ING Direct's (USA) paperless-checking account, Electric Orange, will get a new bill-pay user interface over the weekend (see first screenshot). The direct banking giant has also jazzed up the logo (inset) for its online checking option introduced in early 2007 (previous post).

The new GUI attempts to make bill payment more understandable. With paper and electronic delivery to merchants, person-to-person payments (also paper or electronic), and expedited payments thrown in the mix, it was hard for users to know exactly which option to select (see second screenshot for old user interface). 

ING Direct has reorganized payments into four functions and clearly identified the free (#1-3) vs. fee (#4):

1. Bill pay (paying merchants)
2. Person2Person (sending to an individual's bank account)
3. Send a paper check
4. Overnight a check (for $20)

The company is also adding the following features (see third screenshot):

• Electronic bill statements (ebills)
• Email due-date reminders
• New sorting options
• Expanded recurring payment options
• Simplified navigation
• Clearly shows estimated payment arrival date

Customers have been notified through two emails that various aspects of bill pay will not be functioning beginning over the three-day weekend as the system is converted. 

Analysis: Overall, it's a significant improvement, but there are still confusing aspects for novice users. For example, how do I decide between Person2Person and Send a Check? (see note 1) Why should I pay $20 for overnight, when the same delivery terms seem to be available in free bill pay? I'll withhold final judgment until I have a chance to use it next week.  

1. New bill-pay interface (link, begins 25 July 2009)

2. Previous user interface (22 July 2009)

3. Landing page describing the changes (link, 23 July 2009)

Notes:
1. Answer: You have to have the person's bank account info to use the P2P option.
2. For more on bill payment, see our Online Banking Report on Epayments (also part 1) (published in 2005) and the Online Banking Report 2009 through 2018 Forecast (published Jan 2009). 

When's the last time you Googled something and found nothing? Evidently WaMu's innovative P2P funds transfer service got lost in all the "excitement" this year and word never got out.

Luckily, I was seated beside Aliaswire (see note 1) SVP Keith Smith at dinner in Orlando two weeks ago. His company powers WaMu Send Direct, a service for P2P payments service for WaMu credit card holders, launched earlier this year at <wamusenddirect.com>.

WaMu Send Direct uses a variety of methods to transfer funds with as little hassle or with as much privacy as desired (see note 2). Cost to the sender is 2% of the amount sent with a $2 minimum. Recipients pay nothing.

This makes for a good pricing model for such things as parents sending money to a child, but not so good for consumer-to-business payments, UNLESS the consumer can avoid a late payment and/or finance charge (aka, expedited payments).

In addition to the 2% fee, the amount sent is posted to the WaMu credit card as a purchase and is subject to the prevailing APR and presumably an interest-free grace period if applicable (see note 3).  

Transfers all come out of a WaMu credit card, but they can go to the recipient in any of the following ways:

• Directly to a checking/savings account if the sender has the bank account info of the recipient
• Directly to a debit card, ATM card, or credit card if the sender has the recipient's card number
• To the recipient's phone or email address, requiring the recipient to call or log in at WaMu to claim the funds by providing bank account info; however, on subsequent transfers the recipient would not be required to contact WaMu so long as they signed up for Automatic Claim

Transfers can be initiated via:

• Website <wamusenddirect.com>
• SMS message to specific short code
• Telephone call to a toll-free number

It's a cool service. It will be interesting to see if Chase continues the service as they assimilate the WaMu credit card portfolio. 

WaMu Send Direct Homepage (5 Dec 2008)

Note the text message box at the bottom offering to text a bookmark to the user. 

Notes:
1. The name comes from the ability for a user to transfer funds (aka "wire") to other users via "alias", e.g., email address or mobile phone number.

2. Despite my longstanding policy of avoiding flow charts in NetBanker, here's a schematic of how Aliaswire's mPay works. mPay is the service that WaMu has private-branded as WaMu Send Direct. 

3. The Terms & Conditions states that the payment is considered a "purchase," which sounds like it would qualify for an interest-free grace period on accounts not currently revolving; however, the terms did not specifically say that.

I've communicated with Privier founder Charles Polanco a number of times over the years. He's a Wachovia alum who's been working on a financial startup for several years. The company launched a suite of payment services on Oct. 16 that aims to get the plastic card out of the ATM business (press release).

Privier's value prop is straightforward and compelling: Enable money transfers from any device at any time with the cash delivered through the worldwide ATM network.

The system initiates transfers in three ways:

• ATMsend: ATM to ATM
• iTransfer: Web to ATM 
• mPayment: Mobile phone to ATM

In Privier's model the ATM card is replaced by a one-time authorization code that recipients key into the ATM to withdraw transferred funds.

Analysis
From a usability perspective, it's a great idea. After all, what's not to like? Consumers need to send cash. ATMs have cash. Why not let folks authorize a remote ATM withdrawal from the comfort of their own home or office. A proposed fee in the $7 range beats most alternatives for long-distance money transfers.

However, from a practical standpoint there are two massive roadblocks to overcome:

• Retrofitting ATMs to accept a keyed-in code instead of a mag stripe for authentication
• Convincing banks to add ATM-transfer capabilities to Web, mobile and telephone services

It will likely take an organization the size of Visa, MasterCard, or Bank of America to pull this off. To ensure that those behemoths work with it, Privier has a portfolio of patents pending on the business process. 

What it means for Netbankers
It may take decades, but eventually, the Web married to mobile will eliminate the plastic debit/credit card; however, unless you are a major bank or payments company, this isn't likely anything you need worry about for a number of years.

A better short-term solution for smaller financial institutions is to enable P2P funds transfers using PayPal so you can send money to anyone with a PayPal account (see note 1).

Privier's Web-based interface for sending cash to an ATM (5 Nov 2008)

Note:
1. See our latest, the Online Banking Report 2009 Planning Guide, for more info on project priorities for this year and beyond. 

I won't belabor the irony that the nearly $1 billion ($945 million) paid by eBay for Bill Me Later values the alternative payment and credit provider at more than Washington Mutual Bank and nearly half as much as Wachovia, at least before Wells Fargo entered the bidding.

The underlying credit product is relatively simple, a 19.99% credit account underwritten by Utah-based industrial bank CIT (terms and conditions here, see also note 1). But the distribution system, providing quick-and-easy delayed payment at the point-of-sale at 1000 online merchants, is what created the billion-dollar valuation. To use Bill Me Later at checkout, consumers simply provide their birthdate, last four digits of their social security number, and their billing address (see Amazon.com screenshot below).

According to today's investors presentation the company will do more than $1 billion in transaction volume in 2008 and serves 4 million customers (see note 2).

I was initially surprised at the price ($945 million), but given that eBay is projecting $150 million in revenues and $50 million in profits, it makes some sense, especially if CIT is taking most/all of the credit risk. Hoped-for synergies with PayPal, which already operates a similar program, is the stated upside for the deal.

Ebay says Bill Me Later earns 4.1% on each payment transaction, which amounts to $10 per $250 purchase (note 3).  

Bill Me Later's simple signup demonstrated at Amazon's checkout
(5 Oct 2008)

Notes:
1. CIT is not without its own problems with a market cap that has dropped more than 80% from a year ago. The company is now valued at $2 billion, just double the purchase price of BillMeLater.

2. Some historical usage numbers: An undated entry on the CIT website says that BillMeLater has served 2.5 million consumers. In a Dec. 2006 press release announcing $640 million debt-financing from Citigroup, Bill Me Later said it had served 2 million consumers.

3.  Here are the revenue and cost numbers taken from today's investor's presentation (expressed as percent of transaction amount):

Income
Transaction fee from merchant = 2.4%
Customer interest = 6.5% (note APR is 19.99%)
Customer fees = 3.6% (note late fees are generally $29 or $39 depending on balance)
Total revenue = 12.5%

Expense
Acquisition and servicing = 2.9%
Net credit/fraud losses = 3.4%
Cost of funds = 2.1%
Total cost = 8.4%

Net profit = 4.1% of transaction amount

In the richest alt-payment bonus we've seen in a long time, PayPal users earn a $50 account credit for purchasing airline tickets at Northwest Air's NWA.com between March 13 and March 27.

The bonus was prominently featured in a promotional email sent to WorldPerks members yesterday (see below). Only one bonus per PayPal account is allowed, and the fare must be at least $250. 

PayPal is also accepted at Southwest, AirTran and US Airways.

*Source: PayPal, 26 March 2007, online shopping center

Email message to Northwest WorldPerks members (25 March 2008)

Landing page (link)

NWA.com fare search
The PayPal logo featured in regular fare search at NWA.com, but there is no mention of the $50 bonus.

Logging in today at PayPal, I was greeted with a full-screen message promoting its debit card (see screenshot below). Note the prominence of the yellow Apply Now button compared to the Go to my account in the lower right. The company has offered a debit card option for more than five years and promotes it from time to time within its site.

Speaking of PayPal, the melodramatic headline on the front page of this month's Bank Technology News grabbed my attention (see upper-left corner of October issue here and inset):

Electronic Payments are a Knifefight.
PayPal's Bringing a Gun.

Evidently, there is at least one headline writer trying to make it look like a major war is brewing between PayPal and the banking industry. Sure, they are a tough competitor, but they also facilitate a large number of profitable credit card transactions that directly benefit issuers. And I don't see how PayPal is any more of a threat now than they were last year, or the year before. 

PayPal is not going away anytime soon. Rather than worrying about the "gun" the company is wielding, banks should be looking for ways to leverage the PayPal payments platform. For example, recent Facebook apps such as Geezeo's iWant (coverage here) or ChipIn (coverage here).

Last century, serial entrepreneur Elon Musk launched what he expected to be a top-10 bank by now. And in true late-1990s dot-com fashion, it was simply called X.com. In retrospect, maybe not the best name for a bank, but it certainly was more memorable than First Security Bank of Whatever. The company soon merged with PayPal, dropped the single-letter name, and eventually took over the world of alt-bank payments.

For most of the past eight years, if you typed X.com into your browser, you simply ended up on the PayPal homepage. But recently, PayPal has opened a new area under the X.com URL called PayPal Labs. This is a place where competitors, developers, analysts, and anyone with too much time on their hands can see the latest new "beta" services under development at PayPal.

With just two services listed (see below), it's no Google Lab, but it shows that PayPal still has Silicon Valley DNA at its core, despite five years working within the shadow of the larger eBay brand.

My take: More financial institutions should open "lab sites" to demonstrate their commitment to innovation. The only one I remember was JPMorgan's LabMorgan, which was really was part VC, part incubator. But its URL only shows an error message these days, a shame. 

Update (10 Oct): A reader reminded me about Fidelity's lab site, fidelitylabs.com.

In the PayPal Lab

1. PayPal Request Money for Facebook (see previous coverage here)
2. MySpace Fundraising Badge

I check Facebook about once or twice per week to see what new financial apps have been posted. So far the ones we've looked at include (see previous coverage here):

• Lending Club's P2P marketplace
• Prosper's Fantasy Banker
• PayPal
• Wesabe
• Buxfer
• TD Bank's Split It
• Obopay's BillMonk

The latest entrant, iWant from online personal finance specialist Geezeo (see screenshot below). iWant is an application that allows Facebook users to share with friends their wants and needs, such as "buy an iPhone" or post more goal-oriented items such as, "pay off my student loans" or "throw a graduation party." And Geezeo ties it up nicely by tapping PayPal's API to facilitate "contributions" to the financial goals. It's also integrated into Geezeo's online personal finance application so users can track their goal progress in real time. ChipIn offers similar payment functionality in its Facebook app (previous coverage here).

I wonder if Geezeo will make a P2P lending play here? If Geezeo's software included a repayment option, the iWant "donors" could easily become iWant "lenders" and a whole new market might open up. 

If you are attending our upcoming FINOVATE conference next week in New York, you'll be able to ask co-founders Peter Glyman and Shawn Ward yourself. We are fortunate to have not only Geezeo, but two other early Facebook innovators, Prosper and Lending Club on the DEMO stage. If you can't make the event, check our website in two weeks for full length videos of each DEMO.

