Internet-enabling every service and device on the planet creates fascinating new business opportunities. And we are seeing our share of them in the fintech space (note 1). Knowing how to deliver the proper blend of personal service and automation is an area of extreme importance to financial institutions: The optimal solution varies by customer, by product, and even by time of day.

One relatively neglected area involves premium services that offer state-of-the-art tech married to specialized human service, for a fee. Large banks have private banking departments that handle the bills and day-to-day finances of households with millions in assets. But those that fall outside the private banking threshold are generally offered free, self-service tools available to everyone.

Back when only 10% to 20% of households were online, that distinction was necessary. But now that 60% to 70% or even more of a bank's households use the Internet, there are enough customers to slice and dice financial management services into a variety of offerings and price points. There's a lot of revenue available for service offerings in the wide range between free and private banking.

Enter the newest player in high-end bill payment: Balance Financial, an angel-funded company based in Seattle that launched its new service this week. CEO Devin Miller was also involved in the launch of one of our favorites new services of 2010, Finsphere's PinPoint mobile location-aware fraud-alert service (previous post).

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How it works
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Balance is a unique mixture of automatic bill pay and human bookkeeper, with an online PFM thrown in to help keep track of it all. The company has built a rich PFM, added billpay powered by Online Resources, and given each customer their very own actual person who oversees the account.

Unlike previous generations of billpay and the scan-and-pay offerings from PayTrust and others, Balance Financial does everything for you. It receives the printed or electronic billing statement, it uploads the docs to its website, and then the most important piece, it pays the bills automatically based on your prior instructions, just like the private banking officer. The end user is only contacted if the bill falls outside the preexisting parameters.

Sound too good to be true? Maybe, if it were free, but it's far from it. The company tested a variety of pricing options and settled on a price that's borderline ridiculous for the retail banking mindset: $75 per month.

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Analysis
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Are they crazy? Maybe, but probably not. The company has been delivering personal bookkeeping services for seven years, and has paid more than 100,000 bills for its clients (note 3). It knows from experience there are affluent households and small businesses that are happy to offload this task for much more than $75 per month. When paying larger bills, the late fees alone can easily be in this range (note 2).

Balance admits the audience for $75/mo is tiny. But as its technology gets better, and its bookkeepers can take on bigger client loads, it believes it can push this price down, maybe even way down. So if you are interested in finding a new way to serve your mass affluents with something they can't get anywhere else, take a look at Balance.

Balance Financial integrates the human side throughout the Web-based app (3 March 2011)

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Notes:

1. From the look of the applications for the upcoming FinovateSpring, the number of startups is growing at an even faster pace.
2. Our record penalty for paying a bill late at our business is $1,100. We'd just made a huge charge and by being that one day late, our APR was bounced to 25%, and we went into revolving mode over two cycles. Even though we paid the balance off within 7 days of making the charge, it still cost $700 one month and $400 the next. Anyway, that one incident alone would pay for Balance for 1.25 years, not to mention avoiding the huge frustration of making a thousand-dollar blunder.
3. The original bookkeeping service was founded in 2004, by Devin's wife, Rebecca Miller.
4. For more on online personal financial management (OFM/PFM), see our Online Banking Report.

If anyone still wondered how serious Intuit is about incorporating the Mint brand into its portfolio after its $170 million acquisition, take a look at the latest version of the Quicken sales site. Mint is prominently featured (see first screenshot below), especially if you scroll one "ad spot" over (second screenshot).

I also found Mint mentioned at PayTrust, Intuit's bill management site (third screenshot). There's even a small plug on the Quicken Online login page (fourth screenshot).

However, on Mint's site the co-branding is not reciprocated. Quicken is not mentioned at all and Intuit is relegated to 8-point type at the bottom of the page (fourth screenshot).

The latest traffic figures from Compete support the theory that Intuit is de-emphasizing Quicken Online in favor of Mint. Traffic to <quicken.intuit.com> fell 50% in November to about 400,000, while Mint held steady at about 3x that, 1.2 million unique visitors.

Source: Compete, 10 Dec 2009 (link)

Quicken homepage on default choice, Quicken 2010 (link; 9 Dec. 2009, 11 PM)

Quicken homepage with Mint.com selected from scrolling choices
Note: Yellow highlight is mine

Intuit PayTrust homepage (link)

Quicken Online login page (link)

Mint homepage
Intuit mentioned twice at bottom of page (yellow highlight is mine). 

Note: For more information on the PFM space, see our Online Banking Report on Personal Finance Features.

