No sooner was there talk about consumers paying their bills electronically, than utility companies and banks began to look at ways to complete the process and present their bills to customers electronically. These two parallel services electronic bill pay and electronic bill presentment were discussed at length at the biggest bank technology conference of the year held in New Orleans two weeks ago.
More than 9,500 attendees at the Bank Administration Institute's Retail Delivery '97 listened to keynote addresses: on the banking side from Mr Edward Crutchfield, the CEO of First Union Corp, and Mr Paul Hazen, CEO of Wells Fargo Bank; and on the technology side, via satellite, from Mr Bill Gates, Microsoft Corp chairman and Mr Lewis Platt, Hewlett-Packard CEO.
Despite Mr Gates's assertion that Microsoft does not want to get into the banking business many banks are still wary of his motives, in particular in these areas. The fear among bankers is that Microsoft will take revenue and customers away from the banks as it deals directly with billers, thereby cutting them out of the loop.
Two years ago, the largest credit card processor in the US, First Data Corp, looked at how it could play a role as a payment processor on the Internet. Simultaneously, with 20,000 billers in the country, Microsoft saw a software opportunity and realised that billing was a genuine business for it to get into. The two found each other a year ago and last June set up the Microsoft/First Data joint venture company, to provide Internet-based electronic bill presentment and payment.
MSFDC, based in Denver, Colorado, was formed to create, distribute and support an end-to-end service that would allow businesses use the Internet to send bills to and receive payments from consumers, directly and via homebanking services.
The reason MSFDC is seen as a threat by some banks is because First Data has the biller relationships and Microsoft has developed enabling devices on the Internet. MSFDC is approaching billers directly whereas its main competitor, Checkfree Corp, has chosen a customer-centric approach. Checkfree is the largest bill payment processor in the US with 80 per cent market share and has been offering a direct payment service to consumers for years.
The two agree that the benefits of electronic bill pay and presentment to consumers are: reduced time and money spent paying bills; for billers decreased mail expenses, payment and remittance processing costs; and for the banks, an increased value to home-banking services, decreased costs of providing bill payment services to customers and new merchant service opportunities.
Using the MSFDC model, customers will be able to pay recurring bills, without the hassle of envelopes, stamps, writing cheques or worrying about late fees. Data for recurring bills need to be entered only once and it can be reused for subsequent presentations of the same bill. There are three ways consumers can enroll in the programme through their financial institution, through a biller or directly through the Internet.
On the other hand if banks decide to side with MSFDC they will be able to market the service (which is still unnamed) to their customers under their own brand names.
The service will be free to banks, but the billers will pay a nominal fee for each bill presented. The cost will be comparable to a postage stamp from $0.28 to $0.42 depending on the volume. For that, MSFDC will deliver a bill and return the payment and remittance information (like a bill stub). Billers will also have the opportunity to sell advertising space on MSFDC electronic bills.
This seems like an attractive option compared with the current price of $1.75 which it costs billers to print and mail each bill and process the return payment and remittance information. The hope is that billers and consumers will achieve enormous savings by replacing paper, stamps and cheques with electronic delivery and payment.
The first two banks to commit to pilots are two top 20 banks, KeyBank and Wells Fargo. "KeyBank is committed to providing our customers with technology that can simplify their financial lives," said Mr Patrick Swanick, vice-chairman at KeyBank. "Electronic presentment is clearly the next step in on-line banking. Because the MSFDC service fully integrates presentment and payment, billers' costs can be lowered and customers can see the status of their payment through the whole process," he added.
Mr Warren Dent, senior vice-president of MSFDC said in New Orleans: "We're bringing financial institutions into the billing industry in a way they are not involved now." He said MSFDC would share revenues with financial institutions which offer that service.
The first billers to sign up for MSFDC's product include Advanta Corp, Chase Credit Card, GE Capital, JC Penney, Shell Oil and Texas utilities. American Express has also committed to pilot with its on-line customers. MSFDC expects to expand to consumers in the US in the summer of 1998 and it has every intention of expanding the service beyond the US at a later stage.
But MSFDC has some serious competition. In October, Checkfree teamed with the Integrion Financial Network, the IBM-led consortium which comprises 18 financial companies and Visa USA, in an effort to keep banks at the centre of the electronic billing and transaction processing service.
Checkfree and Integrion formed a 10-year partnership and presented themselves as a bank-friendly alternative to MSFDC. "Clearly there are two camps now Microsoft and IBM," said Mr Brian Maimone, electronic commerce analyst at Furman Selz in New York.
There are several billers coming to the fore. For example, Princeton Telecom's electronic bill presentation service pushes more than 60 million bills monthly among a growing list of billers, making it the biggest player to date in electronic bill presentation.
Many billers are as yet unsure about where to lay their bets. All they know is that there is now a cost-effective way to tackle the 10 to 12 recurring bills which 100 million households receive each month, resulting in a total of 12 billion bills mailed annually in the US.