Two weeks ago I heard from PayPal corp communications who felt that my "PayPal launches on Facebook" title was misleading. They had a point. As I explained in the post, the new Facebook app was PayPal-powered but developed by Australia's Yellow Media. The title could have been better.   

However, that's moot now since PayPal has now launched its own app on Facebook (here). It appears to have been posted on July 3 and has 218 users as of this morning. The application provides a simple interface to request and track money requests from Facebook friends (see inset above). Additional functionality is said to be on the way.

In 2007, we'll be spending more time researching mobile banking, payments, and finance applications. So that we all understand each other, here are some of the key terms that will be used:

General terms/acronyms:

SMS >>> Short message service (also known as text messages, texts, SMSes, txts): A service available on most newer mobile devices that permits the sending and receiving of text-only messages; also can be sent to and from personal computers or even landline phones

MMS >>> Multimedia messaging service: An evolution from SMS, allowing messages to contain multimedia objects such as images, audio, video, and rich text 

CSC >>> Common short codes: Special short telephone numbers of just four to six digits used typically by businesses to make it easier to send text messages their way (the Mobile Marketing Association has a helpful primer here)

WAP >>> Wireless Application Protocol: An open, international standard for applications that use wireless communication; primarily used to enable Web access from mobile devices

Mobile IM >> Mobile instant messaging: Similar to desktop instant messaging, but slimmed down to fit on a much smaller mobile device screen

Banking & finance terms:

SMS or text alerts: Simple one-way messages from the financial institution or payments provider to the mobile user with account-specific information

Mobile payments: Payments initiated through a mobile device, could be via SMS, WAP, or a device-specific application

Mobile banking: Online banking functions performed via a handheld mobile device (PDA, cellphone, etc.); the general term that encompasses WAP Banking, SMS Banking, or True Mobile Banking (see below)

WAP banking: Accessing secure online banking functions through a mobile device's browser

SMS or text banking: Two-way messaging; for example, using text messaging to query the server for account-specific information and have it returned to the mobile device, or responding to a bank-initiated text message to initiate a transaction

True mobile banking: Our term for banking functions delivered through a downloaded application run locally on the mobile device

Sources: Online Banking Report, Mobile Marketing Association, Wikipedia

Today's New York Times (p. A8, national edition) has a half-page, red-and-blue ad for Bank of America dominated by the headline:

If you have a computer, you have a bank.

The visual is a generic laptop with a generic browser displaying Bank of America's homepage. Text copy and sub-heads emphasized that 20 million are now using BofA online banking.

The ad-copy emphasized three benefits:

• Instant and free funds-transfer to anyone with a BofA account
• My Portfolio, the bank's account aggregation service
• Security features

Call to action: visit www.bankofamerica.com/yourownbank (see screenshot below).

Screenshot: Bank of America's landing page
(click to enlarge)

Analysis
There are several interesting things about this ad.

1. No offer. The bank, which recently tested the richest new account bonus we'd ever seen costing it as much as $300 per new checking account, offers NOTHING. And this is an ad on black Friday, where stores typically offer monster loss-leaders to lure customers into their stores early on the biggest shopping day of the year.
2. Account aggregation featured: I can't recall the last time a major bank featured account aggregation as one of the three biggest benefits of banking online. Could this mean that BofA is going to begin emphasizing the feature more in its national advertising? If so, it could reinvigorate the service.
3. Customization deja vu : The "yourownbank" landing page is reminiscent of the bank's late-90s website-customization engine called Build Your Own Bank (see 1999 screenshot below). Given the landing page URL, we thought BofA might be pitching customization again, but it's really just a play off the ad's headline, that your computer is now your bank.

Taken together, it's an interesting effort, although it looks more like corporate branding rather than an effort that will generate enough accounts to justify the five-figure tab to the NY Times.

Screenshot: BofA's Build Your Own Bank from 1999
(click to enlarge)

In a distribution deal similar to the Visa.com partnership launched earlier this year, Billeo is now powering biller-direct payments for Target's REDcard (see inset). See previous coverage here.

Billeo received an Online Banking Report Best of the Web award in 2005 for its innovative toolbar-based payment services (see 15 March 2005 post).

How it works
New users start by searching for credit-card-accepting billers via zipcode and company search (see screenshot below).

To schedule a payment and use the other tools, users must first register with Billeo. While the initial biller-search screen runs under Target branding, the sign-up page and subsequent user interfaces do not maintain any Target branding.

Previous Billeo users can skip the registration process and simply sign in to their previous Billeo account.

Although growth has slowed, as it must when you have the penetration of Bank of America, the company still managed to add 760,000 active* online banking users and 430,000 active* bill pay users in the latest quarter. The bank's $15 enrollment bonus surely helped boost the total (see Aug. 11 post).

Excluding PayPal with 31 million active users (includes international accounts, see previous post), Bank of America continues to hold a large lead over the next largest U.S. online banking base, Wells Fargo's 8 million.

Although the bank posted an impressive 6.3 million gain year over year, about 4.5 to 5 million of that appears attributable to the MBNA acquisition (see chart below).

Bank of America Active* User Base
Qtr  Online Banking   Bill Pay
2006 (includes MBNA)
Q3....20.6 million   10.8 million 
Q2....19.8 million   10.4 million
Q1....19.6 million   10.1 million

2005 (excludes MBNA)
Q4....14.7 million    7.3 million
Q3....14.3 million    7.0 million

*BofA defines Active as having used the service in the past 90 days.

On the bill-pay front, the bank processed $49 billion in payments for its users during the quarter, up $2.1 billion over the previous quarter (+4.5%). The average payment amount was $4,500 per active bill pay user, or $1,500 per month with 84% of the payments delivered to the payee in electronic form (ACH).

The bank also reported e-bill delivery volume of 21 million in the quarter from 370 billers.

Thanks to Scott Loftesness at Payments News for digging through the bank's 47-page earnings supplement for these gems (see pp. 18-19).

This week Yodlee announced its new Bill Pay Account Accelerator, a bill-pay-switching tool designed to help banks attract active users of competitive bill payment services. Not only does Yodlee's wizard move payee information, it also can cancel and move previously scheduled payments, including recurring ones.

The service will be piloted in fourth quarter and launched in early 2007.

Analysis
If it works, it could reduce the "retention benefits" of electronic bill pay by making it easier to switch banks. The American Banker article reporting the new service hit hard on that aspect. However, we think the concern is overblown. It's not that time-consuming for most people to move their payee information, requiring 10 or 15 minutes of "cutting and pasting" or "scribbling and retyping," then a few more minutes to reschedule upcoming payments.

What's MUCH harder for the user is making sure outstanding paper checks have cleared and, more importantly, unwinding preauthorized debits such as important insurance and loan payments. Those require contacting the payee directly and hoping that your instructions to change the debit are processed in a timely fashion.

But the biggest issue is motivating users to make a checking account switch in the first place. And that's where Yodlee solution could provide a big boost, offering the perception of radically simplifying the switchover. And if Yodlee expands the tool to also transfer the entire account history, not just the bill pay history, it could become an important industry tool.

Since it doesn't ship until next year, we'll refrain from superlatives until we've had a chance to test it. But Yodlee has a good track record in hooking accounts together, and we expect the new service to be functional. However, whether banks will adopt it is another matter. It will have to be drop-dead simple to use or banks will not want the ensuing customer-service nightmare.

In mid-August, Facebook, the popular social networking site aimed at college students, alums, and now a few select corporations has released a simple personal finance application. The original name was FaceBank (see screenshot at bottom of article), but recently it was renamed MoochSpot (click on screenshot below for closeup).

MoochSpot allows Facebook users to loan (i.e., spot), borrow (mooch), and settle debts with other Facebook users. At this point there is no payment capabilities, so the money must change hands through other methods.

Here's how it works:

1. Create a "piggy bank" to track the funds
2. Select a Facebook friend from the list that automatically shows in the MoochSpot list (note, in our screenshot below, we don't have any predesignated friends, so the list is empty)
3. Enter the amount of the loan
4. (Optional) Enter a reason for the loan

Analysis
MoochSpot was developed, not because of huge user demand to track personal debts, but to showcase the type of application that can be built by outside developers using the recently released Facebook APIs. MoochSpot is highlighted on the Facebook developer's page <developers.facebook.com>.

BillMonk, the self-proclaimed "social money" site which allows debts to be split and tracked via website or mobile phone (see NB Apr 30), is the first financial services provider to jump on the bandwagon and create Facebook integration (in inset, see Facebook login in lower-right of BillMonk's homepage). We tried on several computers to get it to work and were unable to get past the Facebook login. We'll check back in a few days to see if they have the bugs worked out.

Financial institutions looking to create online banking sites that click with college students should pay close attention to BillMonk and MoochSpot. It would be relatively simple for a bank to use the Facebook API to develop even more powerful payment applications that combine the loan-tracking benefits of MoochSpot with actual epayment capabilities to move money back and forth among friends. While it wouldn't do anything that Paypal doesn't do today, the integration within online banking is important.

But the biggest reason to integrate with Facebook, MySpace, or any other 20-something social network is because it positions yourself as a bank or CU that understands the younger generation. And make sure you have genuine 20-somethings designing the marketing and writing the blog copy.

Appendix:

Below is the original FaceBank application prior to changing the name to MoochSpot:

Yesterday, we posted a lengthy discussion of Google's new universal checkout system, Google Checkout. We are extremely bullish on its future and will follow the developments closely. Just like Google's AdWords first gained traction with small businesses (including Online Banking Report, an AdWords user since early 2002), we expect small merchants to embrace Checkout quickly to realize two huge benefits:

• Lower card processing fees: A certain amount of card processing can be virtually FREE, as long as the merchant can use the AdWords credits; even after that, Google's fees are one-third lower than PayPal, which is considered a relatively cost-effective program for small merchants
• Less shopping cart abandonment: Consumers abandon their online carts for a variety of reasons, but one of the leading causes at smaller merchants is concern about entering personal info and credit card numbers

It will take much longer for larger merchants to come on board since they must cede an important part of the customer relationship to Google, such as the customer's email address.

Financial institution opportunities
All this begs the question: What does this have to do with my financial institution? I'm glad you asked. Here are five ways a bank could leverage Google Checkout (in order from easiest to most difficult):

1. Educate customers on Google Checkout with encouragement to enter your credit and/or debit numbers into the wallet: While Google allows multiple cards, most users won't realize that initially since it asks for only one during the sign-up process, so the first one entered has a huge advantage. This would make a great subject for your periodic email newsletter, a feature for your website, and so on.
2. Incent customers to enter your card number: As we mentioned yesterday, Citibank has made a significant investment by buying the pole position in the sign-up process. Assuming one million of its cardholders take advantage of the $5 credit, that's a $5 million expense, even without considering what they paid Google for the exposure. You might want to consider a similar program, although an iPod sweepstakes could be just as effective and less expensive.
3. Educate small merchants on the program: If you don't offer your own merchant processing, you should tell your business customers about this new way to save on card processing and potentially increase online sales.
4. Use it to fund new deposits during your online application: If you accept credit cards to fund new checking accounts, you could offer Google Checkout as a funding option. Provided you can use the AdWords credits, it could be a way to virtually eliminate the cost of interchange on these deposits. In fact, Google may have to erect some barriers here. Again, assuming you are a big AdWords spender, you could offer customers the option of making ongoing deposits via credit card, as long as the total deposited was no higher than your normal AdWords buy. For example, if you spend $10,000 per month in AdWords/AdSense, you could offset up to $100,000 in card-funded deposits.
5. Create a front-end to Google Checkout within your online banking area: Using account aggregation technology that saves the user's Google username and password on your server, you could make it easier for users to access their Google accounts. You could even go into full aggregation mode, by automatically downloading Checkout activity and displaying it within your online banking area.

