thought this should be posted here....|
Hype and Reality: an Update
There is hype, and there is reality.
The electronic bill presentment and payment market is, to quote online analyst Jim Jubak, "wildly immature." As with every emerging market, some lines are not clearly drawn, no specific standard is set, and there is confusion in the marketplace.
Against this backdrop, Microsoft and First Data Corporation created MSFDC to offer electronic billing to banks and billers. In September 1998, Citibank made an equity investment in MSFDC, and the company changed its name to TransPoint. Because of Microsoft's resources, reputation and powerful public relations machine, TransPoint's formation has attracted considerable attention. Unfortunately, it has also created some false impressions.
Presented here are common misconceptions appearing in the media and elsewhere. Following each misconception are the facts.
Hype: There is no leader in the electronic bill payment and presentment market.
Reality: CheckFree has bill payment contracts with more than 350 financial institutions, Intuit – for payment for users of its Quicken“ software and Quicken.comTM Web site – and even Microsoft – for users of its personal financial management software, Money. CheckFree provides electronic payment services for more than 2.5 million home banking subscribers today.
In the emerging electronic bill presentment market, pilots for CheckFree E-Bill(sm) were completed in 1996, and the product was launched in March 1997. CheckFree E-Bill is up and running, serving customers right now. No other company has a solution working beyond the pilot stage.
CheckFree currently has contracts with more than 30 of the nation's largest billers to provide end-to-end electronic billing and payment – including AT&T, the largest billing company in the world. First Union recently became the first bank to offer its customers online bill presentment and payment of utility and local telephone bills, using CheckFree E-Bill and CheckFree bill payment processing.
Hype: "TransPoint is the first to provide a seamless, end-to-end system for delivery and payment of richly formatted bills, statements or notices." (Taken from TransPoint's initial press release, 9/14/98 and now included in every TransPoint press release boilerplate).
Reality: CheckFree has been presenting and paying bills for more than a year-and-a-half. TransPoint, by contrast, is still in the testing stage. To quote the October 26 issue of Business Week:
"In electronic billing, Microsoft's press releases boast that it will offer the world's ‘first end-to-end bill presentment service,' in spite of the fact that CheckFree Corp. in Atlanta has been offering services for nearly a year."
In its defense, TransPoint claims it can make the statement because its services are "all-electronic" and CheckFree's are not. This demonstrates TransPoint's market naivete. TransPoint can pay electronically only electronically presented bills. It cannot process payments for any other kind of bill. While CheckFree's processes are "all-electronic" for electronically presented bills – just as are TransPoint's – CheckFree offers the user the ability to pay online any bill, whether or not it is electronically presented. Offering this advantage necessitates having an infrastructure that can pay some bills through a paper process (without the user even being aware of it), so that merchants who never have the volume to justify electronic payment links can still be paid by the customer using the same online system used to pay electronically presented bills. Only CheckFree offers this service.
Hype: "Pay-anyone" capabilities equalize TransPoint to CheckFree's level.
Reality: "Pay-anyone" refers to the ability of an electronic bill payment service to pay any bill, regardless of whether the bill is presented electronically or whether the biller is set up to receive payments electronically. Since TransPoint's "pay-anyone" capability depends on Citibank's bill payment engine, a bank that uses TransPoint must share sensitive customer payment data with a major competitor. It is highly unlikely that banks will be comfortable with this scenario. Banks will be far more likely to tap the "pay-anyone" capability of a non-competitor such as CheckFree.
In addition, bill payment is a scale, high-volume, low-cost operation. It is virtually impossible for one bank, Citibank, to achieve the economies of scale that CheckFree's 350+ financial institutions will achieve. It is unlikely that TransPoint will be able to offer bill presentment and payment service more cost-efficiently than CheckFree can.
Hype: Any bill can be paid electronically. Whoever has a system to pay all bills electronically will dominate the market.
Reality: There are a number of consumer bills that cannot be paid electronically. At this time, CheckFree pays around half of its customers' bills electronically. This percentage will continue to rise in 1999 as banks and billers launch their Web-based bill presentment and payment solutions. In the meantime, for those billers that cannot accept an electronic payment, CheckFree will mail a paper-based check on the customers' behalf. This is important for several reasons, including:
a) Some every-day payments will always be paper-based. Small businesses such as lawn services, cleaners, newspaper delivery services, bakeries, and others cannot be set up to be paid electronically because they do not have electronic payments-receiving systems. A company with the ability to send payments to these small businesses or individuals is in a much better position to fill a true market need than those without this "pay-anyone" ability.
b) In the case of larger companies, there are other issues to resolve regarding electronic payments. While it is relatively easy to create electronic bills from the data stream billers currently send to print houses, many billing companies use processing systems that make it difficult to receive electronic payments.
Hype: Citibank's vast portfolio of biller clients gives the edge to TransPoint.
Reality: Most large billers have relationships with multiple financial institutions. The customers that Citibank claims are also customers of other financial institutions that are CheckFree customers. Billers are only half of the equation; TransPoint must also have the cooperation of banks. Citibank offered its payment system to other financial institutions before joining TransPoint, but managed to sign up only one, BankBoston.
