Spectrum EBP LLC is offering a pay-anyone capability, pitting itself more firmly against CheckFree Corp.
Spectrum announced Thursday that it had formed an alliance with Metavante Corp., formerly M&I Data Services, to provide a pay-anyone electronic bill payment service on an outsourced basis. Terms of the agreement were not disclosed.
CheckFree and other bill payment and presentment companies have made this feature available for some time, so analysts took the news about Spectrum as yet another sign that the company still has some catching up to do.
Since its creation by banking giants Chase Manhattan Corp., First Union Corp., and Wells Fargo & Co., Spectrum has been taking knocks for coming on the scene too late and not getting up and running fast enough. On the other hand, experts point out that electronic bill presentment and payment is still a nascent service with meager consumer demand, and the Spectrum banks say they see no problems with the schedule they have set forth, and are making rapid progress as planned.
"This is an enhancement to complement the switching capability we have," said Ronald Braco, chairman of the Spectrum board and a senior vice president at Chase. "We are giving our members another alternative to pay bills that are not necessarily paid electronically."
Spectrum's switch - which connects consumers and billers - at Chase Manhattan in Houston has been operating since last October. The three founding banks are all up and running on the biller side, and Wells Fargo is up and running on the consumer side. "First Union and Chase have been sending bills that are being received by Wells," Mr. Braco said. By fall the consumer lines should be open at First Union and Chase as well, he said.
These three banks represent a combined 400 million bills yearly and four million home banking customers. Spectrum is processing a "small number of bills right now," but as more banks join Spectrum, Mr. Braco said, the volume of bills will grow. Seven more banks have signed participation agreements with Spectrum, and 15 others have signed letters of intent to join.
As these financial institutions build their own electronic bill payment capabilities, Spectrum will certify them to use its service. Spectrum "becomes more compelling" as more banks join, Mr. Braco said.
Some analysts called Spectrum's pay-anyone capability an insignificant announcement. "Frankly, it's embarrassing," said James Van Dyke, a senior analyst at Jupiter Communications in San Francisco. "It's like Spectrum set out to build a car. To me, this pay-anyone capability is like it's saying, 'now we have tires,' which is something it absolutely cannot live without. The only question is what took it so long?"
Mr. Van Dyke said pay anyone is considered a standard capability that Spectrum's competitors - such as CheckFree, Princeton eCom, and Online Resources and Communications Corp. - already offer. But, he said, considering the resources of Spectrum and its founding members, "it certainly poses a threat to CheckFree. So far, it has not shown the speed and possibly the mandate from its founding organizations to move quickly and autonomously."
Spectrum has been run out of the New Jersey consulting firm of Carmody & Bloom by one of the principals, Liam Carmody, but that could soon change. Spectrum is looking for its own office and a full-time management team, Mr. Braco said.
Mr. Van Dyke said, "That's something that needs to happen. The future is potentially very optimistic for Spectrum."
CheckFree has offered pay-anyone services on the Web since 1995. For seven years before that, it had been publishing bills through personal financial management software. CheckFree has 200 financial institution partners, 3.5 million subscribers, and 93 billers. It processes about 16 million payments a month. It also has contracts with all three Spectrum founding banks and, in the past six months, it has extended its contracts with Wells Fargo and Chase.
"This announcement does not adversely affect our long-term contracts," said David Fontaine, director of public relations at Atlanta-based CheckFree. CheckFree handles remittance processing for Chase's electronic bill payment service, and provides electronic billing and payment for Wells Fargo and First Union.
"The CheckFree model is different" from Spectrum's, Mr. Braco said. "It's all a question of who's calling on billers and consumers, who has a relationship with portal sites, and what's your philosophy around banks."
Spectrum offers a bank-centered model. "We offer richer services at lower cost to banks, to encourage more of the industry to help consumers become aware of home banking and to use it," Mr. Braco said.
The benefit of working with Metavante, he added, is that Spectrum can offer financial institutions "attractive pricing, a great service, and faster bill payment."
It also "ups the ante relative to the competition," Mr. Braco said. "When you're No. 2, you've got to try that bit harder." The arrangement should also "be helpful from the consumer point of view," he said.
A connection between Spectrum's switch in Houston and Metavante's host system in Milwaukee will be transparent to consumers, which means that all the billers whom people designate on their home banking programs - such as a gardener or a hairdresser - will get paid either electronically or by paper check. Metavante will cut the paper checks.
Metavante, the technology subsidiary of Marshall & Ilsley Corp., provides electronic bill payment products and services to more than 1,800 financial services providers. It is the second-largest provider of electronic bill payment services, after CheckFree.
Metavante could not comment on the announcement because it is in a quiet period prior to an initial public offering, a spokesman said. However, Scott A. Smith, a vice president at Lehman Brothers in New York, estimated that Metavante processes between 500,000 and one million bills a month.
Following the announcement, Lehman reiterated its "buy" rating on CheckFree's stock as the "industry's clear leader in terms of subscribers, financial institution partners, transactions processed, and revenues."
Mr. Smith said the announcement was a "tremendous" validation of electronic bill payment. "The industry will take off," he said. "This could develop into person-to-person and person-to-merchant payments."
Spectrum is continuing to make enhancements to its switch. It is committed to building a bill payment and presentment platform based on an Interactive Financial Exchange (IFX), while maintaining a service to participants through the current Open Financial Exchange (OFX) presentment switch.
"IFX gives billers more information about remittance of bills and payment flow," Mr. Braco said. "It will be a dramatic improvement over OFX today. If financial institutions write to OFX or IFX specifications, they can connect to Spectrum."
