intuit (which owns a 19.1% stake) seeks to keep Checkfree from cutting deals with portals other than Yahoo!
•  Earlier this year, the company successfully moved 16 banks to its new Genesys system.
•  Checkfree is two years into a
  10-year deal with Integrion that included taking over the bill payment functions previously performed by Visa Interactive.
•  Checkfree now processes payments for more than 350 financial institutions, including nine of the country’s top 10 banks. The financial institutions have a combined total of more than 150 million checking and savings accounts.
•  The company launched a non-profit entity called the Electronic Banking Association with a Web site that promotes electronic banking, bill presentment, and Internet payments in general at www.e-banking.com It includes a “find your financial institution” search function and has been logging more than 1,000 visitors a day, with nearly 30% of clicking through to an individual financial institution.

Bill Presentment Plans:

 Checkfree has maintained its front-runner position as it moves to electronic bill presentment, inking deals with 43 of the nation’s top 100 billers. Most are in small-scale pilot stage. Eighteen billers are currently presenting bills at Checkfree’s site.

 AT&T is scheduled to implement in early 2000.

•  Partners include: Bell & Howell, BlueGill, eDocs, EDS, Intuit, Just in Time, Mobius, Oracle, and Total Systems Service.

• Checkfree E-Bill 2.0, will launch this summer. It’s a clever hybrid approach that combines the user-friendly feature of single enrollment and login with the biller-friendly option of sending users directly into the biller’s Web site during the session using so-called “customer magnets” embedded in the bill notification. Billers can turn the magnets on or off for each customer each month.
   
•  The new product also allows billers to change billing amounts during the payment session. For example, utilities could allow customers to enter their own meter readings, then recalculate the amount owed, prior to payment being authorized.
   
•  E-Bills 2.0 also allows billers to migrate from consolidator models to direct billing, if desired.

Countrywide

www.countrywide.com

Countrywide’s Web-based preauthorized debit
sign-up form eliminates the “send a voided check” making the process more spontaneous.

Countrywide (Pasadena, CA; $171 billion in mortgages serviced), the second largest home lender in the country, is beefing up its payment services, both for its own mortgages and anyone else. Its Web-based form for mortgage holders to sign up for preauthorized debit is well-done www1.countrywide.com/customers/homepay/homepay.html (see screenshot above) but its new pay-anyone bill payment service is ill-conceived.

Strike one, the bill payment program is not Web based. It requires users to order and install Checkfree software. Strike two, Countrywide is charging $9.95/mo, a price point that went out the window two years ago. Strike three, it’s not yet integrated with HomePay, the preauthorized debit payment service.

Presumably, the company is working with Checkfree to port this program to the Web, but they should have waited until that work was done. Yet the program is significant as it shows how a non-bank can use online services to gain entry into new markets.
Contacts: Cameroun King heads the interactive unit; Tom Boone is Dir. Loan Admin., (818) 304-8400.

Two important conferences were held the third week of April. The first, sparsely attended by bankers, dealt with an issue fundamental to the future of checking accounts: Internet Billing. The second, Microsoft’s third annual Internet Banking and Brokerage conference, was attended by most major financial institutions and covered subjects crucial to the future of the banking industry itself. Here’s our notes from both.

IQPC’s first conference on Internet bill presentment was held last November in Chicago. It attracted many of the nation’s top billers but just two bankers. The second conference, held April 14-16 in San Francisco, attracted twice as many attendees but still only a couple dozen bankers from just six banks. For better or worse, most financial institutions are apparently willing to delegate the R&D in this area to vendors, consultants, and the occasional newsletter editor.

Here are the conference highlights:

•  Florida Power & Light www.fpl.com is the only biller currently presenting bills in Quicken 98, but several more companies are expected to begin within the next few months.
•  Florida Power & Light has only 2,500 online bill paying customers out of their base of
  3 million despite being the first utility to present bills on the Web beginning the summer of 1996 and being one of the first to present bills on Checkfree’s Ebill site beginning in April 1997.
•  EF&D www.efd.com launched the first bank-branded bill presentment program at Suffolk County National Bank (Riverhead, NY; $843 million) www.scnb.com The bank has two clients up on EF&D’s Billsite www.billsite.com the water company and a major lumber yard.
•  EF&D believes there is an excellent opportunity for banks to serve middle-sized billers with bill presentment services. The company reasons that large billers will be served by MSFDC and Checkfree; tiny billers will use their existing accounting programs such as QuickBooks that will be enabled for bill presentment in the near future. Mid-sized companies will be the only ones left without a cost effective presentment alternative.
•  Intuit is forecasting that 60% of U.S. households will have a PC in 2002 (up from 41-42% today).
•  Bill presentment will be available on Quicken.com by year-end; Checkfree, partially owned by Intuit, will process payments.
•  According to Intuit, within Quicken software, the bill is biller branded and the payment is bank branded (for participating banks). It’s unclear if that model will hold on Quicken.com.
•  The best lines came from Gary Craft, EC analyst with BancAmerica Robertson Stephens: “If a bank wants (to do EBP) they can knock everyone off…but we haven’t seen that happening yet;” and “Banks already have two of the three linchpins for bill presentment: eyeballs and good funds, all they need are the bills.”

Microsoft’s invitation-only event attracted some 400 banks, brokerages and solution providers. Microsoft’s presentations were well balanced, offering pros and a few cons for doing things the Microsoft way. They didn’t put Gates on stage this year. Instead, Microsoft luminary Pete Higgins ran through the “Web lifestyle,” Microsoft’s current Powerpoint du jour.

The Key Points

•  Microsoft is taking a software approach to its Web-based businesses, selling their underlying platforms as tool-kits and/or turnkey systems. Microsoft Investor www.investor.com will be made available for licensing this summer. Financial institutions will be able to use all or part of the platform to build their own stock info/trading services. Speakers hinted that other Web businesses, Expedia and the soon-to-be-released Home Advisor, would follow a similar route. (Expedia is already available on a co-branded basis, see American Express. That bodes well for banks looking to implement MSFDC’s program.
•  Microsoft Home Advisor www.homeadvisor.com is coming this summer. By partnering with Realtors, multiple listing services, and lenders, they expect to be the first Web site to offer a complete home buying experience including:
  – getting started (educational)
  – finding a neighborhood
  – finding a home
  – finding a loan
  – offer and closing
  
  Program Manager Larry Cohen, (larryco @microsoft.com) described the business model as “similar to Quicken.com,” with two revenue streams: advertising and prequalified/preapproved mortgage applications delivered to lenders for a finder’s fee. He also said there is a strong likelihood that the HomeAdvisor will be licensed for private-label versions.
  


•  MSFDC won’t be vaporware much longer. Co-president Chuck White said MSFDC has “more billers wanting to do this than we can handle.” He also released a revised implementation schedule that calls for launch of bill presentment in Q4 1998 and pay-anyone bill pay in early 1999.

  Mr. White promised that its pay-anyone service would be more compelling because it would address many of the “timing” issues associated with current programs. During the Q&A he predicted that 15% of U.S. households would be using online bill presentment in some form within five years and MSFDC would be processing 750 million payment transactions per year, 5% of the 15 billion bills paid each year. (Editor’s note: this is 10 times the current volume of transactions processed by industry leader Checkfree. At $0.30 per transaction, which is probably not sustainable, that would equate to $225 million per year in transactions, with $20-30 million of that going to banks for payment authorization. That doesn’t include licensing and advertising revenues.)

  
  
•  Downloading Web transactions into Microsoft Money should still be part of your game plan. The PFM will ship on 9 million PCs this year. By simply adding ActiveStatement downloading to your Web, a free feature available from Microsoft, you become one of 150+ financial institutions listed on Microsoft’s Web site. You also have the option of distributing a co-branded version of Microsoft Money to customers, though the $15-20 per copy price has discouraged all but five financial institutions from following this strategy (see table below right).

Some Numbers

Checkfree

www.checkfree.com

Checkfree QuickPay view.

Checkfree provides a Quick Pay view where all the bills can be paid by simply checking a box and clicking on “Pay Bills.” You can also see how easy it would be to integrate non-presented bills in this screen. Users could simply instruct Checkfree to “present” certain bills on a given date, and the user could quickly pay them by typing in a new payment amount if needed. View the demo at www.checkfree.com/ebill/demo/index.html

Checkfree’s revamped bill presentment program includes billing categories, so you can view all the bills of a certain type at the same time.

Checkfree
www.checkfree.com

Checkfree (Atlanta, GA) launched its first full-scale bi