The on-again, off-again affair between financial institutions and telephone bill-payment services is on again.
Dearborn Federal Credit Union, in Dearborn, Mich., is a case in point. The $587 million-asset credit union, a self-proclaimed champion of marrying technology with customer service, has just added telephone bill payment to its arsenal of products and services.
The new service, supported by Checkfree Corp., serves as an extension of HomeBranch - a popular telephone-based service that Dearborn has been offering for the past eight years. It allows customers to transfer funds between accounts, check deposit and loan account balances, and make other inquiries.
Dearborn also offers the personal-computer-based version of the popular CheckFree bill-paying service.
The largest credit union in Michigan, Dearborn serves about 120,000 members worldwide, most of whom are affiliated with the Ford Motor Co.
"The focus of this organization is on technology," said Thomas Begue, vice president of Dearborn Financial Services, the credit union's service organization. "We're interested in using technology to provide services to our members and to distribute the cost of those services as much as possible."
According to PSI, a Tampa, Fla.-based research firm specializing in electronic banking, more than 40% of consumers now say they are interested in telephone bill-payment services. In the past, only about 23% to 27% of consumers have expressed interest in such services, PSI president Allen R. DeCotiis noted. Most of the increased interest, he suggested, is the result of enhanced consumer sophistication and greater demand for convenience.
According to sources within the credit union industry, Dearborn ranks among the most innovative in its use of technology.
"It's way out on the leading edge as far as technology is concerned," said Jack Blake, a spokesman for the Credit Union National Association, a trade group based in Madison, Wis.
As a credit union, Dearborn is not driven by the profit motive. Yet, like most other financial institutions, cost control is a key component of its operational strategy. By controlling costs, Dearborn can offer its members better rates on loan and deposit accounts, its executives said. And technology based services like CheckFree help control costs.
"What [technology] has allowed us to do is to grow substantially without the need for additional brick and mortar," said Thomas Moylan, vice president in charge of marketing for the credit union.
By offering CheckFree, Dearborn officials said they're aiming to improve overall customer service and respond to customer demand.
"Our goal is to provide convenient services consistent with our members' needs," explained Mr. Moylan. "Our members are looking for alternatives to the hassles of writing checks, and they're looking for more efficient use of their money."
Consumers subscribing to CheckFree can pay any merchant in the United States, either on a one-time basis or on a recurring basis through automatic scheduling, using either a telephone or a personal computer.
CheckFree, Mr. Moylan noted, allows users to maintain money in their transaction accounts for the maximum amount of time, thereby earning the most interest possible.
Dearborn members subscribing to CheckFree pay $5 a month for the telephone-based service, plus 20 cents per transaction, not to exceed a total charge of $7 a month. Those subscribing to the PC-based service pay $13 for the software package, plus a $9.95 monthly fee to Checkfree for up to 20 payments a month. A $3.50 charge is assessed for each additional 10 payments initiated each month.
Currently, only a few hundred credit union members have signed up for the CheckFree service, which has been available for only a few months. A credit union spokeswoman said she expects more members to sign up for the service in time.
Through its alliance with Checkfree, Dearborn gains the technological means to offer a bill-paying service without a corresponding need for major technology investments.
"We already have the engine built and the back-office operation built. They can avoid a tremendous amount of cost," said Checkfree marketing vice president Mike Sapienza of the advantages Checkfree holds over a homegrown bill-paying service.
The costs of operating such a system also are minimized, Mr. Sapienza explained, through the scale economies offered by Checkfree, which is based in Westerville, Ohio.
"Whatever they [financial institutions] are paying in terms of the wholesale price to us is going to be far less than starting from scratch," he said.
Begun in 1988, the CheckFree consumer bill payment service is an outgrowth of a payment collection service that Checkfree began offering to corporations in the early 1980s. At last count, the firm was collecting payments on behalf of more than 1,200 companies, according to Mr. Sapienza.
In addition to Dearborn, Checkfree has struck deals with five other financial institutions for the marketing of its consumer bill-payment service. Consumers can also access the service through PC software sold directly by Checkfree and through two leading personal finance software packages, Quicken and Managing Your Money.
The consumer-oriented CheckFree service and Checkfree's corporate collection service rely on the automated clearing house system for moving transactions between the financial institutions of payees and payers. Currently, the consumer service handles monthly payments valued at more than $250 million. About a third of those payments are electronic, said Mr. Sapienza. The remainder of payments are made by checks issued by Checkfree on behalf of payers.
Other options for handling payments include a hybrid of check and ACH transactions (where debits are initiated against a user's account through the ACH and a check is written by Checkfree to the merchant for payment of the customer's bill).
According to Mr. Begue, the fact that CheckFree uses the ACH for moving payments was a major selling point for Dearborn.
"We've been processing ACH items for years," he said, estimating that upwards of 80% of Dearborn's CheckFree transactions go through the ACH.
And since Dearborn has a long history of processing checks, no systems changes were required to support Dearborn's alliance with Checkfree, he noted.
Mr. Begue said that telephone bill payment has the Potential to be a very lucrative product.
"You've got the ability with telephone bill-paying services to attract and keep your existing customer base with an additional niche-type service," he said. "And with that niche-type service you've got the ability to attract more of their savings funds and more of their checking account funds."
