When banks switch their online bill-payment vendor, a lot can go wrong.
These conversions can be prompted by post-acquisition integration projects or simply a desire for lower prices or better features. The process typically involves several companies - the bill-pay vendors, the banks - and many bankers say the most important goal is to minimize any disruption to customer payments.
However, avoiding such problems is no small task.
Wachovia Corp. is switching bill-pay systems for the second time in four years. When First Union Corp. of Charlotte acquired Wachovia in 2001 and took its name, it moved from CheckFree Corp. to Metavante Corp. In July of last year Wachovia said that to cut costs it would return to CheckFree, the No. 1 bill-pay provider.
Julie Huffman, Wachovia's director of implementations and transition management for e-commerce, said that customers would be moved to the CheckFree system in stages between February and April 2006 and that new customers are already being enrolled in the Atlanta vendor's system.
She noted that one of the biggest challenges is ensuring that a vendor has accurate biller data. When a biller's address or bank routing information changes - a common occurrence - the bill-pay provider must update its systems.
This can present problems during a conversion; if the two vendors have different information for a biller, the bank's systems may end up with the wrong information, and could try to send a customer's payment to the wrong place.
"Our goal is to make sure we get all of the data converted the same way it was" so that bill payments reach the correct destination, Ms. Huffman said.
Kim Nelson, Wachovia's program manager for its ongoing conversion of SouthTrust Corp., which Wachovia acquired in November, said these lapses are hard to prevent but can be corrected quickly. During the Metavante conversion, some biller addresses and account numbers were not up to date. "We still had some impacts that we didn't see until the first payment was made," she said.
Wachovia spotted the problem when a payment failed to reach the biller, and was able to "catch it and clean it up by the next cycle period," Ms. Nelson said.
Beth Robertson, a senior analyst at MasterCard International's TowerGroup Inc. research unit, said that biller directory management "is actually an area of expertise for any bill-payment processor, but it's an area that some do better than others. And any of these factors can affect the claims rate."
She said that even the smoothest transitions can worry customers, since the new vendor may have an unfamiliar user interface. "Getting consumers familiar with and comfortable with the new UI can be a hurdle, because people don't like change," she said.
Ed McLaughlin, the vice president of product and strategy for Metavante's payment services group, said that the ease or difficulty of a conversion is "really based on the quality of information that the financial institution can get from their partner."
Mr. McLaughlin said that when a bank switches to Metavante, a unit of the Milwaukee banking company Marshall & Ilsley Corp., his company compares the master biller directory of addresses and routing numbers that is provided by the previous vendor to the biller details in that vendor's files of individual users' bill-payment histories, to double-check that the information is current.
It also helps if the outgoing provider is contractually obligated to cooperate, he said. "In most cases, the banks, if they've been savvy, have ensured that they have rights to the given information."
In Metavante's contracts, "the bank has full right and access to their consumers' data" when it drops Metavante for another vendor, Mr. McLaughlin said.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said that routing bills "is the Achilles' heel of operations. If you don't have the latest bill data, formatted in the way that the biller accepts, with the appropriate account numbers and routing numbers, then the bill payment can fail and there is a large cost in reconciling that."
Ms. Nelson said this is one reason Wachovia tries not to schedule conversions at the beginning or end of a month, because "that's such a heavy bill-pay time for the customer."
Michal Geller, the director of product management for the online banking vendor Digital Insight Corp. of Calabasas, Calif., said that 80% of his new customer wins are converting from another vendor. "We hand-hold the project as much as we can," he said.
He said that converting information is often a straightforward process. "Any data we can get out of the old product, we can put in the new product."
Bill Jones, a senior business analyst with Digital Insight, said his biggest challenge is converting customers' payment histories. "Both vendors typically have issues providing history," he said.
He said the sheer size of this database, of every payment by every customer, can significantly extend the time needed for a conversion, and that Digital Insight will often skip the step because online bill payments are already reflected in customers' statements.
Ms. Huffman said that most bill-pay features are easy to convert because they are static records. "With the payment history specifically - that hasn't changed, so that's a little easier in terms of data mapping from one system to another," she said.
Scheduled payments are also easy to shift to a new system - they are just names and dates. Problems can arise if one bill-pay system allows a payment frequency that another does not, but this is uncommon, Ms. Nelson said.
Chris Musto, a vice president for research at Watchfire GomezPro in Waltham, Mass., said banks must be careful when changing their bill-pay systems because the service drives other online banking activity.
"It tends to cause people to keep higher balances in their accounts" and "to cause people to stay with a bank longer," he said. "On some level there's always going to be issues" during bill-pay conversions.
