As CheckFree Corp. fights to defend its core business against a growing number of rivals, it is increasingly evolving into a company that directly interacts with consumers.
Last week CheckFree bought the telephone payment company PhoneCharge Inc. of Ansonia, Conn., for $100 million in cash. It was CheckFree's second major acquisition aimed at adding a means of intermediating between billers and their customers offline.
The first was in June 2004. Buying American Payment Systems Inc., which runs a network of 10,000 retail and agent locations, allowed CheckFree to offer walk-in services. It also provides software to convert checks to automated clearing house payments at the corporate lockbox.
CheckFree, the leading provider of online bill payment services, continues to view and cast itself as mainly serving banks. But its moves to branch into new service areas reflects the reality that banks and other financial providers have limited influence over consumers' payment habits.
"Financial institutions are our primary marketplace" and where customers turn for consolidated information about their monthly bills, said Matt Lewis, an executive vice president at the Atlanta company and the general manager of its electronic commerce division. "However, consumers decide how and where and when they want to pay those bills."
One thing customers are demanding more and more is the ability to make payments at the last minute, Mr. Lewis said. He said that buying American Payment Systems gave CheckFree direct connections to the accounting systems of hundreds of billers.
He said PhoneCharge can provide same-day payments to the billers using its service, though he would not say how many billers PhoneCharge serves.
The question is no longer whether a biller should offer some kind of electronic alternative for its customers, other than putting checks in the mail. "What you see now is a fairly aggressive business analysis" by companies trying to accelerate payments into their own bank accounts, Mr. Lewis said.
Now that it has PhoneCharge, CheckFree can provide one-stop shopping to those billers.
Analysts say CheckFree needed to be able to provide the service that PhoneCharge delivers. But they pointed out that the acquisition puts CheckFree into more direct competition with core-processing vendors such as Fiserv Inc., which paid $350 million last August for a pay-by-phone provider, BillMatrix Corp.
Beth Robertson, a senior analyst at the market researcher TowerGroup, a unit of MasterCard International, said the sale of BillMatrix showed that core processors like Fiserv saw an opportunity in electronic payments.
"This deal made it clear that expedited payments, as well as the bill payment market in general, have become hot," Ms. Robertson said.
Online bill payment shifted in 2005 from emerging-market status to established practice, Ms. Robertson said in a yearend research note. TowerGroup estimated that 41.1 million consumer households, or nearly two-fifths of the total, now pay at least some of their bills online.
CheckFree processed 266 million transactions in the quarter ended Sept. 30. TowerGroup says its volume is about four times that of the No. 2 bill-payment provider, the Metavante Corp. unit of the Milwaukee banking company Marshall & Ilsley Corp.
Fiserv, the No. 1 technology vendor in American Banker's FinTech 100, paid $350 million for BillMatrix, which specialized in last-minute telephone and online payments to more than 120 companies. The acquisition was Fiserv's entry into the bill payment business.
Gregory Smith, an analyst at Merrill Lynch Global Securities, said Wednesday in a note to clients that CheckFree had indicated it could build its own phone-payment business, but "appears to have decided that it was more beneficial to fill in the product gap by making an acquisition."
Mr. Lewis said, "Our motivation in doing this had nothing to do with Fiserv and everything to do with the fact that consumers want to pay their bills where and when they want."
He added: "This is a very competitive marketplace. It's not enough to solve the online part of it, to solve the phone part of it, the walk-in part, the ARC part. You haven't met the customer's needs unless you can do it all."
