Banks using electronic bill payment and presentment services from CheckFree Corp. will soon be able to offer customers new payment options via email.

The upgrade involves two extensions of the Atlanta-based company's WebPay 3.2 service. The first will allow consumers to receive bills and schedule payments via email. The second extension offers a person-to- person payment capability.

Usually, email is used as a means to simply notify EBPP customers that they have a bill ready to be paid. Often a hyperlink to a statement-viewing site is provided. With the new CheckFree service, an HTML representation of the bill statement is imbedded in the email. It lets users view the payment amount, and if everything looks good, they just click the "pay" button which initiates the payment authentication phase. Users still have the option of visiting a site that has more detailed billing information if they wish to change any data.

"We're pushing bills out to customers, rather than pulling them to a Web site to view and pay their bills," says David Fontaine, a CheckFree spokesman. "This isn't a huge departure from our regular business model. We're just bringing the service closer to consumers."

And this is probably the right way to go, according to David Potterton, research director at Meridien Research, Newton, MA. "The prospect of email-based (EBPP) is more easy for consumers to deal with. EBPP has stalled, so any way you can drive up new usage is good."

Consumers can choose to opt in to the service. For banks and other EBPP providers, migration to the new features is relatively simple, says Fontaine. If they use WebPay 3.2 they are automatically upgraded.

The second enhancement allows people to send payments to one another a la P-to-P. Fontaine says this is a natural extension of EBPP in that it allows people to have a consolidated view of all their electronic payments, including those made to individuals.

CheckFree's P-to-P service will use people's existing bank accounts. This eliminates the need to pre-fund a new account which is a requirement of most P-to-P services. Senders and receivers don't need to have accounts at the same bank. Enrollment, claims the company, is relatively simple and employs the Equifax Secure authentication engine to validate users. If a receiver isn't enrolled in the service, they're invited to do so through one of CheckFree's partners that offers it. Money travels through the ACH network and takes about a day for payments to clear.

"We're sticking to our guns that consumers want to access this service through their existing financial institutions," says Fontaine.

"Email is an interesting model for P-to-P," says Meridien's Potterton. "CheckFree certainly has the payment infrastructure to do it."

The new features won't officially roll out until the summer. According to Fontaine, CheckFree is running an internal pilot. "We've been zapping money to each other for a few weeks now, and it works," he says.

Potterton says not to count out CheckFree on both fronts. However, he adds that success depends on the company's execution and how it markets the new services to banks. And none of this will matter if the price is wrong. "(Banks) might charge consumers to use these functions as premium services," he says. "It all comes down to money in the end."

-Maria Bruno University Opens Online Bank ePaul University has launched its very own on-line bank, DePaulBank.com, that will cater to students, faculty and alumni of the university, perhaps marking the beginning of a new trend in electronic banking among colleges.

The Chicago-based school means business when it comes to technology. Its president is on the board of NASA, says Kenneth McHugh, executive vice president of operations at DePaul. "In the eight years he has been here, we've made tremendous strides in technology." DePaul now has one of the largest computer science departments in the country, and in addition to offering online course registration like most colleges, DePaul students can pay their tuition via credit card. DePaul is likely not the only university that has decided to enter the technology age in more ways than one, however. But McHugh says it was looking for other ways to innovate, and what better way than online banking?

After polling students, faculty and alumni, McHugh says there was a definite interest in such a service. So DePaul sought the help of a bank and was introduced to Columbus, OH-based Sutton Bank by the South Bend, IN-based consulting firm Crowe, Chizek & Co. "We had a short list of about three banks but were impressed by the technology Sutton represented," says McHugh.

Sutton is a community bank with more than $200 million in assets. Unlike some of its counterparts, Sutton was an early adopter of online banking, introducing a transactional Web site in 1999. Approximately 10% of its deposit base currently bank on the Sutton Internet site, says Anthony Gorrell, chief financial officer at the bank.

The DePaulBank.com project is the first such venture by Sutton. "We saw this as a great opportunity to segment our products and services over the Internet to a ready-made customer base-DePaul students, alumni and faculty," explains Gorrell. And quite a sizeable base too. DePaul has 22,000 students, 100,000 alumni, and it graduates about 5,000 students a year. "Our constituency continues to grow," says DePaul's McHugh.

DePaulBank.com is a fully functional Web banking site and is a division of Sutton Bank.

Customers are offered interest-bearing checking and savings accounts, online bill pay, and ATM and debit cards, among other products, some of which are offered free of charge. Those who use the DePaulBank debit card will receive 10 cents for each transaction, and ATM fees will be reimbursed up to $6. Financial planning for students and parents and direct deposit for faculty and staff will be added as these groups join the bank. There's a shopping portal too, and those who shop at merchants via the DePaul site will receive points they can convert to cash.

Sutton's Gorrell is serious about making DePaulBank a "well-rounded financial site" and hopes to add brokerage and insurance services in the future.

But DePaulBank.com won't just be about products, says McHugh. There will be a stress on customer service through Sutton Bank. Although Sutton does not yet have a large staff dedicated to DePaulBank, Gorrell says he'll increase it as the customer base grows. Currently there are less than 100 DePaulBank customers, so Gorrell is using the service staff he already has for now. Part of this consists of live online text-chat help by clicking on the Online Banker button. Service is expected to be ramped up to 24x7 in the coming months.

