Some 30 years since the first flurry of interest in a checkless society, bankers and their technology providers are finally reporting some headway in converting the mountain of consumer bills and related paper into electronic form.
But they have only begun to scratch the surface. And even this degree of progress required help from a new breed of transaction processing companies that, after some accidental beginnings, are just now coming into their own.
Checkfree Corp., for one, began 16 years ago by automatically collecting dues for Columbus, Ohio, health clubs. Now it is the leading electronic bill payment processor, working with 240 bank partners.
Travelers Express Co. began in Minneapolis in 1940 by selling money orders-still a big business, but one it wants to diversify out of with electronic bill payments.
Princeton Telecom, the brainchild of former Princeton University physics professor Donald C. Licciardello, provides back-end processing services to more than 600 billers. Mr. Licciardello founded the company in the New Jersey college town in 1983 and soon quit lecturing students, one of whom was Nathan Myhrvold, now Microsoft Corp.'s chief technology officer.
Last year the number of U.S. consumers paying bills electronically rose to 1.8 million from 800,000, and that is expected to jump to 3.5 million by the end of this year, according to a recently published report by the Minneapolis-based brokerage Piper Jaffray.
It estimates that transaction volume totaled $80 million in 1996 and will rise to $132 million this year and $541 million in 1998-figures that are more conservative than those of other research organizations.
With the numbers and participants beginning to mount up-Checkfree announced Tuesday, for example, that Northeast Utilities, the biggest electric company in New England, would offer 1.2 million consumers the option to both get and pay bills over the Internet-the idea seems finally to be taking hold.
Yet the United States remains stubbornly paper-oriented: Checks account for 77% of noncash payments, far outstripping credit cards, debit cards, and automated clearing house transactions. The U.S. is an anomaly among industrialized countries, in several of which checks are relatively rare.
"If U.S. check volume just decreased to the international average (23%), the electronic payments sector would be three times its current size," said Bill Burnham, author of the Piper Jaffray report on electronic commerce.
As consumers gain the ability to download their bills and wire payments via the Internet, the dawn of the electronic check may indeed be at hand. It just didn't happen the way people were talking about a decade or two ago-a big-bang, full-blown electronic payment infrastructure, perhaps using the Federal Reserve's automated clearing house network as a foundation.
Instead, it is happening by mixing existing infrastructure like the ACH with the capabilities of the Internet, with entrepreneurial companies finding and filling various niches stretching from back-office processing to the new holy grail-presenting bills electronically.
Aside from forces like Checkfree and Princeton Telecom, the following forces have roles to play in this fragmented, coming-together market:
The bank card associations, specifically MasterCard International's Remittance Processing Service and Visa International's e-Pay, which provide back-end electronic connections to merchants and their financial institutions.
Leading banking companies like Citicorp, BankAmerica Corp., Wells Fargo & Co., and NationsBank, which have signed hundreds of thousands of bill payment users for their interactive banking services.
Microsoft Corp. and First Data Corp., which announced the formation last month of their MSFDC joint venture to offer fully integrated bill presentment and payment facilities.
Internet payment systems like Cybercash, which intend to offer bill presentment, payment, or electronic check capabilities.
Intuit Inc., which ended up a 23% owner of Checkfree after selling the latter its payment-processing subsidiary, is expected soon to announce a system for electronic bill presentment, industry sources say.
Integrion Financial Network, the potentially powerful home banking consortium of IBM and 16 major North American institutions. Its role in bill payments has yet to be defined but few doubt that it will be a major one.
Although consolidations have thinned the ranks of bill payment processors, there are still dozens of smaller and regional companies in the field, including statement processors and consolidators. These include American Payment Systems, Billing Information Concepts Inc., CSG Systems Inc., USCS International's International Billing Services subsidiary, NetDelivery, and Q-Up.
Software and service providers focusing on the banking market, such as Online Resources and Communications Corp. and Intelidata Technologies Corp. offer bill-payment "engines" that compete with Checkfree's.
Checkfree has become the undisputed market leader, claiming 50% to 70% of the electronic bill payment market and agreements with 19 of the top 25 U.S. banks. Now based in the Atlanta area, Checkfree has the most to gain and the most to lose from the next wave of change.
"Some of our banks have grown so fast beyond projections that they have slowed or halted advertising in order to deal first with customer service," said chief executive officer Peter J. Kight.