Despite the downturn in consumer Internet stock prices, the Net-only banking crowd continues to grow in number and funding. This month we add GE Financial Network  www.gefn.com  an impressive effort cobbled together from the product lines of CompuBank and PayTrust; and Umbrellabank, Chicago-based Argo Federal Savings Bank, a wholly owned subsidiary of Argo Bancorp

www.paytrust.com

On Nov. 8, PayTrust became the first financial services company to offer financial statement aggregation (see VerticalOne, OBR 8/99).

Statement retrieval has been programmed for just three banks so far, but the company’s goal is to provide statement information from the banks of 50% of its user base by year-end.

PayTrust (Princeton, NJ), the only one of three scan-and-pay providers yet to receive an OBR Best of the Web designation, picks up the award by being the first financial services company to provide Web-based statement aggregation (see also CyberBills OBR 3/99; PayMyBills, OBR 6/99).

The service dubbed Smart-Balance, automatically retrieves statement information from
users’ bank and brokerage accounts and displays it on the PayTrust site. It’s free to users
of PayTrust’s $7.95/mo bill management service. For more on this promising technology, refer to our analysis of VerticalOne, now a division of S1 (OBR 8/98; OBR 9/99).

How it Works

•  User registers bank account numbers, usernames, and passwords with PayTrust (the bank must support Web-based account access).
•  After logging in to the PayTrust site, user selects My Bank from the left-hand navigation bar (shown at left, for a full screenshot).
•  User selects which bank or brokerage account they wish to view using the drop-down box in the upper right-hand corner.
•  User presses the “money bag” icon in the upper right-hand corner (see screenshot next page) to retrieve new information from their bank account.
•  PayTrust logs the user in to their bank account and downloads account information onto the PayTrust server for convenient viewing (screenshot next page).
•  The program automatically subtracts any pending PayTrust transactions from the bank balance to derive the SmartBalance.

Other Company News (see OBR 6/99, 9/99) since its July launch:

•  Total registered user base has jumped to 20,000 (Nov. 15) compared to 14,000 reported by the WSJ a month ago (Oct. 18). Most are on their 90-day free trial period, so the ultimate adoption rate is yet to be seen. The company won’t comment specifically on the number of paying users other than to say they’ve processed about 50,000 bills. Assuming four bills per month per active user for an average of two months, that’s about 6,000 users. If our math is accurate, that’s an excellent start.
•  Hired Princeton eCom CIO Larry Greenberg (10/28/99) to be its CTO.
•  Launched a $5,000 I Hate My Bills sweepstakes (10/26/99).
•  Introduced a Small Business Edition that allows multiple users within a company to logon and user various components of the bill management system (10/19/99).
•  Began an affiliates program paying $7 to $12 per new customer (9/15/99).
•  Revamped the look and feel of its Web site including the addition of credibility-enhancing VeriSign (OBR 4/99) and AT&T Ventures logos. AT&T is a key investor.
•  Entered into discussions with possible bank partners, but have nothing to announce.
•  Launched on- and off-line media campaign including regional radio and a soon-to-be-dropped direct mailing.

We are surprised and impressed at the speed with which PayTrust added statement aggregation to its Web site. The company not only beat its two scan-and-pay competitors to the punch, it also beat 20,000 U.S. financial institutions as well. We talked to CEO Ed McLaughlin in mid-November about the latest developments, and were once again impressed with his long-term commitment to making PayTrust a leader in the field. An IPO veteran, he understands the value of staying private during the formative months or years in order to see to it that the company’s business model is

SmartBalance aggregates account information from the user’s other accounts around the Web. Users select which account they want to view using the drop-down box in the upper-right-hand corner.

working. As a public company, he wouldn’t have the flexibility to change courses if the market zigs when he is zagging.

PayTrust developed the SmartBalance feature in-house. It’s been part of the plan since company inception a year ago, but they didn’t want to talk about it until it was ready to be used. After seeing VerticalOne sell its statement aggregation utility for $200 million to S1, PayTrust have wish its priorities had been reversed (OBR 9/99).

Quicken.com to Feature
Statement Aggregation

On Nov. 15, Intuit announced that it would
add financial statement aggregation to its Quicken.com flagship. Users will be able to
view banking, brokerage, and credit card statements and account balances using a
feature dubbed My Accounts using technology from a YourAccounts.com.

Intuit will also market the feature to financial institutions and Web portals to display on their own sites under a co-branded arrangement. So far the only announced companies in the statement aggregation program are Discover Financial Services and TD Waterhouse, the discount brokerage primarily owned by Toronto-Dominion Bank. A number of other companies are in the pipeline.
Contact: Nancy Tubbs is Director of Web Finance
at Intuit, (650) 944-6000.