Did I miss anything here? Email me (click on my initials below), if you have other brainstorms or comments.

--JB

Has Google found its iPod? Not the music player, but an end-to-end ecommerce system that is safe, convenient, and above all, drop-dead simple to use. Something that does for online commerce what Apple did for digital music. That's a tall order, but we believe the search giant may have just such a hit on its hands with Google Checkout.

For more than a year, there has been a great deal of speculation about Google’s entry into the payments arena. After months of quiet testing with carefully selected beta merchant partners such as Starbucks and Buy.com, Google Checkout was officially released June 29 <checkout.google.com>. Although the reaction in online blogs was mixed, we think it's a winner. The only question is whether it's a home run or a grand slam (or World Cup equivalents, one goal or four).

Google Checkout (previously known as Google Payments or Gbuy) is an online-payments tool integrated with the user's Google account. On the surface, it's similar to PayPal, but the true strength and potential threat is its close ties to Google’s already industry-dominant search function.

At this point, Checkout's functionality is more limited than PayPal's. There is no stored value, no subscription payments, no eBay integration, no non-credit card options, no integrated debit card, or money market account. For the end-user, it's closer to a virtual wallet than a PayPal substitute. However, it goes way beyond what the ewallets of the late 1990s offered, taking control of the entire checkout process, a potentially disruptive technology in online retailing.

How it works
Searches that match a Google Checkout advertiser include a shopping cart icon embedded within the AdWords text box (see Google search on "Starbucks store" above). Users can buy products from these merchants in a few clicks without having to enter any additional information (see Google Checkout icon in lower left of the Starbucks shopping cart shown at right). This eliminates the dreaded merchant-account set-up process that causes massive shopping card abandonment problems, especially at relatively unknown merchants where privacy fears are greater.

First-time users are prompted to enter their credit card, billing, and shipping information, which Google stores in its servers (see screenshot left). Subsequent purchases can be made with a simple Google username and password. Users can store additional payment and/or shipping options at any time. Complete purchase histories can then be monitored from their Google account.

Currently, just 100 merchants are participating (see places to buy), but given the potential merchant savings, expect that to change quickly. Twenty-four of the 100 Checkout users offer a $10 discount on purchases of $20 or more (see DayDeals screenshot below).

Like PayPal, Google shields the buyer’s credit card number and other personal information beyond what is necessary for shipping purposes. However, Google also provides the option of keeping the user's email address confidential, a spam-limiting function not available via PayPal.

When a user selects the confidential option (see screenshot below), Google forwards the seller's confirmation message to the end-user.

Sellers are paid directly through their own Google Checkout account. Google has significantly undercut PayPal on pricing, at least for smaller merchants. Google's fee is 2% of the sales amount plus a flat $0.20 transaction fee compared to PayPal’s typical 2.9% plus $0.30 (PayPal has a sliding scale with higher-volume, $100k/mo and above, merchants paying 1.9% plus $0.30).

In addition, Google advertisers earn credits against their processing fees. For every dollar spent on Adwords, sellers can process $10 worth of sales with no processing charges other than the $0.20 transaction fee. It amounts to a 20% discount on AdWords spending, provided there is sufficient Google Checkout volume (i.e., at least 10 times the amount spent in AdWords).

Finally, sellers can create their own Buy Now buttons at the Google site, then drag and drop the HTML code into their websites. This allows small business sellers who are not currently ecommerce-enabled to immediately begin accepting Google Checkout.

Google is expected to provide additional data as the service matures. Having a hand in the process from product search all the way through to the purchase will allow Google to keep tabs on which ads actually result in a sale. This could mean changes to Adwords pricing or structure.

Analysis
The pitch to consumers is appealing. In addition to the privacy shields, Google promises to mediate disputes, and gives users a central place to track purchases. But the biggest consumer benefit: a common user interface for checkout, something that previous ewallets never provided. As you can see in the screenshot below, after shopping the merchant site, the contents of the cart are transferred to Google. At that point, Google takes over, offering the end-user the following options:

• Change shipping method with all costs itemized
• Add a coupon code
• Change credit card
• Change shipping address
• Shield email address from merchant
• SIgn up for promotional messages from merchant
• Links to the user's Google account
• Concise summary of the billing info, including exactly how the charge will appear on the user's credit card statement
• Concise summary of the merchant's return policy

Will consumers give up more personal information to the largest data repository on earth? Initial polls seem to suggest so. In addition, you can bet that merchants will create incentives to move credit card and/or PayPal volume to Google to save as much as 3% on card processing. For a retailer with a 10% margin, that's a potential 30% lift.

You might be thinking that free credit card processing is a short-term loss leader that will end as soon as a critical mass of merchants adopts Google's system. We don't think so. Put yourself in the shoes of a Google advertiser. You now know that you'll earn a 20% discount on your AdWords buy. Will you let that drop to the bottom line, or might you use some of that windfall to goose your bids on Google a bit? If it's an efficient market, eventually much, if not all, of the "free" card processing will flow back to Google in the form of higher bids. And since not all merchants will qualify for the 20% discount, Google might actually increase its total take due to the "discount." Brilliant.   

Citibank's role
The program should have little impact on retail banks, since at this point Google Checkout must use a bank-issued credit or signature debit card to participate. However, Citibank is paying Google to be the "preferred card" on both the Google sign-in page (click on inset above for closeup) and the credit card registration page (click on inset right). The credit card giant is hoping the $5 (or 1000 Thank-you points), will entice users to enter their Citi card into the Google wallet. The $5 bonus offer ends Aug. 1.

Retail banks might want to consider supporting the payment service with a secure gateway to various online payment alternatives so users can manage their PayPal, Google, and other accounts directly from a secure online banking area.

If you are a credit card processor, however, this could eventually pose a threat to your market share and/or margins. Even without factoring in the AdWord's credit, Google's highly publicized 2% discount rate, along with a lack of monthly fees, is a bargain, especially for small businesses. However, given the reluctance of businesses to change banking relationships, it will be years before the impact is felt.

--JB

In the musical world, a mashup combines music from one song with lyrics from another, often mixing two very different genres. One of the more famous examples is the Grey Album by DJ Danger Mouse that put words from Jay-Z's Black Album on top of chords from The Beatles White Album.

Programmers have their own definition: combining content seamlessly from two different sources. For example, Kayak <kayak.com> is a powerful travel site that pulls price quotes out of hundreds of websites and displays them in tabular format and locates them visually on a Google Map (click on the inset to see a Las Vegas hotel search). 

In online finance, we have seen mashups from Yodlee, uMonitor, and others that marry account information from a number of sources to create an aggregated view. But the most successful financial mashup yet is PayPal, which put an email/Web interface in front of two established electronic payment mechanisms, ACH and MasterCard/Visa.

Who will launch the next successful mashup? There is quite a bit of activity in the payments space, many trying to mimic PayPal's success using a cell phone interface. For example Obopay and TextPayMe (NetBanker, April 26), and BillMyCell from Black Lab Mobile <blacklabmobile.com>.

Another company, BillMonk <billmonk.com> has created a Web-based system of sharing expenses designed for the work-hard, play-hard urban singles set. Users can send expenses to be shared to their account at BillMonk using text messages, and then log in later to finalize the payment split and let everyone know who owes what (see example right). The company doesn't yet facilitate the actual payment, but they are looking for a partner to power the financial transactions.

We're still not convinced the market for "splitting expenses among friends" is big enough to sustain one, let alone four service providers (see NetBanker, April 26). But we ARE sure the enterprising founders of BillMonk will find a niche somewhere in the payments space.

BillMonk has added more new features to its bill-sharing platform in the past four months than most companies implement in four years. It reminds us of the pace at another small payments company that we were watching closely six years ago as they morphed from a closed PDA-to-PDA payment system to the primary platform for eBay buyers (see Online Banking Report #54 for a view of PayPal in the early days).

To get an idea of the pace at BillMonk, read a few entries from their blog <billmonk.wordpress.com>. Then realize that this is not the work of a vast team of programmers, PR agents, and marketers. It's just two guys in a Seattle apartment who are also answering customer queries, paying the bills, building the website, taking out the trash, and talking to reporters (see the profile in the Seattle Times, April 24).

Action Items
My advice for financial institutions:

1. Hire these guys
2. If that's not practical, then behave like them; constantly improving your website and to the extent you control it, your online banking and bill pay system

I will bring you an update on the company as soon as I can corner one or both of the founders in a coffee shop.

--JB

ModaSolutions <modasolutions.com> and several merchant clients including Big Al's <bigalsonline.com> online aquarium supply store and CompSource <c-source.com>, an electronics retailer, are making waves in online bill payment circles. In one of the more counterintuitive developments we've ever seen, Big Al's is seeing 6 percent of its customers opt for a convoluted two-step bill payment process at checkout. To increase buyer comfort levels, the connection to online banking is reinforced through banners and copy (see the logo from Big Al's above and the banner at CompSource below).

How it works
Rather than simply entering a credit card number or inputting checking account info to authorize a funds transfer, the SECURE-ebill system allows a customer to complete the checkout process without entering any personal payment info. The system then kicks an email to the customer summarizing the amount owed and the merchant's contact info. Customers are then instructed to log in to their bank's bill pay system, set up Big Al's as a payee, and then pay the amount owed. Payments are routed through MasterCard's RPPS for electronic settlement within 48 hours.

To summarize:

1. Customer shops at merchant online
2. Customer selects SECURE-ebill option during checkout (see screenshot #1 below)
3. Email is sent to customer restating the amount due and deadline to pay (see screenshot #2 below)
4. Customer logs in to online banking at their bank
5. Customer sets up the merchant as a payee
6. Customer pays the bill using online bill pay
7. Payment is settled electronically through MasterCard RPPS
8. Merchant ships the goods

Results
Approximately 6 percent of all Big Al orders now choose the SECURE-eBill option. Of those, nearly 40 percent are new customers. In addition, the cost to process the checks is 60 percent less than the discount rate the company would have paid had the customer paid with a credit or debit card.

At CompSource, customers are rewarded with a 5 percent savings ($25 maximum discount) at checkout when selecting the ebilling option. The company has not released results, but it must really like the system. Its website has numerous references to the 5 percent savings, including a link by each price reminding users that they could save "up to 5%."

Analysis
If you consider the time it takes to log in to your bank account, set up a new merchant, then pay the bill, it will take three to five times as long as using a credit card at checkout. However, it is slightly faster to check out using the ebill option because you avoid entering a credit card number, expiration date, and security code.

As irrational as it seems to regular online shoppers, this system evidently has considerable appeal. How else can you explain 6 percent penetration at Big Al's with no merchandise discount? Evidently, it appeals to customers who are either concerned about entering payment info on a merchant's website, or who somehow like the extra control they get by entering the payment into their bill pay system where they can keep closer tabs on the payment. It's a good lesson in payment system design: Not all customers trust the most efficient system.

Merchants like it because it increases sales. And transactions cost less than credit card interchange, although the interchange savings are likely eaten up by extra customer service and reconciliation costs at the merchant.

--JB

Continue reading "E-billing at the Point of Sale for eCommerce" »

Last week, Visa USA redesigned its direct bill-pay area using Billeo's technology to power biller search and facilitate direct payments via credit card. It is a major coup for the fledgling direct bill-pay solutions provider Billeo, which earned an Online Banking Report Best of the Web last year for its innovative bill-pay toolbar (OBR 116/117).

The implementation at Visa bears careful review. It wisely uses biller search to engage users (see inset), then prompts them to save their personal biller list using Billeo. After registering, users download and install the toolbar directly into their browser, then input credit card information to facilitate payments. After the initial setup, users can pay select bills directly from the toolbar using the saved credit card and biller info.

Next week, we'll look at Visa's implementation in more detail and share insights from our conversation with Billeo founder, Murali Subbarao. In the meantime, you might want to give it a spin yourself at Visa's bill-pay site, <usa.visa.com/personal/using_visa/pay_bills_with_visa/> (click on screenshot right for a closer look).

