Like a fist through glass, Microsoft Corp. has shattered the payments world. Allying with transaction processor First Data Corp. to launch an electronic payments powerhouse called MSFDC, Microsoft has broken through a bank blockade that two years ago sent the software giant packing. Banks, accustomed to their governorship of the payments system, are now prey in a technology-driven business that they no longer control. The launch of MSFDC sent a message to the industry: Electronic bill payment and presentment (EBP&P) is coming, and banks are not in the driver's seat.
As an Internet-based payments venture, MSFDC marries the capabilities of two huge industry players with the marketing, technology and processing experience that few, if any, other partnerships could pull together. Microsoft has the technology expertise to build the EBP&P infrastructure and marketing skill to get consumer, biller and even bank buy-in. And whichever banks and merchants Microsoft doesn't win over, First Data probably has a relationship with anyhow. "If you don't trust Microsoft, then you may trust their partner; FDC has thousands of relationships with banks (and merchants)," says Leo D'Acierno, partner in Booz Allen & Hamilton's financial services group.
What's particularly troubling for banks about this alliance is that MSFDC could conduct the entire EBP&P process without them, says Bill Burnham, Piper Jaffray's senior research analyst, electronic commerce. If consumers interface directly with MSFDC, such that bills are presented and paid through the processor, bank involvement could be limited to consolidated money transfers to MSFDC. In that case, banks not only become tangential players, but also they lose direct access to their customers and precious data on customer spending.
Microsoft contends, however, that it has no interest in making MSFDC a central repository for consumers and merchants to pay and present bills, respectively. Lewis Levin, vp of Microsoft's financial desktop division, says the software company would rather have consumers conduct MSFDC payments though their banks, where consumers can access a broader array of services, including bill presentment by companies that don't participate with MSFDC. On the other hand, Microsoft CEO Bill Gates stood before the banking industry two years ago at BAI's Retail Delivery Show and said that Microsoft had no interest in the payments business (Not!).
Beyond MSFDC's influence on the payments business as an industry powerhouse, this deal could also mark the beginning of the end for banks as major players in e-payments overall. "The electronic payment system is going to happen, and banks are going to be displaced by large networking and software companies," says Booz Allen svp Walter Jewett. Only the largest financial services companies can play in electronic payments and even these banks may cede control to credit card associations, he says. "Banks need to focus on their relationships with customers. Focusing on controlling the payments system is wrong."
As customers of payments processors like MSFDC, banks and credit card associations may find their voice. Ten billion of the 19 billion bills distributed annually are sent by financial services companies, including credit card, auto loan and mortgage bills, says Piper Jaffray's Burnham. The electronic payments players are going to have to appeal to billers if EBP&P is going to take off. In the end, MSFDC will have to appeal to banks. J.Bers