As you can see from the chart below, many of the most interesting Internet banking products can easily be offered by non-banks. During the past five years in OBR, we’ve looked at all of them, but it was mostly theoretical. No matter how good they looked on paper, without being able to point to real-life examples, making a business case was difficult (see OBR 7/99 and 7/98).

All that is changing very fast. Fueled by an unprecedented pool of venture capital, innovative startups are swarming to the relatively untapped financial services and payments space. In second quarter, we witnessed the launch of three scan-and-pay bill management companies, CyberBills, PayMyBills.com and PayTrust. In third quarter, we saw the launch of three financial statement aggregators, VerticalOne, Yodlee, and PayTrust. And now in fourth quarter, we are watching at least one person-to-person payment company go live, PayPal.

Person-to-person (P2P) payments are not new. In fact, the paper payments business (personal checks, money orders, cashiers checks) continues to grow. According to The Green Sheet www.greensheet.com 68.8 billion paper checks will be processed in 1999 (U.S.), up 2.2% from 1998’s total of 67.4 billion; and an increase of 30% from 1989 (52.9 billion).

What is missing is a Web version of these products. The Web has spawned a whole new marketplace of sales between parties that have never met and never will. eBay has popularized the phenomena with its P2P auctions. In third quarter, eBay 36.2 million auctions, nearly four times the number in third quarter 1998 (9.2 million). In fact, eBay’s registered user base of 7.7 million is approximately equal to the entire online banking user base across all U.S. financial institutions.

Truly Virtual* Retail Banking Products

Source: Online Banking Report, 11/99

*companies don’t have to be a bank to offer these “banking” services

PayTrust

www.paytrust.com

PayTrust’s home page does an excellent job explaining what they do. But visually it needs more pizzazz to encourage users to click into the site.

The Company: Just a few days after we finished the March 1999 issue where we raved about start-up bill pay company Cyberbills, we heard of another company with the same business model, Secure Commerce Services Inc. of Princeton, NJ. The company launched a beta of its scan-and-pay service, PayTrust, in January; national release was June 29.

Six of the eight execs, including co-founders, Edward McLaughlin and Flint Lane, came from relational database company Logic Works which was acquired by PLATINUM Technologies in May 1998. The company also has financial service expertise on staff with an operations manager from Crestar Bank and a customer service manager from Merrill Lynch.

The Product: PayTrust is a scan-and-pay bill presentment service provider with an identical product and business model of its two competitors, CyberBills and PayMyBills.com. Unlike PayMyBills, which has outsourced scanning, PayTrust handles all functions in house. To speed up the process, PayTrust has established regional collection centers to receive bills. Bills are posted in GIF format and can be downloaded into spreadsheets, Quicken or Microsoft Money.

Pricing: PayTrust has chosen to underprice the competition at $7.95/mo for the first 25 bills; currently the first three months are free. An annual CD archive is available for an extra fee. The typical customer paying 8 to 12 bills per month saves just $1 or $2 per month with PayTrust. But, because the company allows up to 25 payments for the base fee, compared to 15 for the competition, frequent bill payers will be able to save up to 50%.

Funding: The company has received undisclosed investments from AT&T Ventures and Spectrum Equity.

User Base (estimated): The company won’t disclose its user base but it does say that it’s processed $1 million dollars in bills across 400 merchants since January, or $200,000 per month. At $100 per bill, and 10 bills per customer, that equates to about to an average of about 200 active users prior to its June launch.

Contacts: Edward McLaughlin is CEO, Flint Lane is President, Kenneth Zeng is VP Finance, John Yapaola is EVP Business Development, (609) 720-1818, ext. 115; fax (609) 720-1819.
Address: 29 Emmons Drive, Suite E10, Princeton, NJ 08540.

PayTrust has done a commendable job getting its service and Web site up and running. Unfortunately, they are up against two seemingly more Web-savvy companies who have developed better Web sites and user interfaces.

To move ahead of the competition, PayTrust must use a different strategy. We think their best bet is to give up trying to establish a consumer brand, and offer their pay-and-scan services on a private label basis through other financial institutions. With the right partners, PayTrust could achieve scale ahead of PayMyBills.com and CyberBills that are both involved in the laborious task of building national consumer brands. PayMyBills.com doesn’t even have financial institution partnerships on its radar screen, a weakness that PayTrust could exploit short term.