The latest company to drop fees for online bill payment is not a bank at all but an old friend that bankers love to hate: Microsoft Corp.
The new version of the enduringly popular Money personal financial management software, released Aug. 1, comes with free bill payment plus other free attractions that banks would find hard to match: a one-time online tax preparation from H&R Block, a credit report and ongoing credit monitoring from Equifax Inc., and a consultation with an American Express financial planner.
On the flip side, consumers have to buy one of the four Money 2003 products, which cost about $35 to $95. Internet banking without the software is cheaper but comes with fewer frills.
The debate over whether Microsoft is a friend or foe to banks has already been hashed out. All sides have concluded that it is both, and Money 2003 will do nothing to quiet the debate.
Banks have long acknowledged that a certain percentage of their customers are devoted to Money and to its dominant rival, Intuit Inc.'s Quicken, and most have cut deals with both companies to let customers download their bank account information into the programs.
Interestingly, bankers report that the type of people who favor these sophisticated software programs tend to be a separate crowd from online banking users, who tend to be younger (and thus less likely to need the functionality of Money or Quicken) and less interested in the full range of features that Money and Quicken offer. The dedicated software, which resides on a customer's hard drive, also appeals to people who don't feel comfortable transacting through a Web site.
Despite their awkward truce with Microsoft, some bankers said that the free features added to Money 2003 - particularly bill payment, which many banks still charge for - give them a fresh cause for concern.
"Anytime anyone introduces new functionality, it raises the bar," said Richard Hartnack, the vice chairman of Union Bank of California, who called Microsoft both a "partner and a competitor."
The principal unit of San Francisco-based UnionBanCal Corp. (which is mostly owned by Bank of Tokyo-Mitsubishi Ltd.) was the first California bank to support Money and Quicken. That was in the mid-1990s, when banks were still smarting over the Bill Gates "dinosaurs" remark and wondering whether Microsoft secretly wanted to become a bank. The latter question has been put to rest, but an inchoate uneasiness lingers.
Mr. Hartnack, who is based in Los Angeles, said offering the software to its customers boosted business at Union Bank, because customers liked Money and Quicken. It was able to use the products as a marketing tool by offering people the opportunity to put their "bank in the box" - easily connect to the bank site with the software, he said.
Mr. Hartnack said Microsoft is offering nothing that banks "don't already or can't offer. It's not like they have some fabulous new product - it's their competitive take on a consumer need."
Union Bank charge some customers for online bill pay but waives the fees for its more profitable customers. Money's offer of free bill payment poses competition, he said, but so do similar offers by other banks, most notably Bank of America Corp., which dropped fees in May. (National City Corp. of Cleveland followed suit; Citigroup Inc. had never charged for this service.)
NetBank Inc., which has offered Quicken for some time, just recently decided to offer Money. Eve McDowell, the Atlanta company's chief sales and fulfillment executive, said the online bank aims to take advantage of the new software offers to reach "desirable, tech-savvy users."
NetBank has been on Microsoft's MSN Web site for the last few years, and being there has helped it get new customers, Ms. McDowell said. Some of the services offered by Money might overlap with those offered by NetBank, but because Microsoft does not take money deposits, she does not see it as a competitor, she said. As for Money 2003's enhancements, she said she believed Microsoft was adding them to compete with Intuit and other software vendors, and not to outdo financial services companies.
Chris Jolley, the director of marketing for the financial products group at Redmond, Wash.-based Microsoft, said that, as a technology company, Microsoft does a lot to help banks. He said 21 million to 22 million people use the MSN site as well as Money software, and that about 6.5 million use the software alone.
"One of the big things we do is provide a highly visible strategic opportunity for financial institutions to put marketing messages, acquisition messages as well as servicing messages," Mr. Jolley said. It's a "collaborative relationship."
Avivah Litan, a research analyst at Gartner Inc. in Stamford, Conn., said that the new freebies in Money 2003 are an extension of Microsoft's .NET strategy. That strategy, she said, is to "lock consumers into using ongoing Web-based financial services that generate ongoing revenues."
Money 2003 could enlarge its customer base by 10% over the next six to eight months with the enhancements and enticements, Ms. Litan said. "Online bankers should be worried by what Microsoft is offering," she said.
According to preliminary results of a Gartner survey, about 24% of the banks polled offer Money and 11% intend to start offering it by yearend. Fifty-five percent offer Quicken and 14% said they intend to do so, Ms. Litan said.
Richard Crone, vice president of Dove Consulting in Boston, said that this was the first time that Money was oriented toward the Soho (small office and home office) market.
Citigroup advertises on MSN Money's site, inviting visitors to open a checking account and using a gift of $100 as bait.
"Citi is riding on the Microsoft brand as much as Microsoft is riding on the Citi brand," Mr. Crone said.
The Federal Trade Commission announced Thursday that Microsoft had agreed to settle charges involving the collection of personal information through its Passport Web services: Passport, Passport Wallet, and Passport Kids.
The FTC had complained that Microsoft falsely represented that it used reasonable and appropriate measures to protect the privacy of consumers' personal information collected through its Passport and Passport Wallet, including credit card numbers and billing information stored in Passport Wallet.
The agency also said that Microsoft lied in saying that purchases made with Passport Wallet were safer or more secure than purchases made without it - according to the FTC, most consumers received identical security at those sites whether or not they used Passport Wallet.
The FTC also objected to Microsoft's representation that Passport did not collect any personally identifiable information other than that described in its privacy policy when, the agency said, Passport collected and held, for a limited time, a personally identifiable sign-in history for each user.
The FTC said it was also false for Microsoft to claim that its Kids Passport program provided parents control over what information participating Web sites could collect from their children.
As part of the settlement, Microsoft will implement a comprehensive information security program for Passport and similar services. A proposed consent order prohibits any misrepresentation of information practices in connection with Passport and other services, and would require Microsoft to implement and maintain a comprehensive information security program. In addition, under the proposed order, Microsoft must have its security program certified as meeting or exceeding the standards in the consent order by an independent professional every two years.
The FTC investigated the matter in response to a complaint from the Electronic Privacy Information Center, which was followed by complaints from other consumer watchdog groups.
