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

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

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

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

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

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

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

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

By the end of the year (2002), tiny iPay with just 30 employees will likely be the only vendor supporting all five major retail epayment needs: pay-anyone bill pay, electronic-only bill pay, small business bill pay, interbank transfers, and person-to-person payments. If that isn’t enough, they have several other interesting payment products in the works. This company has vision and the ability to develop new technology without incurring massive development costs.

The privately held company is primarily funded by insiders, including CEO Dana Smolenski and Chairman Mike Bowers; long-time customers First Interstate Bank (MT) and Arkansas National Bank; and two private investors. To this point they have survived without venture funding and are projecting cash-flow breakeven within six months (Q1 2003).

The company currently has 250 clients, up from 206 at the beginning of year, with a year-end target of 300. Its active subscriber base has grown from 18,600 on Jan. 1 to 32,000 in July. Last Dec. (2001), it processed 64,000 transactions, in July the number was 118,000. Monthly dollar volume has grown from $15 million to $29 million. Fifty percent of payments are electronic; the others are paper checks mailed from Kentucky.

Table 1

iPay Bill Payment Volume

The company was founded in 1998 as CallMeBill and began processing telephone and online bill payments. NetZee acquired the company and its 85 contracts in the fall of 1999 for $3.2 million. The unit grew to serve 550 financial institutions with NetZee’s purchase of the online banking assets of Concentrix (formerly CFI Proservices) from Harland. Part of that deal was the Concentrix bill-payment unit in Portland.

In Jan. 2001, NetZee announced it would close the Kentucky division (formerly CallMeBilll) and consolidate operations in Portland. In the process, former CallMeBill management paid NetZee $1.3 million to buy 150 bill-pay-only contracts. The transaction closed May 1, 2001, and iPay LLC was born. Approximately 400 bill-pay clients who use NetZee’s online banking platform remained with its Portland bill-pay center.

More than half of the original 150 iPay clients were credit unions. Banking clients included Sky Bank (Bowling Green, OH; $10 billion) and Internet-only brands, Nexity, and Ascencia (formerly USAccessBank). Recently, iPay landed its largest client, North Fork Bank (Long Island, NY; $20 billion).

Company management has a long history in payments.

Source: Company, 8/02

Currently the company has three products:

•   Pay-anyone Web bill payment: Typical program allowing users to send payments to
  any individual or company with a U.S. mailing address.
•   Telephone bill payment: Same as above but with payments originating via telephone. Telephone users can also use the Web to set up payees and make payments and vice versa. The program handles only 3% of the company’s volume, just 3,000 transactions per month.
•   Small business Web bill pay: The company also provides a small business bill-payment program called iPayables. It features a memo field that allows users to add an invoice number that accompanies payment. Users can organize payments into categories and add comments that stay in the history file but don’t go with the payment. The system supports multiple users with different permission levels so a company bookkeeper can enter payments, but only the business owner can authorize actual payment. Currently the company has only 73 small business users.

The company is nearing the end of an intensive development effort to add three new products. All three are expected to be in production by year-end (2002).

•   Interbank funds transfers (me2me): The company will be one of the few turnkey providers of ACH originations between accounts (see also BankServ, CashEdge, CertaPay, and PayCast). In order to make an ACH deposit or withdrawal, the customer must have ownership of the account and it cannot be used to make transfers to/from someone else’s account (although it could be used to send money to a college student provided the parent was a cosigner on the account).
•   Email payments, aka person-to-person (P2P): Like PayPal, this feature allows users to send money to anyone in the U.S. with an email address. However, iPay never takes receipt of the funds. iPay will also have an added level of authentication requiring recipients to provide additional authentication prior to accessing the funds. The program will work with any U.S. bank account accessible to the ACH system. In contrast, CheckFree’s email payment system requires the sender and recipient to have accounts at participating banks and to participate in the receiving bank’s Web bill-payment service.
•   All-electronic bill payment: Targeted to entry-level users, this option allows financial institutions to offer fully electronic bill payment for a low cost. It’s simpler to use, payments take only two to three days, and service quality is high. The downside is that only about 3,500 fully electronic merchants can be paid through the system. These merchants are equipped to handle electronic receipt of payments and accounts receivables information through MasterCard RPPS

iPay sells exclusively through resellers such as Open Systems. The cost of iPay’s services varies as resellers set their own pricing. The company considers itself to be the industry leader in both cost (low) and quality (high). Its straightforward pricing plan allows virtually any size financial institution to offer bill payment at a reasonable price.

In fourth quarter (2002, the company will adopt a three-level tiered pricing structure:

Tier 1: Electronic money movement

Includes unlimited payments to any of the 3,500 payees fully electronic merchants payable through MasterCard’s RPPS program. It will also include interbank funds transfers (Me2Me) and personal electronic payments (P2P). Because all transactions are completely electronic, it will cost roughly half of the Tier 2, pay-anyone service.