Previous articles:

• NetBanker posts on Billeo
• Online Banking Report #85, Grabbing Desktop Mindshare: Private-branded browser extensions can make online services easier to use

-JB

To increase electronic bill payment usage, both Digital Insight and Online Resources are sponsoring holiday usage sweepstakes that client banks can offer to end-users. Modeled after similar programs at MasterCard and Visa, the promotions provide an incentive to pay bills online. By pooling the entries from all participating banks and credit unions, the prize pool is bigger than if a single financial institution sponsored it individually.

Some highlights of the two programs:

Digital Insight <www.diproductsite.com/q4_05_pay_anyone/splash/splash.html>

• One single prize of $30,000 across all participating financial institutions
• Three-month duration: One entry after paying 10 bills between Dec. 1 and Feb. 28
• One additional entry for each payment greater than $10 (maximum 10 additional entries)
• No more than one payment per payee per month counted towards total

Online Resources <www.orcc.com/sweeps/holiday05>

• One grand prize of $5000, two first prizes of $250 gift cards, plus one second prize of $100 for each participating financial institution
• Two-month duration: One entry for every bill paid between Nov. 1 and Dec. 31, 2005

Analysis
We like the concept behind both programs. Fourth quarter usage sweepstakes and bill pay marry very well. The Online Resources program is easier to understand with virtually no fine print (click on screenshot right for a closeup); however, it featured a stingy $5500 prize pool (not including the $100 for each participating bank/credit union).

In contrast, Digital Insight offered an eye-catching $30,000 grand prize, but offered no smaller consolation prizes (click on inset left for a closeup of the contest rules). It also required 10 payments before the user was entered into the drawing, a detriment to lower-volume, casual users.

Other Bill Pay Sweeps

• RBC Centura <centura.com> is offering a total prize pool valued at just under $10,000, with a grand-prize trip to the ACC basketball tournament (valued at $3500) and 100 runners-up earning $50 in ACC merchandise. Users receive one entry each day they pay a bill between Dec. 2, 2005, and Feb. 17, 2006 (click here for screenshot).
• In another basketball-themed promotion, University Credit Union <ucu.org> in Southern California is giving away tickets to UCLA basketball games, and a grand prize of a John Wooden autographed ball, to members using bill pay in Oct/Nov/Dec. Users receive one entry per bill paid (click here for screenshot).
• PNC Bank <pncbank.com> has been running a bill payment sweeps for its business customers since mid-year. Each month, one out of every 100 new bill pay customers receives their choice of an iPod, $300 Marriott travel card, or $300 Staples card. In addition, each month the same prize choice is awarded to one existing customer who paid a bill that month. The sweeps ran from July 1 to year-end. (click here for screenshot). 

--JB

Question: What do you call a service that delivers a single consumer payment via fuel-hungry trucks and jets while requiring six or more highly paid technicians and drivers to get the job done?   

Answer: An online banking innovation featured in a page-dominating ad on Chase's homepage today (click to view screenshot, links will not work).

The service, originally launched by Chase's Bank One unit in January, is now available to all Chase online banking customers. Customers initiate payments online and UPS does the heavy-lifting, ensuring they arrive by the end of the following business day. Cost is $14.99 per payment which can be tracked via the UPS tracking number. Cut-off time is a user-friendly 10 pm eastern time.

Analysis
We like the service, even if the delivery mechanism of dead trees and fossil fuels is positively archaic. But given the realities of our complex payment and accounts receivable systems, it's better than the alternative, a $39+ late fee and loads of additional interest. At least this way the user avoids getting in his/her car and spending a half-hour overnighting the payment themselves. And we applaud Chase for making the service available online.

However, despite the clever name and appealing graphic (see inset above); we have to question the homepage ad placement. For a marginally profitable service that appeals to a small niche of the truly disorganized online bankers (I qualify), that's a LOT of screen real estate. One can only hope it's only posted for a short time.

Surprisingly the page that actually explains the service (click on inset for closeup), is sparse and virtually devoid of marketing punch. Anyone clicking on the homepage ad must wonder what the big deal is. If you decide to scream about a new feature on your homepage, make sure you at least spring for a Flash demo and/or thorough documentation of its benefits.

--JB

Baltimore-based Provident Bank <provbank.com> with $4 billion on deposit from 590,000 accounts, is the largest U.S. bank to segment its online banking access into two levels, My Account Online and Premium Internet Banking with Bill Payment.

As the name suggests, the primary difference is bill payment. But also the premium version provides a combined statement whereas the basic version still requires separate logins for
each product. Premium also allows downloading into Quicken/Money (click on inset for an account comparison).

Basic online banking is free; premium is priced at $5.95/month, a popular price point in the days before bill payment became free. The bank encourages trial of the premium service with a generous 6-month fee-free period.

Analysis
It’s a good start, but it would be more effective if the premium version had more benefits such as extra service, more security, longer archives, and so on. The bank also needs to support the product better with website graphics, copywriting, and imagery that reinforces the premium image.

Reference: See OBR 109, for a report on online banking segmentation.

--JB

The so-called micropayments market has been one of the most hyped non-issues of the Internet era. First, it's not a monumental problem; there are many workarounds available, such as ACH processing, monthly billing, and so on. Second, the market, by definition, is not huge. Even a billion 99-cent downloads generates just $100 million in interchange revenue at PayPal's new prices (see below).

Nevertheless, it's good to see solutions evolve. Today's PayPal announcement should help continue that natural progression. Ebay's online payment arm announced that it wil provide a micropayment option priced at 5 cents per transaction plus 5% of the transaction amount. That means a dime in interchage for a 99-cent song compared to closer to $0.25 to $0.30 under industry standard pricing today.

It won't change the world, but as they say, every penny counts.

--JB

Effective Monday, Chase Bank will end its four-year experiment with so-called scan-and-pay bill payment (download the email announcement below). Popularized in 1999-2000 by Cyberbills, PayMyBills.com, and PayTrust, the service allowed users to have their mailed bills redirected to the service provider where they were scanned and posted to a website. Users were alerted to the new bills and could pay them through a variety of methods.

Download final email announcing the termination of Chase Bank's "Premium Plan" total bill management service

As demand failed to materialize, the three service providers all ended up under Metavante ownership. Last year, Metavante sold the remaining PayTrust business to Intuit. Chase was the only major bank to offer the service, using it as the premium option in a three-level product line (see OBR 82, p. 8).

Analysis
This is a service that sounds great on paper, but is too complicated for the benefits provided. Winning electronic bill payment services need to provide quick payback with a minimal learning curve. That's what so nice about CheckFree's new system that allows users to add a new biller by simply entering the biller's phone number.

While the few users who took the trouble to redirect their bills and set-up automated payments were quite satisfied, it was just too much trouble for all but a fringe group of highly-organized computer-savvy types, the kind of person who is a long-term user of Quicken. So it makes a lot of sense that the sole remaining provider of the service is Intuit.

--JB

U.S. Bank, with more than 1 million online banking customers, just went live with CheckFree's latest bill payment system (see OBR 113, p. 11). The improvements were communicated to current customers via a splashscreen the first time they went into the bill payment system (click on the inset above for a close-up).

The changes were also highlighted on a splashscreen after online banking login (see inset below). Customers also received a letter with similar information.

Improvements

• Much better user interface
• Integrated checking account balance
• Faster payments for some merchants, some with same-day delivery
• More customer-friendly terminology such as "biller" instead of "payee"
• Slick add-a-biller function keyed off phone number (which really works, I added myself as a biller by typing my phone number, clicking "enter", confirming that it was the right address, and clicking again...took about 10 seconds!)

Analysis
The reason for this article is to highlight the effectiveness of splashscreens for communicating important new information. PayPal has been using this technique practically since inception and we've commented on it a number of times in Online Banking Report.

We are now starting to see the technique at other financial institutions. We believe it's an extremely effective technique for two reasons:

1. Users are surprised to see a screen they weren't expecting, so they are naturally curious to find out what's going on.
2. Users are forced to navigate past the screen in order to do their banking, usually with a button at the bottom of the screen; so they have little choice but to scan the content.

However, you have to be careful not to overuse it. Anything more than once per month and users will start clicking past it like they do with most advertising intrusions. 

If you are not using this technique, talk to your website development team, or outside platform provider, about how to incorporate it into your online marketing mix.

--JB

We believe a strong bill payment guarantee is crucial, not only to the credibility of your epayments program, but by implication, to your entire online banking offering. CheckFree has offered its logo up for years, but your customers want to know what YOU will do for them; most would prefer to know nothing about CheckFree.

And your guarantee needs to be visible to both online banking users and those just thinking about it. One of the best ways to increase visibility is by creating a "bill-pay guarantee" icon that users can click through to learn more about it.

One of the better examples is at Citibank (inset) on its logon page. When you click on the logo, a small popup appears (click on the thumbnail below):

*

This guarantee has great copy, you can tell the marketing department was heavily involved. Rather than just reiterating the rather droll performance guarantee,* the bank also highlights several benefits:

• No hidden charges, in other words, unlike "free checking," bill pay really is free
• 24/7 service with "fast response"

*Citi's bill-pay guarantee states that payments will be processed within 24-hours and delivered to payees according to the schedule, or the bank will pay for any fees incurred.

--JB

Ten years after becoming the first bank in the world to post customer statement data on a website, Wells Fargo's in-branch collateral shows just how far the online banking industry has matured.

Instead of putting a generic online banking brochure in the branch, which would hardly get a second look these days, at least in our Seattle neighborhood, the bank has created an entire take-one brochure showcasing its innovate new feature My Spending Report that we looked at Feb. 17.

The My Spending Report brochure is a statement-stuffer sized 4-panel, 4-color creation printed 2/05 and entitled:

Look at your finances in a new way.

Also on the cover:

Introducing My Spending Report, exclusively from Wells Fargo.   

Inside, the left panel explains the spending report and cross sells credit and debit cards with an umbrella program called, The SmartSpender Plan, which includes:

• My Spending Report
• WellsProtect fraud protection
• Wells Fargo Rewards on select card accounts

The right panel shows a screenshot of the report depicting checking, debit card, credit card, and bill payment activity.

Update on Website slacking
In February, we were critical of the bank for announcing a new feature that had no visibility on its website. That has been corrected. Now the first result for a a search for "My Spending Report" links users to this explanatory page.   

-- JB

We finally had a chance to talk to Billeo founder and CEO, Raj Lalwani. First last Thursday, then a followup demo today.

I am happy to report the CEO is as impressive as the software.

And it turns out their business model is more B2B than B2C. Billeo will be custom-designing toolbars for banks, credit card issuers, other ecommerce players, such as retailers, travel booking sites, and yes, even billers. They hope to announce a HUGE customer win in the next few weeks. 

We think this application has great promise

We will dissect the company in the next issue of Online Banking Report (available online approximately April 12).

Previous articles can be found here.

-- JB

Since our initial report on Billeo, we've been using the system to pay and view bills. It's a new category of software we'll call toolbar-ware.

The primary user interface is an toolbar located near the top of Internet Explorer. Many of the toolbar functions call-out web pages from the Billeo server, so as you use the program it ends up being a mix of website and toolbar functions. It's actually a bit confusing for the new user.

Part of the reason it's not as intuitive as the Google or eBay toolbar, is that the user must learn an entirely new approach to tracking their billing. Whereas, with eBay and Google, most toolbar users are already well-versed in the nuances of using those popular sites.

We've also discovered their business model, running Google-like ads that run on the right of the page as you use the program. Click on the screenshot above to see the entire page. See left for the advertising section only.

Currently the advertisers running on the Billeo Billboard are ING Direct, The Wall Street Journal, Quicken Loans, and Value Line. The advertisers all stayed the same during our testing.

Bottom line: It's a great program, and we recommend banks consider developing a similar toolbar which also incorporates banking functions, or licensing this one from Billeo. We'll be publishing a complete review of Billeo in OBR #116, published in mid-April.

