Citibank Joins Billing Venture

Citibank will buy a significant minority stake in MSFDC, an online bill payment joint venture between Microsoft and First Data, the companies said Monday.

Terms of the transaction weren't disclosed, but Citibank will get a seat on the venture's board of directors.

MSFDC also announced that it changed its name to TransPoint to better explain its business.

TransPoint plans to disburse bills and process payments for big billers like utilities and credit-card companies. It plans to use an online system to save the expenses of postage and paper handling. The system is currently being tested in a number of pilot projects with companies such as J.C. Penney, GE Capital, and Wells Fargo Bank.

The joint venture has been eyed suspiciously by banks. Some bank executives have said Microsoft (MSFT) will try to take some of their traditional business away.

In addition, Internet privacy experts have voiced concerns that TransPoint plans to track billing details, not just the amount of the sum.

The company has claimed that it would not use the data for marketing or data mining and that all data were stored "under lock and key."

by Randolph Court

5:04am  30.Apr.98.PDT

Despite being able to pay your phone or credit card bills online, the experience has been a bit like pushing a shopping cart with one wobbly wheel. The money flows out electronically -- but your mailbox is still jammed with paper bills.

To wit, billers still have to print the bills, stuff them in envelopes, and spend up to US$1.50 to get them to you.

Soon they won't have to.

A key piece in the online billing puzzle is beginning to fall into place. Thanks to an electronic version of what’s called "bill presentment" -- or the act of giving your bills to you -- you’ll soon be able to find your bills in one place online, pay them electronically, and record them in your financial software all at once.

Thanks to a handful of firms working to define electronic billing standards and close the whole loop, billers can not only take money out of your bank account, but leave bills for you where you bank online.

"This is a very young industry, and it will probably grow up very quickly," said Cary Whaley, of the National Automated Clearing House Association, which promulgates rules and operating guidelines for electronic payments.

The industry has gotten a major boost from Microsoft Corp., which stepped into the ring last summer through a joint venture with First Data Corp., one of the world's leading providers of transaction processing services. The venture is called MSFDC [http://www.msfdc.com/] and has announced pilot programs with banks like Wells Fargo, Banc One, KeyBank, and Norwest -- and a slew of billers, including JC Penney, Shell Oil, Advanta Corp., and Chase Credit Card.

Meanwhile, electronic commerce processing company CheckFree Corp. [http://www.checkfree.com/]has its systems up and running and has hammered out agreements with more than 350 financial institutions, like established bill processors. On Tuesday, CheckFree reported its first profitable quarter since going public in November 1995, earning $57,000 on record revenues of $170.4 million in its third quarter, compared to a $4.8 million loss on revenues of $121.4 million in the same quarter last year.

And, in a sense, the company did it with one hand tied behind its back.

The lion's share of CheckFree's ecommerce revenues are generated through old-fashioned electronic payment services -- customers receive their utility bill, for example, and then go online to pay the bill electronically through their bank using front-end home finance software like Intuit Corp.’s Quicken.

"What's been missing in the equation is presentment of the bill online," said Laurinda Wilson, a CheckFree spokeswoman.

CheckFree actually brought a presentment service, called E-Bill, out of the pilot phase and onto the market in March 1997. But the service barely registered on some of the most important radar screens. The emergence in June 1997 of the Microsoft-First Data joint venture, MSFDC, dramatically changed that.

Gary Card, an electronic commerce analyst with BankAmerica Robertson Stephens, projects that by 2000, some 5 billion bills per year will be available on presentment servers, and about 10 percent of them -- 500 million -- will actually be paid online. For the companies providing the services, that will amount to a $400 million market, with the clear potential to grow into a $4 billion to $6 billion market by 2005, Card said.

Though billers are gung-ho to cut costs associated with mailing paper bills, banks have had less incentive to get into electronic payments and have moved more slowly -- until Microsoft cast its giant shadow on the scene.

