Bill Gates was back in bankers' faces last week, and he made clear there was nothing random about his choice of venue.

The chairman and chief executive officer of Microsoft Corp. had had plenty of other obligations and distractions in recent days. He was the star and target of a Senate Judiciary Committee hearing, appeared at a dinner honoring 75 years of Time cover subjects, and sang a song in a Barbara Walters TV interview. And that was just part of his public agenda; he has a $10 billion company to run.

In making the opening speech at the National Automated Clearing House Association's Payments '98 conference in Seattle, Mr. Gates got down to what he sees as a key part of Microsoft's business-banking technology-and particularly to one of the hot technologies it is selling in the electronic billing area.

The latter, which Microsoft is developing in a joint venture with First Data Corp. called MSFDC, began last year in a cloud of controversy. Recalling Mr. Gates' infamous "dinosaur" put-down (as quoted in a 1994 Newsweek article), some bankers viewed MSFDC as confirmation that Microsoft was angling for a piece of their turf.

Microsoft apparently answered a lot of those concerns-well enough that companies like BankAmerica Corp., Chase Manhattan Corp., and Citicorp joined the MSFDC advisory board and Banc One Corp., KeyCorp, Norwest Corp., and Wells Fargo & Co. lined up to participate in the first trials this year.

"As we've talked more and more to the senior people at many banks about Microsoft's business and our long-term intentions, I'm glad to say they have become more comfortable working with us," Mr. Gates said in an exclusive interview with American Banker just prior to the Payments '98 conference.

Now putting himself personally on the line for MSFDC, Mr. Gates is telling bankers that if they want to do business on the Internet and keep drawing customers back to their home pages, there is no better lure than electronic presentment of bills.

"We thought this was a great opportunity for software," Mr. Gates said in the sizable section of his Payments '98 speech devoted to MSFDC.

He said it is unlikely that consumers will be drawn to bank Web sites just for interest rate or transaction information. "Bill presentment is the best opportunity ... to make a Web site relevant so it becomes the best marketing vehicle a bank has," he said.

Underlining past protestations that Microsoft is not in this because of any banking or data mining ambitions of its own, Mr. Gates spoke of bill presentment and payment as a three-legged stool involving banks, the billers who would foot most of the bill under Microsoft's pricing structure, and a neutral processor.

"You need a bootstrap to put the pieces in place and find the pioneers," he said. "We partnered with FDC to make sure this gets to critical mass."


For the speaking engagement at the Seattle Convention Center, Mr. Gates did not have to travel far from his home on Lake Washington or from Microsoft's headquarters in Redmond. When he made his last major banking- related appearance in December, he did not leave his office. His image was transmitted by satellite to the Bank Administration Institute's Retail Delivery '97 meeting in New Orleans.

Given Mr. Gates' unrelenting travel demands, the proximity last week may have been coincidental. He had a good reason to want to be in front of the people who manage and promote the automated clearing house network.

"The underpinning of everything we do here is the ACH," he said, referring to MSFDC's reliance on it for funds transfers.

"The goal is to make it very easy for banks to get up and running," he said. The ACH was seen as an existing, low-cost infrastructure ready-made for monthly billings.


At high-tech conventions like Comdex and Internet World, people of Mr. Gates' stature are never mere talking heads. Keynotes become little shows in themselves, and Mr. Gates took his on the road to Payments '98.

His presentation included a film interlude, a comedic pastiche originally produced for the last Comdex. One slapstick episode pokes fun at the difficulty of hooking up a computer system-the antithesis of what Microsoft and others hope to accomplish with the "plug-and-play" ideal.

In another section, Mr. Gates and his executive vice president for sales, Steve Ballmer, ride in the front seat of a car in a parody of a Volkswagen commercial, with the voiceover tag line: "On the information superhighway, there are passengers and there are drivers." (Mr. Gates was the passenger.)

The audience seemed to get the biggest kick out of a Martha Stewart self-parody, as she stood in her kitchen and provided an elaborate recipe for some kind of computer assemblage. "Now that's a very good thing," she said. "Just the sort of processing you can do in those very few minutes before your dinner guests arrive."

National ACH Association president Eliott McEntee said he came away not just with an understanding of electronic bill paying, but with a Martha Stewart gift idea: "How to Use Old Computer Parts to Make Great Christmas Gifts."


Mr. Gates invited Matt Cone, a familiar Microsoft face at banking industry events, onstage to walk him and the audience through an MSFDC demonstration.

