For as long as banks have offered online bill payment services, they have worried about being usurped by big Internet portals and the billing companies themselves.
America Online Inc. plans to start offering a service today that looks like the fulfillment of some banks' worst fears - a free online bill payment and presentment service powered by Yodlee Inc., a vendor whose software is used by many large banks.
AOL says a majority of its 33 million subscribers will sign up for AOL Bill Pay, since 60% of those subscribers say they have already paid some bills online, and 50% say they do so monthly. Though the service simply connects AOL customers to their billers' direct-pay Web sites, it could nonetheless pose a challenge to banks, which are still struggling to provide the key features and price tags needed to lock in customer loyalty.
"The role that AOL plays in bill pay is as an aggregator - we're not inserting ourselves into the transaction," said John Keeling, an executive director at the Dulles, Va., unit of Time Warner Inc.
AOL Bill Pay is a customization of BillDirect, a bill aggregation product Yodlee, of Redwood City, Calif., introduced in August. This will be the first implementation of BillDirect, Yodlee said.
The new service differs in several respects from the bank-run ones with which it will compete. For one thing, it will be able to facilitate payments only to billers that can receive them electronically. Many banks will create and mail a paper check if there are no electronic payment channels to an intended recipient. Bill McIntosh, an executive director at AOL, said his company might match that capability in a year or so.
Bill payment is a key component of banking Web sites, but many billers have enticed consumers to make payments through the billers' sites instead. Some observers have predicted that users will choose some type of aggregation service that allows them to pay multiple bills through a single site. This could shift the balance in favor of banks or credit card issuers, which want to regain control of the valuable direct relationship with the customer.
However, this vision is challenged by BillDirect, which functions as an aggregator but routes the payments by linking directly to biller sites, and offers the single-site advantage to users and control of the customer to the biller.
As implemented by AOL, the service will not alter the way customers pay their bills, Mr. McIntosh said. Most people who use the Personal Finance area of AOL's site have already established their bill-paying habits, typically by using billers' sites, and AOL Bill Pay does not aim to change this, he said.
Instead, the service focuses on presenting bills or providing alerts from billers - all delivered to one location through AOL e-mail services. When customers want to pay a bill, they will click on a link at AOL's site, which will open a window at the biller's site.
"It really is bill presentment more than bill pay," Mr. McIntosh said. To prevent fraud, bills sent via e-mail carry a green envelope icon and an "AOL Bill Pay" banner. AOL will offer the service only to its own subscribers.
Gary Craft, a research analyst at Financial DNA LLC in San Francisco, says the service's introduction is just the first step in a complete reversal of how bills are paid online. "That's ultimately where this is going," he said. "It's not going to be a payment-centered model, it's going to be a bill-centered model."
Hill Ferguson, the general manager of electronic bill payment and presentment at Yodlee, agrees with that assessment. "A lot of people were using our service as a bill consolidation service."
Later versions of BillDirect may allow customers to conduct person-to-person e-payments or payments to billers that do not have bill payment Web sites, Mr. Ferguson said. BillDirect already allows users to be warned when they spend too much money on their credit cards, and talk too long on their cell phones.
"That's not insignificant," Mr. Craft said of the cell phone feature. The two most important bills customers receive are for their cell phones and their credit cards, and this interaction with the end user is exactly why the banks and the billers have been battling over control of the relationship, he said.