"For the bankers, that was monumental," said Robertson Stephen's Craft. At first, the formation of MSFDC "frightened the banking industry," Craft said. "A lot of people viewed it as a threat."

Whaley, of the National Automated Clearinghouse Association, said: "Traditionally, banks have been the sole entry point into payment networks. [They] were concerned that the entry of third parties might mean a loss of control.... Initially, just because of who Microsoft and First Data were -- the largest software company, and the largest independent payment processor -- there was a fear that entity could operate in a vacuum, without financial institutions or any additional infrastructure."

But MSFDC has gone to great lengths to make its service financial institution-friendly, Whaley said. "It gives banks as much control as they want," he said.

In the MSFDC electronic bill presentment and payment model, billers give MSFDC detailed billing information -- if it's a credit card bill, that means what you spent, where, and when; if it's a phone bill, it means all of your call records, etc. MSFDC then aggregates the data and serves it to banks' Web sites, where customers go to pay and keep track of everything.

MSFDC collects a fee from the biller roughly equivalent to the cost of a postage stamp for each bill it presents, saving the biller the rest of its paper billing costs. The banks get to offer a new service to their customers at low costs (MSFDC offers the service to banks for nothing), and gain marketing opportunities that come along with increased traffic to their Web sites. Consumers get the convenience of being able to take care of all of their bills in one place.

CheckFree's model is similar except for one important difference. CheckFree advocates an "open system" where billers only send CheckFree a billing summary -- the company name, the date, and the total amount of the bill. CheckFree presents that summary information to the banks or some other aggregator, like Quicken, or potentially even a Web directory like Yahoo. The customers can still go to that one site to take care of all of their bills, but if they want detailed information about the bills, they have to click through to the billers' sites.

MSFDC, which has an advisory board made up of the Federal Reserve, Chase Manhattan Bank, American Express, and the National Automated Clearing House Association, among others, to help it with its policies and practices, says it will not use any of the detailed billing information for any sort of marketing or data mining. None of the parties involved in the transactions will have access to anyone else's information.

"The data is stored under lock and key," said Jessica Ostrow, MSFDC's vice president of marketing.

by Jennifer Sullivan

4:02pm  16.Jun.98.PDT

E-bucks contender CyberCash Inc. (CYCH) said it will test an online billing system with America Online (AOL), starting in July.

The pilot will allow Washington, DC, residents to pay their electric, gas, and telephone bills using CyberCash's PayNow e-checking service, which deducts payments from a user's checking account. To pay up, test participants visit AOL's Digital Cities Washington DC.

CyberCash, based in Reston, Virginia, is competing with the likes of Microsoft (MSFT), First Data Corp. (FDC), Intuit (INTU), and a host of banks to set up an easy-to-use bill payment system. The goal for the contenders is to get a cut of the billions of dollars in checks that people write to pay bills. CyberCash couldn't have found a better partner to capture eyeballs, analysts said.

"AOL has the potential to drive an awful lot of traffic to CyberCash," said Paul Merenbloom, an analyst at Prudential Securities. "This is such a new space, and everyone has been waiting for transaction volumes to become significant."

CyberCash's stock rose 63 cents, or 4.7 percent, to $14.06 on the Nasdaq.

CyberCash will test the system in Washington until the end of the year and then decide whether to expand to other areas, said Nancy Goldberg, CyberCash general manager of interactive billing.

If all goes well, the PayNow service will become a part of the other 38 urban areas covered by Digital Cities on AOL, the biggest and most popular city guide. Digital Cities reaches over 3 million people every month, according to the March Media Metrix survey, a tracker of online activity.

Whether the trial succeeds or not, it could make CyberCash better known to customers. CyberCash could use the business. It had a loss of $3.7 million on revenue of $7.3 million last year.

The AOL agreement could help CyberCash, one of the smaller e-cash firms, to differentiate itself. Last year, Microsoft and First Data teamed to set up an online billing venture called MSFDC, and big billers like AT&T are offering online payments on their Web sites.