For more information:

• Previous Financial Marketing Report article on Billeo
• Online Banking Report #85, Grabbing Desktop Mindshare: Private-branded browser extensions can make online services easier to use
• Online Banking Report #115, 116, 117, Epayments v4.0: Profitable online transactions

--JB

Editor's Note: Billeo was named "OBR Best of the Web" in the second part of its series on E-Payments (OBR 119) published in June 2005. 

We've been tracking the developments in account-to-account transfers closely, in preparation for an upcoming Online Banking Report on the subject. It's tough to get a handle on the actual dollar volumes, so we were pleased to see American Banker's Daniel Wolfe quantify the market size.

In Friday's article (subscription required), MasterCard's TowerGroup payments analyst, Beth Robertson is quoted as saying that in 2004, $730 billion was transferred via account-to-account transfer (i.e., a funds transfer from an individual's account at one financial institution to the same customer's account at another). That amounts to more than $7000 for each of approximately 100 million U.S. households. All but a billion or so was initiated off-line.

But the online portion is growing. CashEdge the leading supplier of online account-to-account transfers, expects to process $6 billion in 2005, that's about $200 annually for each of the 30 million or so U.S. online banking households. However, fewer than 50% of those households have access to online account-to-account transfers.

--JB

2005 is off to an innovative start, first the launch of Billeo, a toolbar-based bill payment manager. Now, Wells Fargo puts a little sizzle into its online banking steak, with a preformatted spending report, ala Quicken, appropriately named, My Spending Report.

The bank's press release says its patent-pending, which we can only hope is a marketing gimmick.

Here's how the bank describes the service:

...combines spending transactions from a customer's check card, credit card, checking account and bill pay in one convenient place, accessed through a secured, online banking session and updated automatically each day. Electronic and bill payment transactions are organized by familiar categories such as gas/automotive, groceries, ATM withdrawals, etc.

Analysis
We will see more and more innovations around data delivery as banks try to differentiate their online services and add value. The stream of banking data available online is begging to be organized, analyzed, flagged, and reported.

Quicken has been doing it for 20 years, but it's more appealing to many users, especially younger ones, to integrate personal financial management right into banking websites.

Slightly Off-Topic Rant
Despite a well-crafted press release, don't bother visiting Wells Fargo's website today to learn more about My Spending Report. Not only is there no homepage link, the site-search function contains no relevant links either. So much for integrating PR with your website.

--JB

If you'd like to learn more about the how personal finance functionality is penetrating online banking, check out Personal Finance Features for Online Banking: Why “My Spending Report” trumps free bill pay on the subject from our sister publication, the Online Banking Report.

Just when you thought the banks were gaining an upper hand in the electronic bill payment battle, up pops a newcomer with a fresh approach. Take a moment to check out Billeo. An odd name, but so is iPod, and it seems to be working pretty well.

We haven't used it yet, so these comments are preliminary, but "on paper" this company and its approach appear to be winners. (One caveat: the business model is unknown, and the privacy policy is a bit ambiguous when it comes to the issue of adware. We'll keep you posted on what we find out.)

Billeo is a free toolbar-resident application that plays "virtual assistant," enabling more convenient and controlled direct bill payment at vendor sites. The toolbar also serves as an e-wallet simplifying online point-of-sale transactions.

Analysis
The toolbar contains several unique features, one of which is extremely impressive, the ability to save screen captures of transaction receipts. The application also includes payment reminders, a payment register, and a personal "bill payment" email address for users.

There are several familiar names associated with the startup. Nancy Langer, a former exec at Metavante, is the president. The advisory board includes Eric Dunn, formerly with Intuit, Shankar Srinivasan co-founder of Cyberbills, and Scott Loftesness of Glenbrook Partners.

We'll dissect the new service in Part 2 of our upcoming Electronic Payments Report in Online Banking Report.

--JB

Editor's Note: Billeo was named "OBR Best of the Web" in the second part of its series on E-Payments (OBR 119) published in June 2005. 

We just sent our latest report, "Pricing: The Fee vs. Free Controversy" to the printer. It should arrive in your mail in a week to 10 days.

In the report we look at the widespread practice of offering of online bill payment free of charge. You can read the report for our detailed conclusions, but suffice it to say, we are not wild about this trend. Online banking and bill payment provides significant value. And without a tangible revenue stream, it's difficult to make the appropriate investments in the channel. We think bank customers will actually be better off in the long run if they shoulder at least a portion of the extra costs of a robust online banking service.

Free bill payment is particularly vexing. Here's a service that runs circles around the paper equivalent. Users can save time, save money (postage, late fees, and check printing fees), can improve bill tracking and budgeting, and make their financial life easier. And, if the electronic payment doesn't post at the biller on time, the bank and/or processor will go to bat for them to resolve the problem. Try doing that with a paper check that's "lost in the mail."

So why do banks insist on providing this beneficial and costly service free of charge? They are doing it for the "relationship" value. No doubt users love getting something for nothing. And we won't dispute the correlation between bill pay users and higher household profitability. But so what. You can correlate higher profits with any service designed for a well-heeled audience.

The bigger question is this: Is free bill payment, costing $50 to $100 per customer per year, the best way to gain more loans and deposits from your best customers? It may be, but there may also be less expensive ways to achieve similar results, such as lifetime transaction archives or more account security options.

It's a tough call.

If you'd like to learn more about the future of online bill payment, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.

The Company

PayCast is a Dallas-based technology spinout from online trading company TradeCast that was acquired by AmeriTrade in April 2001. The technology used by PayCast has been in development since 1999, but the company itself was founded in 2001 and has just 9 employees. Investors include TradeCast founders and Buena Venture Associates, an early stage venture company that also backed TradeScape and InsureZone among others.

PayCast is targeting the 5.7 billion checks and wires initiated by consumers each year. Using a single interface, users are able to send funds to others or redistribute funds among their own accounts. Unlike PayPal, PayCast never takes control of client funds; it acts as a switch, authenticating and initiating the movement of funds and then notifying both parties via email.

The company plans to deliver services exclusively through financial institutions. It currently has two signed financial institutions contracts in the early stages of deployment. PayCast is also working on an employee test at a very large bank.

Funds can be moved two ways:

1.       Via ACH electronic transfer which typically takes two to three days.

2.       Via ATM network: banks using participating ATM networks will have the option of enabling real time transfers between accounts hooked to the network; given typical interchange rates, this option will be substantially costlier.

The CEO and president are both from Texas Capital’s ($1.3 billion; Dallas, TX) BankDirect unit.

The company currently has three products:

• Interbank funds transfer (me2me): Users may transfer money between any of their accounts at any U.S. financial institution.
• Email payments (P2P): Users can send money to anyone in the U.S. The recipient directs the funds into the appropriate bank account upon receiving email notification of the transaction. The sender never sees the recipient’s bank account numbers.
• Telephone transfer: Users establish and maintain payees on the Web but are able to initiate transfers using a telephone call.

• P2P payments and account-to-account transfers are delivered through a single interface .
• When away from their computer, users can initiate transactions via phone.
• Users have the option of adding a secret word to transactions for additional security.
• Users can choose standard delivery (2 to 3 days) or express (real-time).*
• Like FedEx, senders designate who pays the transaction fee (sender or recipient).
• Transaction confirmations can be sent via email, pager, or both.
• Users establish their own daily transaction limits.

*Assuming the bank’s ATM network supports account-to-account transfers and the recipient’s account is a member of the same network

Financial Institution Costs

Costs vary significantly depending on the size and complexity of the implementation, but smaller banks and credit unions could expect to spend in the low five-figures to contract with PayCast plus per-transaction fees dependent on volume and transaction type. Real-time transactions via ATM switch are considerably more costly than 2-3 day ACH entries.

PayCast’s “version 1” interface is simple to use, a prerequisite to a successful epayments service (screenshot below). We look forward to version 2 and continued innovation.

Address book of payees.

Payments to non-cardmembers must be password-protected and sent via standard delivery.

Confirmation screen prior to sending.

Setup options.

Account maintenance screen.

The system sends transaction confirmations
via email, pager, or both.

Users can select the maximum daily
transaction limit for their account.

PayCast coined a good name for its service, “personal money transfer.”

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

Epayments Vendor Guide

Table 1

Who Offers What

Sources: Companies, 9/02 except; (e) Financial DNA estimate of Princeton eCom 2001 EPP revenue, published 2/02

Notes: (1) Stored value program that features online transfer of funds into a prepaid account; there are a number of other vendors supporting stored value programs including WildCard Systems (the system behind Visa Buxx), InfoSpace (formerly called eCash Technologies), Yaga (formerly MagnaCash), and RocketCash (now owned by The Coca-Cola Company) and others; (2) Originally founded in 1998 as CallMeBill, then bought by NetZee, and subsequently sold back to management in 2001; (3) RPPS division began in 1987; employment total is for entire company; (4) Primarily support clients of its online banking platform; (5) First Data owns a majority stake; product currently in testing and only works between NYCE system ATM cardholders; (6) Interbank transfer product in testing and works only between Star System ATM cardholders; (7) prior 12 months ending June 30, 2002; (8) calendar year 2001

Table 2

Monthly Bill Payment Transaction Volumes

monthly volume in millions at mid-year

Source: Companies and Online Banking Report estimates (e) +/- 33%, 9/02

(1) Not including telephone bill payment volume of 1.2 mil/mo in 2002, 1.0 mil/mo in 2001/1999 and 500,000/mo in 1997

(2) A large portion of the other category was Bank of America, which outsourced its processing to CheckFree beginning in 2000.

Ma Bell has her dial tone, Microsoft has its Windows, electronic communications has the Internet. What’s the closest equivalent in banking? Payments. U.S. banks already provide universal payments connectivity through the 240-year old paper check system¹; but what’s holding back equivalent connectivity through far more efficient electronic means?

The infrastructure is already in place, the ACH system in the U.S., so it’s not a technology hurdle. So what exactly is keeping U.S. banks from hooking their customers together electronically? Could it be lack of demand? No way. Nearly every consumer has a need to transfer funds from time to time among accounts or other trusted recipients such as family members. And the 15 million registrants at PayPal demonstrate high demand as well.

Are banks hesitant over fraud concerns? That argument doesn’t hold up when you consider the billions lost with bad paper checks. It’s hard to imagine any system that would be more open to abuse than our antiquated paper check system. Electronic transfers, with sophisticated authentication and approval algorithms, should cut
fraud substantially.

Is it a revenue issue? Many banks are reliant on the stream of fee income from current payment vehicles: interchange from credit card and signature debit; NSF/OD fees from checking accounts. Perhaps banks are worried about losing revenue to low-cost, real-time, authenticated payment systems, but that would be a gradual change, nothing that would impact 2002/2003 numbers in a material way. 

What about deposit run-off? Perhaps banks think that making it easy to transfer money in and out of their bank will cause an outflow of deposits. For those providing crummy service and poor rates, it’s a legitimate concern. But for most banks with competitive pricing and service levels, there shouldn’t be any net outflow.

What’s left? It’s only a matter of priorities. Since so few banks offer Interbank transfers, adding the service doesn’t rise to the top of anyone’s “to do” list. But that’s shortsighted. Interbank connectivity is desired by customers, again witness the PayPal phenomenon, and is a logical extension of online banking systems.

Interbank Transfer Pioneer: X.com

When X.com launched in late 1999, the Internet-only bank featured interbank connectivity, the first and so far only Net-oriented bank to make Interbank transfers as easy as internal intrabank transfers, e.g., from savings to checking.

When our company was looking for a place to park idle cash in 1999, X.com’s interbank transfer system was the primary reason it was chosen. Unfortunately, six months after we signed up, X.com decided to focus all efforts on developing the PayPal system. The company closed its Internet bank, refunding the money to depositors. How? Through interbank transfers, of course.

As you can see in this old X.com screenshot², the company placed a “Move Money” function on the top-left corner of its account summary page. Move Money could be used both for internal and interbank ACH transactions. X.com’s user interface and signup process won it our Best of the Web 2000 designation in April 2000.