TransPoint represents a Microsoft/Citibank-direct-to-consumer strategy. It makes Citibank a truly nationwide bank that can offer a broad range of financial services to consumers through the World Wide Web. This turn of events will likely spur other banks to accelerate their own Internet deployments—which is good for the electronic bill presentment and payment market overall.
Hype: With the addition of Citibank, TransPoint is the "leader" in the EBPP space.
Reality: TransPoint's continual strategy changes to emulate CheckFree's market model have more signs of a follower than a leader. Under CheckFree's model, bills are presented and paid under the brand of the customer's financial institution. Although Microsoft started with a closed, centralized model that would disintermediate banks, it has now changed its strategy and is attempting to court financial institutions, alleging its alliance with Citibank proves it is "bank-friendly." Microsoft has copied many aspects of CheckFree's model, even using CheckFree's exact terminology, including "pay-anyone," "round-trip transaction tracking," "end-to-end audit trail" and "self-service customer care." However, TransPoint has yet to duplicate CheckFree's ties to hundreds of financial institutions and thousands of billers.
Hype: Microsoft's electronic billing scheme was modified to allay fears from banks and billers.
Reality: Not quite. It is true that Microsoft was compelled to promise billing companies and banks that it would not misuse valuable consumer purchasing data. Still, under TransPoint's system, the detailed data produced by billers must be transferred to Microsoft's servers to be handled and delivered. This requirement effectively ends the billing company's direct relationship with its customers, which could be used for high-potential marketing purposes.
CheckFree E-Bill allows billers to keep their detailed billing data on their own servers. Consumers can request full details of summary bills presented by their banks, and CheckFree E-Bill seamlessly connects customers to the biller's Web site. Under this model, billers also ensure that sensitive, detailed purchasing data remains under their control, not under an aggressive, marketing-oriented company's control.
Hype: It is a matter of time before Microsoft runs away with this market.
Reality: Setting up an end-to-end electronic billing system requires patience, perseverance and time. Links must be established between banks and thousands of billers. There are no shortcuts to building a strong infrastructure. Microsoft started with the easier portion of it: presentment. Even so, after more than a year Microsoft has signed up only eight banks and 15 billers for extremely limited presentment pilots, not full-service presentment and payment. The starting dates for these pilots have been postponed several times and many have yet to be conducted.
CheckFree E-Bill is tested and proven. It is already launched or in implementation with more than 30 billers, including:
AT&T, the world's largest biller;
Florida Power and Light, representing nearly half the utility customers in Florida;
HomeSide Lending, serving 1.4 million homeowners in the United States;
Consumers Energy, the largest utility in Michigan;
Total System Services, the second largest credit card processor for banks;
Nicor Gas, serving 1.9 customers in Illinois; and
Southern California Edison, the nation's second largest investor-owned electric utility.
The list will continue to grow and will include some of the world's largest billers.
On the bill payment side, the other half of the "electronic round-trip," CheckFree's bill payment engine is already handling more than 10 million transactions per month and has the capacity to serve 30 million households. That capacity is one reason why the Integrion Financial Network, representing 18 leading financial institutions and IBM, chose CheckFree to provide electronic bill presentment and payment services. It is also why non-Integrion member Chase Manhattan, the largest bank holding company in the United States, has chosen CheckFree E-Bill for its customers.
Hype: AT&T and Just In Time Solutions are developing a competing bill presentment system.
Reality: AT&T chose CheckFree E-Bill to deliver and process online bills to its customers in June 1998. Simultaneously, AT&T and Just In Time Solutions (JITS) are exploring the software and hardware development of a bill creation platform, a market in which CheckFree does not compete. (In this case, "bill creation" refers to the process of converting the billing data stream originally destined to a paper printer into a Web-friendly format.)
Whatever system AT&T and JITS develop will utilize the CheckFree infrastructure for safe and prompt presentment and payment of electronic bills. CheckFree also gladly accepts and processes online bills created by all the technology suppliers in the market.
Hype: Third-party processors like CheckFree remove banks too much from the equation, preventing them from interacting directly with the consumer.
Reality: CheckFree's strategy is to enable financial institutions to be one-source providers of financial services – and to do so with all the convenience that electronic commerce makes possible. While CheckFree provides back-end processing, the financial institution maintains the front-end customer relationship.
Hype: Online bill presentment and payment is too costly for financial institutions and billers.
Reality: Since introducing CheckFree E-Bill in March 1997, the CheckFree pricing structure has remained the same. Financial institutions and billers are charged less than the price of a postage stamp to present bills to their customers. CheckFree also pays banks 10 percent to distribute the payments to their customers, a standard CheckFree was the first to establish and implement. Customers can receive payments free of charge and can schedule payments with the click of a button. Individual or monthly bill payment fees, set by the institution or biller, continue to be less than the price of a stamp.
1 Steve Hamm, "No Let-Up And No Apologies." Business Week, Oct. 26, 1998, p. 58.
Copyright ® 1999, CheckFree Corporation. All rights reserved.