Everything went smoothly until Mr. Cone tried to dial in to his Bank One account via WebTV-the Internet television system Microsoft acquired last year for $425 million-to change a previously entered payment amount.

The procedure worked all right, but the initial connection was a little slow. Mr. Cone broke the anticipatory silence by turning to Mr. Gates and asking, "Did you ever use WebTV?"

The CEO's matter-of-fact, affirmative response was drowned out by laughter from the audience, a clear indication that Mr. Cone had stolen that part of the show.


Banking's biggest merger played a background role in the Gates appearance.

He was introduced by Hilary Ward, vice president of CoreStates Bank in Philadelphia, which by tradition has been the sponsor of Nacha conference keynote sessions.

Ms. Ward took the opportunity to say that the CoreStates commercial banking tradition will not disappear in the "seamless merger conversion" that is in the offing for CoreStates Financial Corp. and First Union Corp.

She also pointed out that CoreStates is a proud distributor of the Microsoft Money software for home banking; the bank was also an early supporter of the Microsoft Internet banking system nicknamed Marble.


Peter J. Kight could not expect to be the attention-grabber or conversation piece that Mr. Gates was, but he made the most of his luncheon address last Tuesday.

The chief executive officer of Checkfree Corp., probably MSFDC's strongest competitor, seized humorously on the recent controversy over Microsoft's tying of its Internet browser to the Windows operating system.

Mr. Kight rigged up a computer to take him through a series of transactions that, because of his insistence on using a competing browser, resulted in his losing his airplane reservation home to Atlanta. The message returned on his screen said: "Microsoft strongly suggests that you change your default browser."

"If you can't make fun of (Bill Gates) in Seattle, where can you?" Mr. Kight said.

In a serious vein, Mr. Kight spoke of the "differences in culture" between financial services and technology companies. For example, banks have "zero tolerance for errors," while technology providers calculate "acceptable failure rates."

"You are the trusted agent," he told the bankers. "You don't want to hand that off to somebody else. You need to challenge everyone supplying you"-presumably including Microsoft-to achieve "end-to-end auditability" and "dial-tone quality" equivalent to the reliability of the telephone network.


Mr. Kight marveled at the progress Checkfree has made in signing billers to its electronic presentment program, but that phenomenon is just getting started. The automated clearing house, a two-decade-old electronic payments innovation, is beginning to show signs of maturity.

Michael Johnson, director of the payment and recovery policy staff at the Social Security Administration, said its direct deposit participation rate has hit 70%.

Even so, the agency, which generates 51 million transactions a month, is facing a daunting challenge as 80 million baby boomers approach retirement age.

"My strategy since the late 1980s has been essentially to get rid of the check," Mr. Johnson said. "We simply cannot afford to pay beneficiaries any longer using paper."

Mr. Johnson said a payment that costs 43 cents to deliver by check is only 2 cents through the ACH. The agency will save more than $100 million each year "if we can convert everyone. That's some serious money, folks."


Another federal initiative, the Electronic Federal Tax Payment System, or EFTPS, has 1.7 million companies enrolled in the ACH-based tax collection system.

A cost-cutting mandate in the North American Free Trade Act of 1994, EFTPS will hit its final phase-in stage this summer, covering all businesses with more than $50,000 in annual tax payments.

"The system is an outstanding success," Mr. Hammond said. "We are optimistic that this year we will collect over $1 trillion, or over two- thirds of the government's total collection volume, through EFTPS."


ACH industry leaders remain frustrated and wonder why direct payroll deposits are reaching only half the work force.

"These questions have been looked at before, but perhaps not in enough depth and clearly without adequate solutions," said Paul Connolly, senior vice president of the Federal Reserve Bank of Boston.

Mr. Connolly, national product director of the Federal Reserve system retail payments services committee, said the central bank is planning a comprehensive market research effort as part of an agreement with Nacha to promote the use of the ACH system.

The Nacha board of directors approved a rules change that allows merchants to use the ACH network for collecting on returned checks.

The rule, three years in the making, sets a legal framework for banks, merchants, and consumers in returned-check transactions.

The rule addresses a growing demand among merchants, a growing number of which are using the ACH to for this purpose and to truncate checks at the point of sale, converting them into electronic debits.

"The business case was so compelling," said Mr. McEntee, the ACH association's CEO. He said the service can reduce a merchant's collection cost by as much as $1 per item.

"A lot of retailers said they would not originate these kinds of transactions until there was such a rule in place."

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