The U.S. Postal Service is elbowing its way into a payment processing market that banks actively serve.
The agency has developed what it calls the Customer Initiated Payment System, relying on postcards to initiate electronic transfers of funds through the automated clearing house network.
Billers would send the postcards with regular invoices to customers. If a customer elected to drop the postcard into a mailbox, the Postal Service would process it and electronically route it to the appropriate biller's electronic post office box.
The biller's bank or payment processor would use the information to authorize a debit to the consumer's designated account.
"We think the opportunity is large," said Thomas Cinelli, manager of new business development at the Postal Service.
With an increasingly commercial orientation and in search of new business opportunities, the Postal Service is raising the level of competition in the payments business in several ways that could raise the hackles of banks and others already in the payments market.
The agency recently formed a unit called Remitco Management Corp. to run a national network of remittance processing centers.
The new unit has reportedly signed a deal with American Express Co. to perform remittance processing operations at Staten Island, N.Y. The American Express center processes 40 million to 50 million payments a year.
J.D. "Denny" Carreker, president of Carreker Antinori Inc., Dallas, said it is ironic that the Postal Service, still a government-connected agency, was treading on an area well served by the private sector at the same time that the Federal Reserve, also a government entity, is reconsidering its status as both service provider to and regulator of the banking and payments industry.
A Postal Service spokesman said the agency is less interested in competing with banks than in promoting the usage and efficiency of first- class mail, of which retail lockbox remittances are a major part.
"We also believe we are going to share with the industry whatever it is we learn from this," said the spokesman.
Mr. Carreker, by contrast, said "My view very clearly is that the Fed ought to get out" of competing with banks in payment services, "and the Postal Service should stay out." He recently stated his views to a committee examining the central bank's payments role, headed by Fed Vice Chairman Alice Rivlin.
Mr. Carreker also said one of his employees, Stan Josephson, owns a bill-payment patent that sounds similar to the Postal Service's postcard system.
"This is something he had for a while, and it is now starting to get a lot of attention from different companies and banks," Mr. Carreker said.
In the Postal Service's bill payment model, postcards would contain bar- coded information about both billers and payers. Post office mail- processing hardware would read the codes and transmit data to the billers electronically.
Mr. Cinelli said the system has been tested in Virginia. He is seeking wider support from both billers and banks for a larger-scale rollout.
Mr. Cinelli said he hopes billers would be attracted by a reduction in mail float. Billers would save costs from not having to process paper checks and associated payment coupons.
He said banks also would benefit from additional electronic payment volume.
But for all the supposed benefits, Mr. Cinelli conceded the system had shortcomings, which were noted by Stephen C. Kopiec, a former banker at Chase Manhattan Corp. and now an independent consultant based in Sea Bright, N.J.
The system "appears to be a competitive threat to the banks' payments process" and would most acutely affect large lockbox providers, Mr. Kopiec said.
He also wondered how proof of payment would be assured, as it currently is with canceled checks, and how the system would accommodate partial payments of amounts due.
Mr. Cinelli said the Postal Service will find ways to overcome these obstacles.
He also detected a lack of support from the payments industry.
"I've had people tell me I'm stepping on toes," he said, adding that several utilities were dubious about the risks associated with changes in standard billing practices.
And according to several companies Mr. Cinelli spoke with, "consumers are not screaming for this."
The Postal Service is in the midst of a research effort to determine if consumers would actually use the postcard-based service.
Preliminary indications are that 16% of U.S. households would be likely users. Mr. Cinelli said the convenience and postage-paid features were viewed as attractive.
