Douglas Braun expects banks to resist the idea of using the Internet to exchange bills and process payments.
The founder of Internet Payment Exchange, or IPAYX, has gone on the road to explain a the concept for a new system that he hopes will make current bill-payment processing methods obsolete.
Touting IPAYX's low cost, simplicity, speed, and how he expects the system to come together, Mr. Braun hopes to win over skeptics who think there is no chance of upsetting the old order.
At the heart of the company's efforts is an Internet-based "switch" that would route payments from banks serving retail customers to billers' banks.
"IPAYX is so patently obvious in the value it brings," said one bank technology company executive who is familiar with IPAYX's plans. "The question is whether you can execute the partnerships (with banks) to make it real."
Other observers have questioned whether IPAYX could generate enough volume, given banks' strong ties to existing bill-payment processors and methods.
Clifton, Va.-based IPAYX hopes to eliminate the need for third parties such as Checkfree Holdings Corp., which currently act as middlemen routing payments between banks and billers. Reliance on the Internet alone is expected to lower costs, reduce errors, and accelerate processing.
The plan is to convince at least a handful of "institutions or service bureaus that are fairly new to electronic banking and with no conversion issues" to try IPAYX, said Mr. Braun, the company's president and chief executive officer.
"Once we prove the concept, we'll go like gangbusters," he predicted.
In IPAYX's favor is the relatively small capital investment Mr. Braun and his partners expect to need to get the service up and running.
The company is seeking $4.7 million to see it through its first three years. About $1.5 million would be used to get the exchange to market, and $3.2 million would cover the first two years of operation.
IPAYX needs to enlist just 1.5% of electronic payments by the end of that period in order to break even, Mr. Braun said.
"If it took too much capital to do this, we just couldn't pull it off," he said.
After its current marketing campaign, IPAYX plans to finish building the system and begin a pilot test in the first quarter of 2000. It plans to spend one year proving itself, and the next acquiring customers.
The business plan provides for an income stream besides a small cut of very low-cost transactions.
"We're not chasing the profits in one-cent transactions," Mr. Braun said, which is the fee IPAYX plans to charge banks for each payment sent on behalf of retail customers. "Our goal is to build a low-cost commodity transaction system. Profits will come from the services that surround it."
One of IPAYX's extras, for a monthly fee, would be a directory service enabling banks to identify which merchants accept electronic payments and how they do so.
The company also plans to develop a complete directory of merchants that bill consumers electronically.
IPAYX also would get income from services such as cutting paper checks for small-business billers that are unable to receive electronic payments.
IPAYX will draw upon Mr. Braun's knowledge of the retail lockbox business. He founded Braun, Simmons & Co., a developer of back-end software for home banking, which was sold to Intelidata Technologies Inc. a few years ago.
Mr. Braun said he expects that it will be easier to automate retail lockbox operations than wholesale lockbox departments, which manage transactions between businesses.
Business-to-business billing is more complex, he said, because companies often dispute invoices and several employees can be involved in making payments.
"In the retail environment, generally only one person approves the bill," Mr. Braun said.
Mr. Braun said he expects to sign a contract with the retail lockbox department of a bank by the end of June. He predicts several more retail lockbox processors will be on board by the end of the year, as well as at least two originators, a category that includes financial institutions, Internet portals, and billers.
A consultant who asked not to be identified questioned IPAYX's ability to generate enough volume.
Mr. Braun said IPAYX needs only a small number of key partnerships to get into the black. "If we get a pair of regionals in the Southeast, all of a sudden we would get a lot of local clearing volume," he said.
Avivah Litan, research director at GartnerGroup, Stamford, Conn., and other analysts have said banks might ignore a bill payment operation owned by a nonbank company, because financial institutions would want a stake in such an entity.
Mr. Braun said a bank could be a key investor in IPAYX.
Ms. Litan noted that Wells Fargo & Co. made a significant investment this spring in PaymentNet Inc. of Pleasanton, Calif., which is also developing an Internet payments switch.
Such challenges-not to mention the deeply entrenched habits of the bill- paying industry-do not appear to faze Mr. Braun.
"Over time, we think we'll be the only payment processor."