¹For a brief history of the paper check, refer to  Commerce Net’s Website www.echeck.commerce.net/library/history.html

²X.com (now called PayPal, Inc.) withdrew from full-service Internet banking in Dec. 2000 to concentrate entirely on its PayPal payment service.

Action Items

Payments are the dial tone of online banking. Banks must be proactive when it comes to offering a state-of-the-art payments system. It’s too late to enter the auction payment game, PayPal, BillPoint, and C2it, have too much of a lead, but there is still a significant opportunity to simplify a user’s other payment-related needs.

We believe a significant point of differentiation could be gained by providing users a single, simple, integrated interface for moving money between accounts at any bank in the U.S., and through major banks internationally as well. We call this broad electronic capability interbank connectivity (IC), and it encompasses the following transaction types (see the table below):

• interbank funds transfer (my deposit account to my deposit account)
• automatic savings/investing plans (my deposit account to my savings/ investment account)
• balance transfer (my loan account to my loan account)
• loan payments (my deposit account to my loan account)
• payments (my deposit account to someone else’s accounts)

Pioneers would also be in the position of licensing the service to other providers, a strategy employed by National Interbank .

Interbank Connectivity Matrix

Source: Online Banking Report, 4/02

*Account definitions:

My primary accounts = Accounts owned by the user at your bank

My other accounts (owned by user) = Accounts at other banks that are owned by the user; user can electronically move money in and out of these accounts (ACH debit or credit)

Other’s trusted bank accounts (owned by friends and family) = accounts at your bank or other banks that are not owned by the user, but are owned by trusted friends and family who have provided their account number to the user for the purpose of transferring funds into the other account (debit only); no withdrawals (credits) allowed

Sharebuilder from NetStock Direct features automatic ACH transfers from any deposit account. Four banks currently offer it:

•   Bank Atlantic
•   EastWest Bank
•   National City Bank
•   Wells Fargo Bank

It is also offered by several dozen credit unions (partial list):

•   Boeing Employees CU (left) www.becu.org
•   Desert Schools FCU www.desertschools.org
•   First Tech CU www.1sttech.com
•   Golden1 CU www.golden1.com
•   Kinecta CU www.paymaster.org
•   Langley FCU www.langleyfcu.org
•   Schools Financial CU www.schools.org
•   State Employees’ CU www.ncsecu.org

How it Works

Interbank connectivity should be integrated closely into your online banking module, especially in the funds-transfer area. Once outside accounts are registered and authenticated, external transfers should be as easy to make as internal ones. This will transform your online banking program into the user’s “money-moving hub,” linking together all their deposit and loan accounts.

Over time, account aggregation can be added to the mix, creating a full-fledged financial hub. Refer to for more information on account aggregation.¹

Once users registered their other accounts, you could create a “transfer grid” like the one shown below. Color-coding or symbols could be used to show the anticipated timeframe for completing each type of transfer. Users should be able to choose their own name (i.e., nickname) for each account. Actual account numbers would be masked for security/privacy.  

¹Editor’s Note: We will be updating our account aggregation report this summer.

Hypothetical Interbank Connectivity Summary Screen (viewable by end-user)

maximum time required to complete transactions in days

The Ultimate Bank of Dreams ePayment Center

Source: Online Banking Report, 4/02    check mark = included at no extra charge A la carte = available for an extra transaction fee

Notes:

(1)       Even though users are already logged in to the secure online banking area, an additional payments password is highly recommended

(2)       Can be billed monthly; most products could be sold to small and microbusinesses with minor changes and fees from 2 to 10 times higher

(3)       Registered users can automatically be logged in to this area using cookies

Recommend ePayment Features by Budget

Source: Online Banking Report, 4/02

*Depends on whether current vendor supports the feature, for example good funds bill payments are supported by Online Resources; email payments are supported by Check Free

Recommended ePayment Features by Strategy

Source: Online Banking Report, 4/02        Score: 4 points for two stars,  2 points for one star

Notes: (1) Products are defined

(2) Goal definitions:

Mass-Market Appeal = Extent to which the product will appeal to a broad cross-section of users

Fee Income Potential = Potential for positive net fee income (direct revenues higher than direct expenses)

Loan Originations = Potential for increasing integrated credit line outstandings

Increase Customer Satisfaction = Potential for delighting customers with unexpected benefits

Decrease Cost = Potential for decreasing processing and customer service costs

Account Retention = Ability to increase customer lock-in

Brand Building = Value as a copy point in advertising and promotion

Low Startup Costs = Extent to which the product can be launched on a relatively small budget (<$50,000)

Viral Marketing = Extent to which the product  benefits from positive word-of-mouth

Raw Score = Each attribute (goal) is rated equally with 2 points for each single star, 4 points for each double star

(3) Readers are encouraged to provide category weights appropriate for their company

The Payment & Transaction Zone houses the main transaction functions: pay-anyone bill pay, bill aggregation, interbank funds transfer, email payments, and so on. We think its time to consider dividing these capabilities into at least two distinct product bundles:

• basic services for newcomers and those with relatively simple financial needs
• premium services for power users and those with more complicated financial needs

While virtually all users would be expected to pay for the premium bundle, basic services could be provided  without fees. Profits could be generated with fee-based upgrades linked to the free services.

Security Note: We recommend establishing an additional password that sits in front of any function that allows users to move money out of the bank.

1.       Getting Started Area: You have gained nothing until you entice registered users to start using epayments. Like the one-page, color-coded instruction sheets that come with new computers and electronic gear, you need a well-thought-out process to draw users in and get them started. The area should include a guided quick demo, an interactive practice area, and encouragement for new users to send a payment to themselves to get things going. Don’t forget to reiterate performance and service guarantees.

2.       Pay-Anyone Bill Pay: Offered by most financial institutions as part of their online banking program, the service allows payments to anyone to be initiated online.

3.       Credit/Debit Card. Don’t overlook card products in your epayments design. Customers that don’t have them should be encouraged to apply, and those that do should be instructed on their use for epayments; as well as information regarding online security and privacy.

4.       Transaction Confirmation Feedback Loop: To gauge customer satisfaction over time, create an email-based feedback loop for each transaction. Send an email confirming each transaction with an estimated posting date at the merchant. Ask customers to reply back to the email to rate their satisfaction with the processing of the transaction.

Consider posting cumulative responses to the survey in a public area so users can gauge how well individual merchants handle electronic bill payment. This will also help keep the pressure on merchants to improve their electronic payment processing.

The database of user feedback could also be aggregated (with no identification of individual users) and provided free of charge to your merchant clients.

5.       Interbank Connectivity/Funds Transfer : Within a few years, interbank funds transfer capabilities will be an important and expected part of most online banking services. It’s already a bona fide hit on the focus group circuit and a clear benefit that will make users glad they signed up for online banking.

6.       Transaction Clearing Confirmations: Users can set a minimum threshold and any check, debit/ATM, or credit card transaction above that amount generates an email to the user.

7.       Integrated Email to Payment Recipients: All epayment functions should include integrated email so users can easily send optional messages to recipients of the funds. Transaction details would be prefilled on message forms. Users would simply add their comments and hit send. Messages would be archived for future reference.                                             

8.       Bill Pay Calculators/Budgeting Worksheets: Provide consumer and small business budgeting templates and financial calculators. Ford Motor Credit created a simple Budget Planner to help car buyers assess their financial situation  www.fordcredit.com/planner  

9.       Bill “Overload” Protection Services: Provide overdraft protection targeted towards bill payment needs. Loan advances could be triggered via a link from the bill payment section of your Web site or via email requests.

10.    Biller Customer Service Inquiry Form: Create a list of major billers with links to their customer service Web sites, and/or customer service email addresses. Build a fill-in-the-blanks form to help users better formulate their questions. Use cookies to prefill the forms with user information.

11.    Links to Biller Order Entry: Along with links to customer service, include similar links to the biller’s online catalogue or order-entry sites. This could be made into a profit center by selling enhanced links to billers. Bank client companies could be provided with complimentary enhanced listings to deepen business relationships.

12.    Paper Check Reordering: Paper checks aren’t going away for a long, long time. Make sure customers can easily find the form to reorder checks online.

13.    Prepaid Card Products : You can offer a variety of prepaid card services, either as a free value-added service for premium customers (see below) or a fee-based option for all.

14.    Payment Tracking Center: Millions of anxious overnight delivery users log in to FedEx, UPS and others every day. Epayment users should also be able to track their payments from the moment of initiation until they are accepted at the biller.

Premium-Level Features & Functions

1.       Guaranteed Payments/Online Money Orders. From the bill payment interface, users could upgrade payments to “guaranteed,” essentially sending a money order to the recipient. The service would be integrated with email so messages could be sent to the recipient as soon as the transaction was authorized.

2.       Expedited Payments: Similar to document delivery via FedEx, for a price, users would be able to expedite payments, cutting 2 to 4 days from the usual payment lead time. The service would require FedEx-like fees, but with $29 late fees becoming common for credit cards, even a  $15 next-day-delivery fee would save cardholders a bundle, especially considering extra interest charges accrued on balances not paid on time.

3.       Credit Card Statement Aggregation: This is any easy win-win for the bank/card issuer and its customers. For less than $10 per user per year to Yodlee, uMonitor, or other providers, let users aggregate their credit card billing statements on your Web site. An integrated balance transfer function would allow users to easily transfer balances from competing cards to your card or credit line.

4.       Bill Aggregation: Similar to credit card aggregation above, but encompassing all types of billing statements from utilities, Internet service providers, and so on. Note: Number 3 and 4 could be offered as a single service.

5.       Friends & Family Payments and Reloadable Debit Cards. Visa Buxx and other ATM-card-based transfer services aimed at groups of known individuals have a limited market, but users could be very loyal and profitable.

6.       P2P Email Payments: While PayPal pretty much has the auction market cornered, there is still a need for email-based payments for the occasional exchange of funds between non-related bank customers.

7.       Bill Concierge/Virtual Bookkeeper: This private-banking-like payment service with labor-intensive human help, could be made into an option over and above your normal premium-level payment services.

8.       Financial Datebook: Essentially a day planner with an emphasis on bill payments and other financial activities. Can also be used for non-financial events such as birthdays, to-do lists, and so on.

9.       Reminder Service: Integrated with the financial datebook above, or as a standalone function, the reminder service sends email reminders of important dates and times. The emphasis is on financial matters, especially bill-payment due dates, but the service could be used for personal and business appointments as well.

10.    Planning, Budgeting, and Payment Averaging Services: This service could help users save time each month, provide excellent peace-of-mind benefits, and help cross-sell profitable bill-pay overdraft protection.

11.    Smart/Automated Payment Services  : The more services users become hooked on, the harder it will be for them to move bank accounts. Eventually, most routine payments will be automated, so anything you can do to begin that process today will help increase customer satisfaction and account retention.

12.    Bill Pay Usage Incentives/Score Keeping: A few banks have tried one-time sweeps  designed to encourage bill-payment usage. But we know of no one that has incorporated ongoing usage incentives into their bill payment program (email our editor, jim@netbanker.com, if you have info on any ongoing bill pay reward programs).

We think financial institutions should experiment with both approaches. Users need an initial incentive to learn a new way of performing an everyday task. But ongoing incentives could change sporadic bill pay users into heavy users, creating significant exit barriers for your online base.

