A Jupiter Communications analyst recently wrote that banks must stop acting in their self-interest and move collectively to support electronic bill presentment and payment - a kind of Mao-meets-the-Internet call for communal well-being.
As justification for this conclusion, the specter of nonbank competition is waved in our faces. Nonbanks, the analyst warned, and especially fast-moving Internet companies, are just waiting to steal profitable bank relationships by offering what consumers hunger for: electronic bill payment/presentment.
"Nonbanks behind every tree" scare tactics don't work. The annals are filled with interlopers that have tried and failed - so many, in fact, that no one should take them seriously anymore. Is Sears re-entering banking? Is AT&T relaunching a bank card? Do public utilities intend to buy more S&Ls? No, no, and no.
As for newer, more agile players: Just which Internet fast-movers are going to hijack (and presumably better satisfy) bank customers? Is it X.com, the "free checking" Internet firm that just announced, after a mere eight months in the real world, a $12 monthly fee for the low-balance accounts its strategy attracted? How about Amazon, which just alienated some of its most loyal customers by testing higher prices on them? Or maybe Priceline, a firm exiting businesses faster than it is entering them these days? These dot-com-latelies are proving that losing money at warp speed is not much appreciated by customers, shareholders, or regulators.
But the sorry state of would-be bank competitors is unfortunate, especially regarding harebrained schemes like EBPP. It is too bad, really, that a viable firm isn't actually succeeding at luring bill-payment business away from banks. Bankers should react to "losing" EBPP business like the late Henny Youngman: "Take my EBPP . . . please." It is a lousy business. Bankers should be ecstatic about letting someone else have it.
EBPP's lineage tells a depressing story. The predecessor of today's Internet-based services first appeared 20 years ago as telephone bill paying and then became another abysmal flop in the mid-1990s as PC-based online bill paying. After two decades, bank-sponsored bill-paying services have captured no meaningful share of any important market segment.
So, despite the hockey-stick-shaped five-year growth projection offered up by our Jupiter analyst, common sense tells us this latest attempt to automate bill paying is going nowhere. Furthermore, such projections are always more than a little suspect.
Face it: EBPP is unattractive. Consumers see little value in a service that saves them the cost of a postage stamp.
Thoughtful consumers realize that the service is designed to immediately remove available funds from their accounts, switching the benefit of float from them to the paying agent. This forces them to keep more funds on deposit to meet minimum-balance requirements and avoid fees.
Experienced bankers know that EPBB is complicated (it's a hassle to set up and administer) and unreliable (consider the vagaries of telecommunications and bill-payer execution failures).
No EPBB vendor can hope to monopolize presentment (save the long-shot possibility of the Postal Service obtaining a congressionally mandated extension of its first-class mail monopoly to include Internet billing). Just how many sites will a consumer willingly visit to pay a small portion of his or her bills?
It will be a few decades, not a few years, before enough companies are equipped and willing to participate in presentment to make it a meaningful way for customers to pay the majority of their bills. Right now an estimated 400 of the nation's millions of businesses have signed up with one or more EBPP vendors.
EBPP's decidedly unimpressive history and lack of consumer value reinforce a high-tech truism: Just because technology makes something possible doesn't mean a majority of consumers will find it worthwhile to use. My advice to bankers is to look elsewhere for opportunities to improve service and reduce cost - actions that are plainly in the shareholders' interest.
Mr. McGrath is a managing partner of Bank Earnings International LLP, a consulting firm in Orange Va.
