In The News 2002, Online Resources

American Banker.com

Will MasterCard Speed Past EBPP's Snails?

Thursday, January 24, 2002

By Steve Bills

Now that MasterCard International has formally introduced an electronic bill payment and presentment service that financial institutions can offer to their customers, the balance of power in the slow-moving market may finally be shifting.

For years, bankers locked into pricey agreements with CheckFree Corp., the dominant provider of EBPP services, had hoped another viable provider would emerge. Their wish seemed to be granted when three big banks got together in October of 1999 to form Spectrum LLC, a consortium that put bankers' interests front and center.

But with Spectrum moving more slowly than the industry had hoped - so far, it only offers limited services to its three founding banks - MasterCard is gaining new attention as the provider best able to meet the competing EBPP needs of the bill-paying public, the companies they owe, and the service providers that deliver the electronic invoices and payments. MasterCard, Visa, and the other card networks have already been some of the chief beneficiaries of e-commerce to date, and MasterCard's play in online billing looks like a natural outgrowth of the advances it has already made through the Internet.

Forrester Research Inc., for one, predicts that MasterCard will lead the pack. A November report from the Cambridge, Mass., e-commerce research firm said the card company would overtake Atlanta-based CheckFree and Spectrum by 2006 and become the dominant provider of EBPP hub services.

Forrester cited MasterCard's bank and biller relationships, its bank-friendly pricing, its status as a neutral third party, and its use of open standards.

"MasterCard will build the winning consumer EBPP hub," said Catherine Graeber, a Forrester analyst. She said Spectrum has "no traction" in the marketplace and that CheckFree's proprietary technology limits users' freedom. MasterCard's system is based on an open standard, she said.

Before becoming a Forrester Research analyst in March, Ms. Graeber was a senior vice president at Wells Fargo & Co.'s consumer Internet services group and had a front-row seat on the progress of Spectrum, the electronic bill payment and presentment consortium of which Wells was a co-founder.

Executives at Spectrum, which is based in Atlanta, did not return calls for comment, but a CheckFree executive called Forrester's prediction hasty, pointing out that his company has a head start.

CheckFree presents 191 "primary bills" on behalf of companies that originate their electronic statements using its Genesis software platform, and it presents an additional 25 "screen-scraped" bills, in which the company aggregates data from other Web sites, giving it more than 200 billers, both national and regional in scope.

That, said Pete Sinisgalli, CheckFree's president and chief operating officer, is "a few more than the other guys."

Though MasterCard announc-ed its intention to build a hub to connect billers and consumers less than two years ago, it has a long history in payment processing. It built its Remittance Payment Processing System in 1987 to handle electronic bill payments for telephone banking. Now called the Remote Payment and Presentment Service, the system offers ready-made connections to financial institutions and more than 9,000 companies - links that will be crucial in getting electronic bills to consumers cost-effectively.

Last week MasterCard said it had begun processing live transactions through its hub. It sent bills provided by companies working with Billserv Inc. to consumers who accessed them through the Web sites of financial institutions signed up with Online Resources Corp., a McLean, Va., company that provides remote banking, electronic bill payment, and other financial services to banks and credit unions.

San Antonio-based Billserv - which is known, in EBPP parlance, as a "biller service provider" - has begun presenting bills on behalf of 76 of the 96 merchants it has signed up. Online Resources, a so-called consumer service provider, handles payment and presentment for customers of the 525 financial institutions that are its bill payment clients.

"We will be able to push presentments to all those banks behind Online Resources," said Cathleen Conforti, vice president of MasterCard's EBPP service.

First Virginia Banks Inc., a $10 billion-asset holding company in Falls Church, has been testing the MasterCard service since September. First Virginia had a single biller and fewer than 50 consumers involved in the pilot, and "we had no difficulties during the test phase," said Richard F. Bowman, its chief financial officer.

The momentum gathering behind MasterCard's service is a contrast to the slow progress of Spectrum, which takes a lot of knocks for spending more than a year getting its services ready.

In November, Spectrum said that two of three founding banks - J.P. Morgan Chase & Co., Wachovia Corp., and Wells Fargo - had begun using its services to present bills to consumers, and the third would begin doing so imminently. However, the majority of the bills going through were issued by one of the Spectrum banks, and the consortium was not yet sending electronic payments.

Yet even MasterCard says EBPP competition will probably proceed at a snail's pace for the next couple of years. Ms. Conforti predicted that the growth curve would begin slowly, then turn sharply upward, saying, "We've seen the same 'hockey stick' for every service." One analyst questioned whether EBPPwould ever achieve the success that its proponents hope for. "Consumer behavior doesn't change just because the dot-coms want it to change," said Avivah Litan, a vice president of Garnter Inc. "Current services lack the compelling advantages to attract consumers in large numbers."

Online Resources Contact: Rob Borella,
703/384-5328,
rborella@orcc.com