Wells Fargo & Co., Chase Manhattan Bank, and NationsBank-three clients that actively promoted electronic bill payment-"didn't know that they would get that many people signing on," Mr. Kight said.
"A year ago NationsBank was a huge percentage of our quarter-to-quarter growth," Mr. Kight continued. Today the business has diversified and "we are pretty comfortable even if a couple of banks slow down."
Originally a consumer marketing company, Checkfree still offers electronic bill payment services to customers whose banks are not Checkfree partners. But it has recast its strategy to emphasize bank partnerships.
Spokesman Matthew S. Lewis referred to banks as "trusted financial agents" and "the place that consumers want to go to receive financial data and services."
In one of the field's enduring paradoxes, Checkfree and its competitors must confront the reality that most of the electronic-initiated payments are actually not processed electronically. More than two-thirds of such payment orders are converted into paper checks because the payees are not prepared to accept automated items.
After a lot of effort, Checkfree has gotten to the point of transmitting 43% of payments electronically, Travelers Express 42%.
But in individual cases that percentage can be awfully low, and the corresponding costs mount up.
When Checkfree acquired Intuit Services Corp. last September, the rate of electronic transmissions at the Intuit subsidiary was a mere 1%, said Mr. Kight.
Now consolidating its data centers in the Austin, Columbus, and Chicago metropolitan areas, Checkfree has gotten the Intuit portion of its business up to 10% by linking various merchant data bases.
Third-party bill payment providers like Checkfree see the merchant information as a key asset. Although almost all companies prefer to establish direct connections to major billers, many also establish links through other processing entities.
The largest among these is MasterCard's Remittance Processing Service, or RPS, which is utilized by 90% of consumer bill-payment services, including Checkfree and the rival card association's Visa Interactive home banking program. It also has more than 600 merchants, said Michael A. Tempora, MasterCard vice president of deposit access.
Notwithstanding MasterCard's significant lead in that "back end" of the business, Visa's e-Pay and Princeton Telecom are beginning to flex their muscles.
Electronic remittances are particularly useful for recurring payments like the insurance premiums that gave the automated clearing house network its private-sector boost in the 1970s. (On the public sector side, the ACH started with Social Security direct deposits.)
With approximately 16 billion recurring bill payments annually in the United States, and most on-line customers averaging 15 electronic payments a month, many see this market as potentially larger than the one for credit card payments.
Originally conceived of as one link in a chain of interbank payment connections, MasterCard's RPS has come to serve as pipeline for payment processors' money transmissions and related information.
"I look at RPS and e-Pay as networks built by banks to pass items between themselves," said David L. Garrison, vice president of payment systems at Checkfree. He does not view his organization as in competition with the back-end ventures of the card associations or with Princeton Telecom in billing operations.
Checkfree relies on RPS and the Federal Reserve to send electronic remittances to merchants and their banks. "We are in the bill payment business," he said.
Although Checkfree is utilized by many leading banks, including 10 of the 16 Integrion members, some of the most technologically advanced institutions have chosen to go it alone.
Bank of America offers home banking and bill payment through three "channels"-the Internet, America Online, and the Managing Your Money personal finance software sold by the bank-owned Meca Software Inc. The systems generate more than 800,000 bill payments a month, although bank officials declined to specify the number of users.
After just over a year of operation, the bank's payee data base consists of 70,000 individuals and organizations, a spokesman said.
One conceivable advantage for banks in consortiums like Integrion is the ability to save the cost of interbank transmission fees by closing the loop between payer and payee banks.
While banks struggle to sell on-line banking to consumers, more and more technology companies are emerging with offers of "end-to-end" billing, which could pose the next challenge to established companies in the field.
That is what Microsoft and First Data had in mind for MSFDC-a presentment and payment scheme focused on the biller.
The service would be available to banks for free, and they would set prices for their customers. Although the price to billers of being able to both present bills and receive payments via MSFDC has not be set, First Data's president of electronic commerce payment systems, Chuck White, said it would likely be 20 to 30 cents per bill.
"The banks are happy because they receive good funds and the billers are happy, too," Mr. White said.
But some see MSFDC as the latest disintermediation threat to banks.
"Banks gave up the merchant acquisition business on the credit card side, and many regret that," said Mr. Lewis of Checkfree, which has been critical of the MSFDC approach while underscoring its own "bank- centricity."