This is all part of McHugh's vision to create a real community feeling with the online bank. "I'm glad Sutton is a community bank," he says. "From my own standpoint, I'm disappointed that community banks are disappearing, along with their kind of service. I thought it would be nice to have a small, Internet bank just for the university."

A soft launch of the bank occurred in January. Thus far, marketing efforts have been aimed at alumni to establish a mature deposit base. Next will be faculty and staff, and finally the students.

Expect to see more of this from colleges, says Sutton's Gorrell. "There's definitely a trend developing. We're in contact with other universities interested in creating an online bank." In fact, Drexel University in Philadelphia was the first to launch a university-related banking site, AJDrexelBank.com, last November.

And colleges are not the only ones looking to brand a bank for themselves. According to Ian Rubin, director of online financial services research at Framingham, MA-based International Data Corp., corporations too are starting to look at self-branded online banks as a way to garner more business from consumers and employees. "The amount of activity (in online banks for affinity groups) is starting to pick up." He says it is not unrealistic to see banks for big brands like Coca-Cola cropping up in the future. "DePaul is using a tried-and-true formula that has been used in the affinity credit card world. You have a technology core, and the institution just lends its name to the services."

Last year, he says, LVMH, the company that produces and sells such luxury brand items as Louis Vuitton, Moet and Hennessy, put feelers out to IDC regarding the possibility of establishing its own online bank for its high-end customer base.

With the right institution and the right constituency, Rubin says such affinity banking programs can work. "Employers can create online banks and offer this as another part of their benefits plan. For financial institutions, this represents another revenue stream and a new customer segment," he says.

The online bank idea is a good fit for colleges since most of the time new students need to enroll with a financial institution that is in vicinity of the campus. DePaul was quick to see the benefits of running a school-related bank. McHugh hopes other universities will follow suit. "Colleges have always been involved in credit unions. This is just a new evolutionary step.

-Maria Bruno

By David Gosnell

Thousands of small financial institutions over the past few years have banded together in selective-surcharge groups. By agreeing not to surcharge each other's cardholders, the alliances enable the organizations to compete with larger financial institutions that offer customers surcharge-free use of their own ATM fleets.

But selective-surcharge groups appear to have other uses. Banks with aggressive Internet-banking strategies, for example, are using selective surcharge groups as a cost-effective way to market their virtual banking sites.

One bank, Salem, MA-based Salem Five Cent Savings Bank, for example, attributes its membership in the SUM alliance, the nation's largest selective-surcharge group operated by Woodcliff Lake, NJ-based NYCE Corp., with making it one of the top three ATM providers in Massachusetts. "There is a real value in partnering with these different financial institutions," says Janis Dodge, Salem senior vice president for retail banking.

Salem, with only 9 branches and 15 ATMs in the North Shore area of Massachusetts, is using its Internet-banking product, directbanking.com, to expand its market. "Salem is a growing area, but we are bounded by geography," says Dodge. "And we wanted to expand our market in an efficient way."

Unlike other Internet-banking strategies that seek a national customer base, Salem is targeting customers in a defined geographic region without using branches. SUM was the ideal program to offer Salem directbanking.com debit cardholders surcharge-free access to about 1,900 ATMs in Connecticut, says Dodge.

The SUM group gives local Salem customers free ATM access, without the high expense of surcharge reimbursements. Most pure-play Internet banks, which generally own no ATMs, reimburse their debit cardholders surcharge expenses to use ATMs anywhere in the nation.

Salem does pay an interchange fee when its debit cardholders use SUM ATMs. But using the SUM alliance allows Salem to pay up to 75% less than what other Internet banks are paying ATM acquirers to ensure their debit cardholders can use ATMs without charge. Card-issuing banks pay ATM owners interchange when their cardholders use their ATMs.

The SUM alliance allows Salem to target a state for growth, and the strategy is working, says Dodge. From last October, when Salem opened what she describes as a "store" that promotes its Internet banking site, through December, Salem gained about $20 million in directbanking.com deposits. That growth is typical for the bank, says Dodge.

The store features a kiosk to connect customers to their directbanking.com accounts, an ATM, and a video banking center where consumers can open an account and have a debit card dispensed to them on the spot. Salem has little interest in the common profile of the Internet-banking customer-those who browse the Internet for the highest interest rates on accounts and move their money accordingly.

Jerry Silva, an analyst for Needham, MA-based TowerGroup, believes the Salem strategy is a good model for other community banks interested in expanding their local customer bases using Internet-banking sites.

"The marketing plan is brilliant," says Silva. "Salem Bank knows the Massachusetts banking market very well."

While some Internet-based banks, such as Menlo Park, CA-based E*Trade Group Inc., have invested in national ATM networks to make physical links with their customers, some observers believe Salem's targeted strategy makes more economic sense. Richard Bell, TowerGroup director of eBanking, says he is skeptical of heavy investments by Internet banks in ATM networks and reimbursing customers for ATM surcharges.

The chances that E*Trade debit cardholders will use an E*Trade ATM on a regular basis are slim because the E*Trade ATM system is so disbursed, as are E*Trade's debit cardholders, says Bell.

David Gosnell is senior editor of ATM&Debit News, another Thomson Financial publication.

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