CheckFree Corp., the leading provider of electronic bill payment and presentment services, has landed a new bank customer and is trying to expand by offering electronic remittances to small businesses and streamlining its bill presentment process.
The Atlanta company said Monday that BB&T Corp. of Winston-Salem, N.C., had signed a multiyear contract to offer CheckFree's bill payment service.
Also Monday, CheckFree started a small-business remittance service that it hopes will eliminate 400,000 of the paper checks it sends out each month on behalf of users.
A day later it reported earnings for its fiscal second quarter, which ended Dec. 31. After stumbling in the previous two quarters, CheckFree reported that revenue rose 11% from a year earlier, to $237.2 million, and net income rose 6%, to $35.8 million.
Investors reacted positively; by midday Wednesday, the shares had risen 5.28%, to $41.27.
Pete Kight, CheckFree's chairman and chief executive, said in an earnings conference call with analysts that his company's banking customers contributed to its earnings growth, and that the BB&T deal is evidence of that business line's strength.
CheckFree took a hit last quarter when billers that accept payments through its walk-in stores began passing their fees on to consumers, some of whom sought other payment channels. Payment volume fell short of its forecast in the previous quarter because the timing of some payments shifted them into an earlier quarter's results.
Last quarter CheckFree signed a deal designed to let Wal-Mart Stores Inc. accept walk-in bill payments, possibly at its checkout lines.
During the conference call, Mr. Kight announced that his company had signed a deal with American Express Co. and said the deal signals a change in the way CheckFree is handling bill presentment.
This quarter "we expect to discontinue screen-scraping e-bills for most of our key billers on what we call our scrape roster," he said. Instead, his company will favor direct connections that would allow it to create its own electronic bills and deliver them to bank Web sites.
Scraping bill data from a biller's site "is simply not effectively securable," Mr. Kight said, and billers have become more open to the idea of feeding their billing data directly to CheckFree. Amex will begin doing so this summer.
The deal with BB&T is an early highlight of this quarter, Mr. Kight said, though he did not discuss it in detail in his comments.
Scott Qualls, a senior vice president at BB&T and its manager of deposit access products, said his company made the deal because "CheckFree matched our specific needs better" than its current provider.
He would not elaborate on the decision, nor would he say who the current provider is when BB&T will make the switch. The $118.5 billion-asset banking company has provided electronic bill payment to its retail and small-business customers since 1998.
Gregory Smith, an analyst at Merrill Lynch Global Securities, wrote in a research note that BB&T was "a nice, solid win for CheckFree," but that the deal is likely to generate only $2 million to $3 million of annual revenue.
In addition, because BB&T probably will not switch to CheckFree for several months, he does not expect the contract to have any "material impact to FY07 results."
Online Resources Corp. of Chantilly, Va., is probably the provider that BB&T is dropping, Mr. Smith said. In December, Online Resources had said it had received a termination notice from a customer of Princeton eCom Corp., which Online Resources bought in July.
"BB&T is obviously" the lost customer to which Online Resources had alluded, Mr. Smith wrote. "We believe CheckFree had provided ACH functionality for BB&T, so we think the loss is a function of a customer consolidating its bill processing with one vendor."
This week CheckFree started offering a service that gives small merchants the option to receive electronic payments through banks' online bill payment sites. Without this service, which some merchants have been testing since 2005, the only option was to receive paper checks.
Mark Critchett, the vice president of product management for CheckFree's biller business unit, said his company "has a strategy of electronifying as many payments as possible." Until recently this strategy focused more on large merchants than on small ones, he said.
Through the new service, merchants sign up at CheckFree's uhavemoney.com site and receive e-mail notification whenever an electronic payment is sent to them through a bank's online bill payment site. The merchants then can download the remittance data for their bookkeeping.
The service works for all payments sent through CheckFree bank customers' sites, but not for payments made from its walk-in business, Mr. Critchett said.
Mr. Smith wrote that the fiscal second quarter was mostly positive for CheckFree. "After two very disappointing quarters, we expect investors to breathe a sigh of relief."