The incentives don’t have to be large, they could even have zero cost. For example, provide a way for users to “keep score” by creating a bit of a game around the drudgery of bill payment. Some other ideas:

• Frequent-flyer miles: Award one or two miles per $100 paid. A household paying $40,000/yr in bills would earn only 400-800 miles, which would cost the bank about $10 per year. You could award bonus miles for various actions like setting up a mortgage or referring a customer.
• Bill pay “green stamps”: Establish a point system that allows users to collect points redeemable for bank services or discounts at area merchants.
• Performance rewards: Track the number of paper checks written vs. electronic items and reward users with points for certain milestones. For example, award 500 frequent flyer miles whenever electronic items are more than 50% of the total.
• “Free payment” sweeps: Pick one bill-pay transaction each month and pay it for the lucky customer. This is a proven credit card promotion with good marketing and PR results.
• Recognition: Customers could be rated on the percentage of their monthly checks written online. The top scorers could be listed on your Web (using initials for privacy) with winners receiving a t-shirt.  ð

Whether providing monetary incentives or not, you could provide continual feedback on electronic bill payment “performance.” Track adoption of electronic payments over time with comparisons against last month, last year, and so on. Provide comparisons against other users, with top performers posted on the Web (with names disguised). Performance measures could include: highest percentage of electronic items vs. total items; biggest increase compared to previous month, year, quarter, etc.

13.    Scan & Pay: While this service sounds good “on paper” (pun intended), the market for early adopters – frequent traveler types who are willing to turn over their paper bills to a third party – is very small. We forecast just 1.5 million users by 2005 year-end. However, if you really want to satisfy this type of customer, you might want to consider it as a premium add-on option. Citibank, Chase (see screenshot below), and others already offer it so demand will likely grow, albeit slowly.

14.    Multiple Source-of-Funds Options: Robust bill-pay programs should include a number of payment options. The traditional model of limiting bill payment to a single source of funds, typically a checking account, will soon become outmoded.

In addition to allowing users to pay from any account at your financial institution, consider allowing payment from competitive accounts. Why wouldn’t you want your customer depleting balances at another financial institution instead of yours?

You should also allow bill payments to be directly charged to your credit line or credit card account.  To further increase loan outstandings, offer an instant bill-pay, line-increase program where users can easily apply for additional credit.

15.    User Control Panels: Users should be able to log into an area that contains a “virtual dashboard” of dials and settings that can be adjusted to change bill payment and security preferences.

Features and benefits of Chase’s online bill payment options.

Chase serves up bill payment in three flavors to its cardholders

•  Free Plan: Just covers paying Chase card outstandings

• Standard Plan: $4.95/mo for pay-anyone bill payment

• Premium Plan: Full scan-and-pay for $9.95/mo

Regardless of your budget, three building blocks are vital for all epayments programs. An optional fourth area devoted to small and microbusinesses should be added if you target those segments.

1.Research & Planning Zone: Educational area to learn the benefits of epayments and how best to use them. This is free area is a cost center designed for customer service and sales support.

2.Payment & Transaction Zone: Users log in to process and track various types of epayments. You may want to consider at least two service levels: one for new and/or basic users and the other for power users . A mix of subscription and per-use fees could make this zone a significant profit center.

3. Security & Privacy Zone: A place for customers to learn about security issues and use tools such as online credit report access. Although primarily a customer service center, optional fee-based services could cover costs and transform it into a profit center.

4. (Optional) Small Business Zone: A place for small and microbusinesses to find electronic solutions for billing (accounts receivable) and payment needs (accounts payable). Ideally, financial institutions will deliver integrated solutions encompassing both.

Budget Considerations

Not everyone has a large budget to put towards an expanded epayments program, but everyone can make improvements, even if only to post clearer and more extensive educational material. A summer intern, or branch volunteer, could provide additional material for your Web site at a low cost. The table on page 13 outlines recommended features for budgets of $1,000 to more than $1,000,000.

Target Markets

Retail banks have two primary targets, consumers and small businesses, each with distinct needs. Small businesses will pay much more for tools that help manage receivables and payables. But businesses are slower to adopt new online methods due to their prior investments in accounting procedures and software.

Consumers simply want to get their bills paid with the least amount of work while still maintaining control. Although price is important, they have demonstrated a willingness to pay for services, especially when the costs are embedded in balance requirements or higher rates on loan balances.

ePayments Target Market Segments

Source: Online Banking Report, 4/02

Credit card issuers: The 800-pound guerillas of online bill payment?

Credit card issuers may have the inside track to gaining a critical mass of online bill-payment users. By leveraging their captive audience of account-management users¹, they can move into total bill management with the credit card as the linchpin and email as the marketing vehicle. Here is how a well-integrated program could work:

1.       Cardholder receives a reminder email 5 days before the credit card due date.

2.       Cardholder logs into card account and settles current credit card bill.

3.       Cardholder is asked if they would like to pay any other credit card bills (e.g., balance transfer) with no signup required.

4.       Cardholders responding yes are presented a simple form; they simply type in issuer name, account number, and payment amount; the payment is then posted using existing balance transfer mechanisms.

5.       Finally, cardholders could be presented with an opportunity to pay any bill, using either a cash advance or a regular purchase transaction with a grace period.²

Provident does a good job putting it all together. Its “About Online Bill Pay” discusses four consumer features/benefits: ebills, payment customization, email payments, and payment status. Check Free also gets a little free publicity with its “guaranteed” logo on the bottom.

¹According to Gartner, nearly 25 million U.S. adults were logging in to their credit card statement at year-end 2001 .

²For the limited number of merchants that accept credit card payment for bills, the card company would process a regular credit card purchase to settle the bill, earning interchange revenue on the transaction; for all other payments a check or ACH would be used to pay the biller. Card issuers would have the option of processing these payments as regular purchase transactions, cash advances, or special transactions with no fee, but also no grace period.

Epayment products include any online technique for moving money from one entity to another. It includes hybrids, such as pay-anyone bill payment that boasts an online front-end but is often fulfilled with paper on the back end. In alphabetic order, the following epayment products should be considered for your product line.

Next month we’ll mix and match the products to develop recommended epayment product suites to match your strategic objectives.

ACH/Debit Helper

Description: A service that helps customers understand and enroll in preauthorized debit programs; it can also help users control, track, and make changes to established preauthorized debits. See Interbank Transfers  for ACH originations.

Functionality: Prepopulate the area with information on all the major billers in your area that support preauthorized ACH debits including your own loans. Include educational material on how it works, what the checking account statement entries look like, consumer rights under Reg. E, and how to make changes. Include links to the billers’ customer service departments for specific questions.

Pros:

• Preauthorized debits are great for the bank. You get the benefit of locking the customer in to your checking account with little cost since the originating party pays for the transaction and usually handles customer service, authentication, and problem solving.
• Low development expenses, much of the legwork could be done by a summer intern.

Cons:

• Must be developed in house
• More customer service calls: Because of your positioning, customers will ask you to solve problems that otherwise would have resolved directly with the biller.
• Little opportunity for fees

Pricing/Biz Model: Free to increase customer lock-in.

Bill Aggregation

Bill aggregation from uMonitor.

Description: A subset of account aggregation, used to download and consolidate billing statements. It could be offered on its own, or within a comprehensive account aggregation program such as Yodlee.

Pros:

• Demonstrated consumer demand for ebilling and account management
• Customers locked in to your service
• Positive PR and marketing benefits

Cons:

• Ongoing expenses to a third-party
• Increased customer service and tech support

Pricing/Business Model: We expect most to offer bill aggregation free of charge; but it could support monthly or annual fees. Alternatively, statement aggregation could be offered free with payment services available for a fee.

Bill Concierge/Virtual Bookkeeper

Description: An all-encompassing service that helps users with their entire bill payment situation, from managing paper flow, sending due-date reminders, identifying the lowest-cost source of funds to pay each bill, making the actual payments, and troubleshooting problems.

Functionality: Bill Concierge is similar to scan-and-pay from PayTrust or Metavante/CyberBills
. However, where those programs are high-tech, requiring considerable trust in the new technology and systems, Bill Concierge is decidedly high-touch. A human Virtual Bookkeeper would be assigned to each account to assist with setup and user education, and to help solve ongoing payment and billing problems.

Automation would still handle most of the tasks, but the end-user would be spared much of the learning curve. A bank could contract with a scan-and-pay provider to handle the back office functions.

Pros:

• Differentiates your services
• Difficult for competitors to copy
• Positive PR

Cons:

• Labor intensive, with tricky and potentially costly customer service issues
• Difficult for fees to completely cover costs
• Would require talented account reps

Pricing/Business Model: Should provide enough value to justify significant monthly and/or annual fees, as much as $25+ per month; more for the small and microbusiness segments.

Biller Lookup &
Information Clearinghouse

Description: Searchable database of major billers; optional email updates when new information is listed.

Basic Functionality: Compile a list of major billers in your area (a great summer intern project). Users could search by merchant name to determine available billing options (see mock-up below). Listings would include corporate address, payment address, phone numbers, fax number, email addresses, Web address, and whether the company accepts electronic payments through your pay-anyone service and/or its own Web site.

Advanced Functionality:

• Allow users to save their own personal database of billers, with optional fields for users to enter account numbers and notes.
• Integrate it with your bill-pay service, so that once users create their own biller database, they can immediately begin paying bills to those merchants electronically.
• Integrate the biller database with account aggregation so that billing statements could automatically be downloaded and aggregated.
• Integrate with a credit line that can be tapped specifically to pay bills.

Pros:

• Low initial investment
• Capture email addresses of those who signup for updates
• Differentiates your bank from the competition
• Useful addition to your Web site
• Positive PR

Cons:

• Database must be compiled and maintained
  in-house
• Little fee income opportunity

Pricing/Business Model: Basic lookup would be provided free of charge to generate leads. Premium versions integrated with electronic bill payment and/or account aggregation could command fees.

Mock-Up: Personalized Biller Database <www.yourbank.com/mybills>

(1) all fields can be changed and saved by the user    (2) input by user

Credit and Debit Cards

Description: With a 90%+ market share at the online point-of-sale, credit cards are an important part of the electronic payments mix. Credit cards can also be used in lieu of checking as the core transaction product for virtual banking programs.

You could add value to your card program in a number of ways

• Fraud watch program
• Interactive statements
• Credit card statement aggregation (see below)
• Online balance transfers
• Prepaid cards with online replenishment
• Friends-and-family debit cards, used to transfer funds to others for ATM withdrawal.

Pross: A well-understood and profitable product with high customer demand.

Cons: Intense competition, fraud and bad debt

Pricing/Business Model: Interest income and fees.

Credit Card Statement Aggregation

Description: A subset of account aggregation used to download and consolidate credit card statements; could be offered on its own, or within a comprehensive account aggregation program such as Yodlee or uMonitor.

Pros:

•          A great tool for increasing balance transfers from competitive cards.
•          Solid consumer demand for billing information and account management.
•          With permission, you will be able to create sales pitches knowing more about the customer’s other card balances (a real-time picture vs. several months delayed from the credit bureau).
•          A better understanding of where you stand compared to the competition across your entire account base.

Cons:

•          Must educate customers on the benefits of aggregation and how to use it.
•          Trust and security issues and concerns
•          Ongoing expenses to a third-party
•          Customer service costs to answer questions
  on aggregated statements..

Pricing/Business Model: Most, if not all, financial institutions and card issuers will offer card aggregation free of charge to have first crack at transferring balances from competitive cards. Incremental interest income should more than cover the costs.

Expedited Payments

Description: Optional expedited payments with guaranteed next day delivery.

Rationale: Other than Quicken fanatics and other ultra organized super humans, who hasn’t put off paying the bills just a bit too long? These days, missing the credit card due date by even 1 day can easily cost $50 or more counting the late fee and extra interest expense. Expedited payments, even priced at $20 to $25, would appeal to customers facing large penalties unless their payment is absolutely, positively there by 5:00 p.m. the next business day.

Functionality: Ideally, expedited payments would be integrated into your bill-payment program. Users would be able to upgrade payment delivery from the usual 5 days for a graduated price depending on how quick the payment must arrive .

Pros:

• Great PR, marketing copy
• Increases fee income
• Increases the value of your entire bill-
  payment program
• Differentiates your bank; difficult to copy

Cons:

• Customer service burden dealing with frantic last-minute bill payers; you will need to build several layers of confirmation emails and tracking mechanisms to assure users you will actually make their payment on time.
• Problems with merchants not posting the expedited payments on time.
• Liability if the payment isn’t credited on time
• You must build the system yourself
• Even though it’s a lower cost alternative compared to late charges, customers may resent your fees, perceiving that you are taking advantage of their predicament.