Tier 2: Pay anyone

Includes payment to any U.S. mailing address, priced with a low monthly maintenance fee per user and per-transaction fees. The company does not tack on what it calls “junk fees” for reports, customer service, and so on.

Tier 3: Advanced subscriber module

Includes account controls, bill management, reminders, security preferences, and additional Web site functionality.  

Without thorough due diligence, which is up to the financial institution, it is difficult to get a handle on how the system works over time. But based on what the company told us, it appears to be a high-quality service provider. For example:

• Research tickets (aka trouble tickets): iPay currently researches just 1/3 of 1% (0.0033) of all payments; down from 0.0048 at the beginning of the year. According to iPay, this is a fraction of the industry average of 1%+.
• One reason for the lower research ratio is that the company proactively resolves problems before the user is negatively impacted. The company tracks all outstanding checks; if a check hasn’t cleared within three weeks, iPay contacts the customer to determine whether to stop payment and reissue the check.¹
• Since the program is turnkey, iPay can have a new installation up and running in as little as two weeks.
• The bill payment module can operate as a separate function with its own username and password, or with minimal extra development, can be integrated within your online banking program for a single logon.²
• The company operates it payment program under the URL www.billpaysite.com .
• The company uses a 100% positive pay model; all payments initiated by 4:00 PM (EST) are sent to the originating financial institution in a debit file (NACHA format); iPay clients have until noon (EST) the next day to stop payment on any payment that is NSF.
• Users can request account information via email, including a full list of payees, confirmation of transactions made during each session, and transaction history.

¹It would be also be nice if the end-user was able to determine if a payment had been cashed by the payee.

²Our advice is to go halfway: Don’t make users type their username, but do force them to enter an additional password for bill payment, as this makes it much less likely that a crook can get in using a Web site spoof or fraudulent email.

The company stands in and handles all customer service on behalf of its clients. Each bank has its own 800 number  staffed by iPay reps. Email and live chat are also handled by the same iPay reps. iPay does not currently have any clients handling front-line customer service on their own. iPay firmly believes that the end processor should handle the customer service in order to minimize errors and delays caused by handing problem tickets back and forth between companies.

• Standard customer service is 7:30 AM to 5:30 PM Eastern time.
• A premium option, used by 10% of iPay’s clients, extends hours to 11:00 PM (Eastern) and adds Web-based live chat.
• Each client has its unique toll-free number with custom welcome script.

iPay’s single-payment screen is plain looking but it works.

The interface for recurring payments.

Payment history request.

You can view payment history in Excel format making it easy to cut and paste into other applications.

Pros

• Can get Me2Me, P2P, electronic-only bill payment, pay-anyone bill payment, and a small business version all from the same company
• Users can easily upgrade through the various options, so banks can set multiple fee levels
• Dedicated reps handle all service for clients
• Small company, can speak directly with the CEO or other company founders
• Simple user interface
• Email and live chat support
• Proactive resolution of outstanding checks
• Nearly breakeven, should be profitable in 2003
• Services resold by core processors and Internet banking vendors; potentially less due diligence if you already have a relationship with the reseller

Cons

• Small company processes in a month what CheckFree does in an hour (using 40-hour week)
• Limited financial resources
• 4 years in business
• Somewhat outdated look and feel; however, the company promises a face lift in Q1 2003
• No service guarantees for mishandled payments

If your company can tolerate, or prefers, working with smaller companies, you should add iPay to your RFP list. Its flexible pricing plans, with very low monthly payments, are designed to appeal to smaller financial institutions just building a critical mass. Currently, 50% of new contracts are conversions.

But this is not just a price story. The company claims to be the quality leader, experiencing a 0.33% research-ticket ratio. iPay service reps use proactive methods to uncover potential glitches before the customer gets burned. For example, any payment that has not been cashed within three weeks is flagged and investigated. Another quality control measure is 100% telephone contact with all new payees.

We’ve been talking to Dana for several years and have been impressed with her straightforward approach to the business. She has always treated it like a service business, even during the late ‘90s when everyone wanted to be a tech company. But ironically, even though the company positions itself as high touch and not high tech, it will likely become the first payment processor able to provide all three major epayments services under one interface (pay anyone, interbank transfers, and email payments). And we like the fact that you can talk directly to company founders when needed. The downside is that it’s a tiny company, processing in an entire month what CheckFree does in an hour.

If you haven’t yet launched a bill-payment program, by all means you need to talk to Dana and her crew. If you already offer bill payment but are doing a vendor review, add them to your list. Finally, even if your interest is only the interbank transfer and/or email payment module, they deserve a look.                  

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