Banks are constantly hearing they are too slow to deploy new technology and that nonbank companies work faster and more nimbly - and often this criticism is right. But when it comes to electronic bill payment and presentment, banks may be farther ahead than the doubters imagine.

A new report from Goldman Sachs tries to put banks' progress in perspective. The firm points out that electronic bill payment and presentment - known to the cognoscenti as EBPP - is "still in its infancy," with less than 5% of household bills paid online and only 0.01% presented online. Goldman Sachs says it expects a "true inflection point" for these services to be reached in 2001, and a "critical mass" of bills presented and paid online by 2003.

"Banks don't think the market is running away from them, because so few people are actually using it," said Lori B. Appelbaum, the Goldman Sachs analyst who was the lead author of the report. She says electronic bill presentment and payment will gain popularity, and that banks "have a natural advantage, given existing customer relationships."

Ms. Appelbaum says banks' ties with major billers, and consumers' preference for paying electronic bills through a bank, are strong factors in banks' favor. "However," she cautions, "banks must act quickly, as other competitors are ahead in terms of attracting billers and are gaining the trust of early consumer adopters."

A bank-owned coalition, Spectrum LLC, which was formed to give its members control over the presentment and payment of electronic bills, has taken a lot of knocks for tardiness. But Spectrum - which plans to act as a network switch, with banks as the endpoints - is partly operational, and some of the banks that plug into it will be presenting bills to customer by the end of the summer.

"You can't really at this juncture say anybody's ahead of anybody else, because everything is nascent," said Liam Carmody, acting chief executive officer of Spectrum and principal of the consulting firm of Carmody & Bloom of Ridgewood, N.J.

First Union Corp., Wells Fargo & Co., and Chase Manhattan Corp. founded Spectrum, and nearly 20 banks have signed on. Wholesale bank members will make arrangements with billers, and retail banks will enroll customers. Participating banks had held off on the project until year-2000 conversion projects were complete, Mr. Carmody said, and now they are busy assembling software to mesh with existing home banking programs.

"This is a fairly major undertaking," Mr. Carmody said. "There is going to come a point pretty soon - I mean within the next year - when the volume of activity, the number of billers, is really going to take off."

Electronic bill payment is not a new service. Banks have offered it for years, first through proprietary software and now through the Internet, and the ability to pay bills without licking envelopes or using stamps has always been a key selling point. The tricky and unfinished part is the second "P" of EBPP, presentment, in which companies agree to send bills to consumers electronically instead of by mail. Online presentment is cheaper for the billers, but there is still a chicken-and-egg problem, in which merchants don't seek out the service because consumers don't have access to it.

Because there has been so little activity at the consumer level, it may seem banks are sitting on their fingers. Another reason for the bad rap may be the failure of Transpoint LLC, a venture set up in 1997 by Microsoft Corp., First Data Corp., and Citigroup Inc.. Despite its big-name backers and success in signing up some major billers - including Xerox Corp., GTE Corp., and Consolidated Edison of New York - Transpoint never made a run at CheckFree Holdings Corp., the market leader, which this year purchased Transpoint.

CheckFree, the proverbial weighty gorilla of the market, is already presenting bills from major billing companies and doing so for many large banks. CheckFree's success has been good material for the chorus of critics who chide banks about their inadequacies in this area. Some of these nags are consultants who make good livings by sounding alarms about what banks ought to do.

The Goldman Sachs report is measured. It says Spectrum "needs to take action in the coming months" in order to "prove that it is a serious competitor in the EBPP market. Until then, skepticism will continue to surround the venture."

Ms. Appelbaum said success for the Spectrum banks may boil down to the relatively simple matter of marketing. She said banks must advertise the service to corporate customers, showing them the price advantage of converting from paper to electronic bill presentment. When they have the presentment capability, banks should advertise the service to their retail customers.

"Once you have a customer hooked up to bill-pay, retention increases significantly," Ms. Appelbaum said in a telephone interview. "When a banking customer uses bill-pay, attrition rates drop 60%."

As conference speakers often like to say, the customers are there for the banks to lose. This, of course, is why some of the hand-wringing over banks' tardiness in EBPP is called for. "The thing is, if the brokerage industry adopts bill pay, the stickiness will be there, too," Ms. Appelbaum said. "The checking will be there, too. The banks' offering right now on bill-pay is a bit more attractive" than the brokerage firms' offerings. They're bundling it in as a package."

Most banks that have taken the lead in online bill payment, such as Wells Fargo, offer it free to consumers who keep certain minimum balances, Ms. Appelbaum said. By contrast, Charles Schwab & Co., Yahoo, and the various bill aggregation services charge monthly fees. And most people would rather pay bills through a bank than through a company like Yahoo, Ms. Appelbaum said.

Mr. Carmody said he thought Spectrum had better prospects than Transpoint. The latter was "a model that banks were not comfortable with," since their involvement seemed peripheral to the transactions. Spectrum, he said, puts banks squarely in the middle. His consulting company is now playing host to Spectrum, housing the 50 or so employees dedicated to the project by the processor and other companies.

"To understand Spectrum is not to look at EBPP, but to look at other types of models, like NYCE or Cirrus/Plus," Mr. Carmody said. "We're a switch. The Spectrum model assumes there will be hundreds if not thousands of endpoints, so there will be 200 wholesale banks that will be recruiting their customers and aggregating their bills. On the retail side, there are thousands of consumer banks that are offering online banking" and can bring in the people who need to pay their bills.

As with so many Internet services, banks will likely lose some early adopters to nonbank companies that are quicker on the mark. But the rank and file of bank customers will likely cotton to EBPP in keeping with their banks' schedules for rolling it out.

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