Yodlee Inc.'s new offering in online bill payment is a bet that banks will help push an option that promises to turn the service into a revenue source rather than a cost.
Today's bill-pay systems route consumer payments to billers across the automated clearing house network. Yodlee BillPay, which was to be announced today, will use consumers' debit and credit cards as well.
To bank customers there is little difference between ACH and debit, as both payments come from their checking accounts, although Yodlee hopes that debit-reward programs will be a draw. There is a difference to banks, which must pay a fee to initiate ACH payments but earn interchange on debit transactions.
Anil Arora, Yodlee's president and chief executive, said banks are "really struggling with the costs of bill pay right now" and have told him they want to generate revenue from it.
"If you're spending $50 million" on bill pay, "you could get $25 million out of interchange" using the Yodlee software, Mr. Arora said.
Other online payment companies are looking at ways for banks to make money from bill-payment services, in most cases by charging for expedited payments.
David Fortney, a senior vice president and the head of the electronic payment and presentment division at Metavante Corp., a unit of Marshall & Ilsley Corp. of Milwaukee, said his company is "absolutely pursuing revenue-generating opportunities with the bill pay product."
One method, which Metavante plans announce in more detail next month, is to provide bill payment services for which banks would charge a convenience fee, such as expedited payments. Another is to attempt to cross-sell products during the bill payment process.
"There's an opportunity that's pretty big out here that really hasn't been fully utilized: to use that interaction with that customer to promote other products that are fee-based," Mr. Fortney said.
Online Resources Corp. of Chantilly, Va., also plans to start offering an expedited payment service in the second half of this year. Companies like BillMatrix Corp. of Dallas provide these types of services for biller sites. (Fiserv Inc. of Brookfield, Wis., bought BillMatrix last August.)
In the early days of online banking and bill pay, banks charged their customers for the services to recoup the cost of providing it. Even after many banks dropped their fees for online banking in the late 1990s, they kept charging for bill-pay services - primarily to cover the fees they pay to companies like CheckFree Corp., the leading provider of electronic bill payment and presentment services, and Metavante, among others.
But in 2002, Bank of America Corp. eliminated its bill-pay fees in an attempt to spur more use of the service. The Charlotte company said its research had indicated that bill-pay users were more apt to use other banking products, and the increased revenue in other units was offsetting the cost of supporting bill pay.
Still, there were holdouts. Another Charlotte banking company, Wachovia Corp., waited until late 2004 to drop its fee for online bill payment. It chose to do so only after deciding to change bill-payment providers to CheckFree from Metavante.
Yodlee's transaction rates are competitive with those of other bill-payment providers, Mr. Arora said. For banks offering bill pay, switching to Yodlee and earning interchange is "a net gain," he said.
Though debit cards can be set as the default payment option, consumers are not required to have one to pay bills online. Yodlee BillPay also supports credit cards, ACH, and, as a last resort, paper checks.
Yodlee's offering expands on a credit card bill-payment service it developed for Morgan Stanley's Discover Financial Services that lets consumers pay their bills with a charge card. In building that service, which Discover began using a year ago, Yodlee set up direct connections with the top 200 billers in the United States. Those connections will be available to banks that use Yodlee BillPay.
Another benefit of Yodlee's method is quickness, said Peter Hazlehurst, its senior vice president of product development.
"The moment you pull the trigger, we're off making the payment" when consumers choose to pay by card, Mr. Hazlehurst said. Consumers immediately get a confirmation number directly from the biller, he said, so any disputes sidestep the bank.
The system can work with any biller that has the capability to accept card payments online, Mr. Hazlehurst said. Consumers add billers to the system by typing in the usernames and passwords they have set up separately. If the consumer does not have these credentials, Yodlee can enroll the consumer at the biller's site without taking the consumer away from the bank's site.
Mr. Arora said consumers who pay by card through Yodlee's online bill-pay service get accelerated payments, and banks can charge a fee for that speed.
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said that although online bill pay is free to consumers, "it's certainly not free to banks. They're paying a fortune to the likes of CheckFree and Metavante."
CheckFree, of Atlanta, is working on a service similar to Yodlee's, Mr. Schatt said, but "they haven't really moved on it at all. I think their belief is it's a smaller piece of the revenue pie that a bank can make off payments."
CheckFree would not discuss its plans last week.
Yodlee's offering - which includes software as well as the service connecting to billers - can be sold in components, which means banks can buy only the parts they need. Mr. Schatt said this would appeal to large banks, some of which handle bill payment internally and may want only to add the card payment feature to an existing system.
Beth Robertson, a senior analyst at the research firm TowerGroup Inc. in Needham, Mass., a unit of MasterCard International, called Yodlee's service "an alternative for a bank to recoup costs. It's not the only alternative."
Ms. Robertson said she was aware of a CheckFree effort to develop a service like Yodlee's, "but I don't know where it stands."
Yodlee, of Redwood City, Calif., is not completely blocking out the other bill-payment providers, since it cannot route all payments on its own.
"They would be routing through one or more of the other processors," Ms. Robertson said. "They did bid on Princeton eCom, but were unsuccessful." (Online Resources Corp. announced last month that it had agreed to buy Princeton eCom; the deal is expected to close in July.)
Even if its new service impresses a lot of banks, Yodlee will have a tough time signing customers, Ms. Robertson said. Switching bill-payment systems "is a really big undertaking," she said. "I don't think anything would encourage a bank to make a snap decision."