   

Pricing/Business Model: Fees could cover all program costs and deliver a profit.

Financial Datebook & Reminder Service

Description: Essentially a day planner with an emphasis on bill payments and other financial activities. Can also be used for nonfinancial events such as birthdays, to-do lists, and so on.

Functionality: The service would work much like any datebook, Microsoft Outlook for instance. Users would add bills to the calendar and select one-time or recurring options. Users could choose to receive reminders to pay at various intervals before the due date. They could select whether the reminders came by email, voice message, instant messaging, or a combination of the above. While the emphasis would be on financial matters, the service could be used for personal and business appointments as well.

Pros:

• Differentiates your product offering
• Intuitive, low-risk way to get users started monitoring, then eventually paying bills online

Cons:

• Probably requires in-house development, although there are a number of Web-based calendars available that could potentially be adapted for a reasonable cost
• The need to provide “tech support” for calendar problems

Pricing/Business Model: It would be difficult to justify any explicit fees, so it would be yet another product justified by increased customer satisfaction.

“Friends & Family” Reloadable
Debit/ATM Cards

Description: A master account (the parents) is linked to one or more subaccounts (the kids) each with its own ATM/debit card. From a Web interface, the master account user transfers funds to the sub-accounts who can then withdraw cash at an ATM or use the debit card at the point of sale.

Functionality: Funds transfers trigger an email to the subaccount user notifying them of the transaction. Automated recurring transfers, such as allowances, can be established to maintain a constant flow of cash without having to log in every week and manually move money. Visa Buxx was pioneered the reloadable card concept, but it could be accomplished without using Visa’s system.

Visa Buxx product description

Pros:

•  Great money-management and educational tool creating awareness of the bank in schools, PTAs, and the community.
•  Good PR and marketing opportunities; especially for gaining more business from parents when the services are cross-sold to student loan and student checking customers.

• Good relationship enhancer and word-of-mouth publicity.                                        

•  Saves the customer time, money, and hassle in transferring funds to family members, especially those living out-of-the-house.  

  Cons:

   

• Initially, a bit complicated; reminiscent of programming the VCR: you know it would save time in the long run, but you just don’t want to hassle with reading the manual today.
• Fraud, fraud and more fraud. Since few banks currently offer this service, the pioneers will be the targets of every fraudster on the planet. AAA recently had to shut down Internet and telephone reloading of its prepaid cards due to fraud. Cardholders could only reload cards in person at participating AAA offices. The vendor, Sunrise, FL-based WildCard Systems www.wildcardsystems.com  tells us that the issues have been solved and remote reloading will be back up soon.
• Customer service costs for lost cards, disputed charges, and all the service issues associated with credit/debit cards

  Pricing/Business Model: When positioned as a parent/child service, the product should be offered with low fees, $20 to $25 per year or less, if its primary goal is to retain the parent’s business.
  
   

  

  Visa Buxx has a template that makes setting up and maintaining an automatic allowance system very simple.

  Guaranteed Payments

  Description: Guaranteed “good funds” payments initiated online and converted into paper items delivered via postal mail or picked up at a branch. Includes: Money Orders, Cashier’s Checks, Gift Checks, Tax Payments, and Travelers Checks.

  Payments could also travel electronically with the recipient withdrawing the cash via ACH (PayPal system), at a branch (Western Union/MoneyGram system), or withdrawn from a participating ATM (newer Western Union system).

  Functionality: Within your bill-pay area, allow users to upgrade their payment to “guaranteed money order” for an additional fee. Money orders could be mailed via regular bill payment channels or picked up in the branch by the sender or recipient with proper ID and/or a transaction number communicated to the recipient by the sender.

  Recipients would receive an email communication explaining that good funds are on the way. As soon as the recipient received this message, they would be certain of being paid. Some bill-pay programs, such as Online Resources and iPay LLC, send all bill payments with good funds, although the recipients don’t necessarily know that.

  Other paper items could be ordered in a similar fashion. For example, Wells Fargo allows online banking customers to order cashiers checks, travelers checks, and foreign currency (see screenshot below).  

  

  Wells Fargo takes online orders for cashier’s checks, travelers checks, and foreign currency.

Yahoo! Finance provides three epayment products, bill pay through Checkfree, email payments via HSBC, and interbank transfers through CashEdge.

Advanced Functionality: The form used to initiate a money order could include optional fields for a personal message to the recipient. The personal message could be sent via email and/or paper enclosure with the funds. This combination of guaranteed funds and integrated messaging would allow the money order to be used for consumer bill payments, business invoice payments, payments for goods purchased online (especially from individuals in online auctions or classifieds), monetary gifts, and so on. For an additional fee, users could “gift wrap” the paper envelope and check with birthday/holiday greetings (see example below).

Example: In the mock-up below, users are able to compose a holiday greeting and add a gift as they pay the monthly lawn-care bill. Previous online money orders could be archived to make it faster for subsequent payments to the same parties.

Example Money Order Form

*optional fields

Pro:

•          Increases fee income
•          Increases value of epayments program

Cons

•          Limited customer demand
•          Complicates choices for online payments
•          Additional customer service and
  operations tasks
•          Ideal system not currently available from existing vendors; must be developed in-house

Pricing/Business ModelModel: Fee-based premium transaction.

Interbank Connectivity /Transfer

Description: A service that allows users to easily move money between different financial institutions using ACH and/or wire transfers, depending on how fast the transfer needs to be made.

We had expected Web-based interbank transfers to be the norm by now  but only a few financial institutions have added it. Fraud concerns and lack of a solid business case have put interbank transfers on the back burner. Interestingly, Yahoo is a pioneer, having launched a funds transfer service more than a year ago .

Pro:

•          Most users need it from time to time
•          Easy to communicate product benefits
•          Potential for profitable fee income

Cons:

•          Fraud
•          Customer service costs to assure new users the product works; and resolving potentially tricky problems when it doesn’t
•          Implementation costs
•          Customer confusion regarding time lags and authentication for ACH-based transfers

Pricing/Business ModelModel: The service could support transaction fees or a monthly subscription that allowed unlimited ACH transfers. A two-tiered program would be logical with 2- to 3-day ACH outbound transfers priced at $2 or less and next-day wires at $10 to $15.
In-bound transfers should be free-of-charge.          ð

Person-to-Person (P2P) Electronic Payments

Description: Web-based, electronic payment service designed primarily to move funds from individuals to other individuals/small businesses.

Functionality: PayPal is the leader in the field of Web-based P2P; although Western Union, a First Data company, dominates the business overall if you consider traditional person-to-person transactions requiring a trip to an office to initiate and/or receive the funds. Banks can integrate P2P service into their payments suite by creating a front-end to PayPal, Western Union, and other providers using screen-scraping/auto-login techniques or simply providing basic links to other service providers.

Pro:

•          A popular service with eBay users, it could be enhanced by a direct interface from the user’s bank account.
•          Differentiated service offering

Cons:

•          Fraud is the biggest issue with P2P services; however, if you are merely providing a link to other service providers, your exposure shouldn’t be any greater than it already is.
•          Customer service costs for lost cards, disputed charges, fraud, and other issues associated with electronic payments. Again if you are merely acting as a conduit, your responsibility is lessened; however, you may still be called in to solve tedious customer problems.
•          Added costs of screen-scraping services

Pricing/Business ModelModel: Unless you are PayPal or Citicorp, there is little opportunity for fee income (even Bank America recently canceled its plans to enter the market). This is free, relationship product.

Pay-Anyone Electronic Bill Payment

Description: Initiate payments online to any biller or individual. Payments are fulfilled with paper or electronic items depending on the biller. Most volume is handled by Checkfree, Metavante, and Princeton eCom. Other providers include iPay LLC, Online Resources, NetZee, and several others (see part 3 in next month’s OBR).

The service has been available since the mid-1980s through dial-up services. Until just a few years ago, the majority of online bill payments were initiated through Quicken or Microsoft Money. Now most come from Web-based services.

Pro:

•          Customers expect it to be part of an online banking program; competitors have it.
•          Advanced users find that it does save time, money and worry making it good for long-term customer relations.
•          Helps users track monthly payments for budgets, taxes, and other record-keeping needs.
•          Small businesses can especially benefit due to their more complicated financial and tax-reporting needs.

Cons

•          Timing delays: Since many payments are still fulfilled by paper check, users must initiate payments 4 or 5 days in advance of the due date; a slower turn-time than the write-and-mail system it replaces.
•          Cost: Direct out-of-pocket costs average $4 to $5 per month paid to service providers; also, significant, and sometimes hidden, costs exist for customer service and management time spent solving customer problems.
•          Customer service issues: When the bank inserts itself in the monthly bill-payment process, it can become a lose-lose situation when problems arise; the customer doesn’t know who to go to resolve the issue, and the bank doesn’t know if it was user error, service provider error, or merchant error; so it must investigate all three possibilities, an expensive proposition.
•          Customer dissatisfaction: Looking at the three previous bullet points, you can see a large opportunity for dissatisfaction. Bill payment is a premium-priced service that delivers payments slower and with lower overall quality than the service it replaces. That’s why it only has 5 to 6 million users 15 years into its adoption curve.

Pricing/Business ModelModel: In 2000, about 80% of banks charged fees to partially cover costs . But the best way to make a profit is by bundling a bill payment line of credit .

Planning, Budgeting, and
Payment Averaging Service

Description: This service encompasses any number of financial planning calculators and worksheets. It could also provide a monthly money-management service that combines and averages all bills into one monthly payment, charged to the user’s checking account, line of credit, or other source of funds.

Functionality: Utilities have long offered services that average or “smooth” the customer’s billing amount over the year to make it easier to budget and pay for seasonal spikes in energy used. A bank could apply the same concept to the sum total of all bills, calculating a single average payment amount that would be deducted from the user’s account each month. It would work much like a mortgage escrow account reconciled and recalculated annually. The account could be funded by ACH debit and/or loan advance.

To encourage systematic savings (pay yourself first), the monthly “bill” payment amount could include a set amount transferred to a personal savings account, time deposit account, or indexed mutual fund account.

Pros:

• Assists customers in creating and managing an ongoing budget; good for relationships and customer lock-in.
• Differentiates your product offerings

Cons:

• Calculators and worksheets are readily available from suppliers such as FinanCenter.com; however, the bill-payment averaging system would require in-house development.
• Potentially challenging customer service support for the escrow account and bill-averaging questions and problems.

Pricing/Business Model: It would be difficult to justify explicit fees, but revenue could be generated from escrow account balances and integrated credit lines.

Prepaid Cards for Travel, Gifts,
and Various Business Uses

Gift and prepaid cards are available from AAA Motor Club,  www.storedvalue.aaa.com  Bank of America  www.bankofamerica.com/giftcard  Marriott, and others; Wildcard Systems powers these programs.

Description: A modern day traveler’s check. In most cases, prepaid plastic cards make more sense than its more common paper counterpart.

Functionality: Users preload the cards, then withdraw funds at ATMs or use them to make purchases wherever Visa/MasterCard is accepted. The cards can  be reloadable by telephone, Web, and in-branch.

The travelers card version (e.g., Visa TravelMoney) allows users to leave their regular ATM card at home, reducing concerns over losing a card, especially when traveling abroad. Couples might want to split their funds and load it onto two cards, each carried by just one person. That way if a pickpocket makes off with one of the cards, you still have one that is active.

Gift cards would be identical except for packaging to appeal to those wishing to make monetary gifts.

The business version could be used to deliver refunds, rebates, and premiums to customers. Qwest has been offering $50 prepaid Visa card to buyers of its enhanced products. Businesses could also use prepaid cards to distribute expense account advances, bonuses, or even regular payroll (e.g., Visa PayRoll), to employees.

Pro: