On the heels of Yodlee Inc.'s announcement last month that it is offering a next-generation bill-payment service, CheckFree Corp., the dominant provider in that market, has stepped up with details about a plan of its own - specifically, it aims to introduce a service similar to Yodlee's next year.
As their respective vendors describe them, both services would enable people to pay bills online with credit or debit cards, as well as the automated clearing house network. But that's where the similarities seem to end. The two companies have taken very different approaches to working with billers, and these differences highlight a growing rivalry between them.
CheckFree plans to tout its service as a last-minute payment option, and it is cooperating with billers to ensure that users would avoid late fees. Users would pay a processing fee, which CheckFree would share with banks and billers, in part to offset the interchange for the card payments.
Yodlee, in contrast, has developed its software with cooperation from fewer billers. It is also promoting last-minute payment capabilities, but it will not charge users a fee, though the billers must still pay interchange to accept the card payments.
Jeff Weikert, the senior vice president of CheckFree's consumer service provider business unit, said in an interview last month that billers are not eager to pay interchange fees, especially for payments that are not initiated at their Web sites.
A critical aspect of the service will be the "convenience fee" users will pay, "whereby all constituents in the process can benefit," Mr. Weikert said. "We work with our merchants to make these expedited and emergency payments exist. It's not a forced interchange on them. It's not something that will surprise them."
Bill payment, one of the most popular online services, has long been an expense for banks, which offer it for free and cover the cost of initiating millions of automated clearing house transactions in the hopes to retaining customers and persuading them to use other banking products and services.
Yodlee's BillPay software, which is being marketed to banks, flips that model, by using cards, which requires the billers to pay interchange to accept the payments. In addition to touting its last-minute payment capability, Yodlee highlights the notion that issuers will receive the interchange fees, and that banks can convert online bill payment from a significant cost to a potential source of revenue.
Consumers can also send the payments over the ACH system, but Yodlee has said that people would prefer to use their cards, so they can earn reward points.
Several companies offer software that sends payments across the ACH networks, but CheckFree is the dominant provider by volume. Yodlee is a relative newcomer to the market - BillPay is not running anywhere yet, and two applications it unveiled last year, BillDirect and CardDirect, have only three customers. These also route payments through credit card networks in addition to the ACH system.
However, CheckFree has clearly taken notice. To bolster his claim that merchants will oppose Yodlee's model, Mr. Weikert referred to research his company commissioned from a polling company last year when Yodlee introduced CardDirect. The poll asked 30 CheckFree customers, whom Yodlee had listed as willing to accept payments through CardDirect, about their role in Yodlee's system. Of the 10 billers that responded, nine said "they weren't even aware they were working with Yodlee," he said.
Yodlee's core technology is aggregation - gathering data from a variety of Web sites and presenting it on a single page. The basic idea behind BillPay is finding biller sites willing to accept card payments and giving banks the data they need to route customers' card transactions to those billers. Yodlee does not need to work with billers to establish these payment channels, and it often does not, according to CheckFree's research.
Many billers accept payments through their Web sites up to the day the invoices are due, and they will credit a customer's account when they initiate the transaction, even though it will not settle for several days.
Mr. Weikert said that CheckFree is working with billers to get guarantees they will not impose late fees. The CheckFree system will also permit people to send payments through the ACH system.
Peter Hazlehurst, Yodlee's senior vice president of product development, said the Redwood City, Calif., company has developed proprietary software, SiteTracker, that checks billers' sites constantly, to ensure they are ready to accept card payments. The software also can prioritize broken connections by measuring how many Yodlee users they affect.
The vendor also operates forum.yodlee.com, an online community for Yodlee users to suggest more banks and billers for the payment service and report broken connections.
Still, there is value to cooperating with billers, he said. Yodlee has some biller relationships similar to those established by CheckFree, and it hopes to establish more.
CheckFree works with more billers than Yodlee does "because they've been doing it a little longer," he said.
Bankers also say that cooperation between billers and payment providers is important.
Keeping billers happy "is very important," said David H. Stone, the director of customer experience and support for Wachovia Corp.'s online business. "The relationship between the payment processor and the biller is critical for us, long-term."
The Charlotte company uses CheckFree's bill-payment software, and it uses Yodlee's online aggregation tools to provide customers access to data from other financial companies.
Andrew Peterson, the director of consumer e-commerce and Internet solutions at Sovereign Bancorp Inc. of Philadelphia, said CheckFree works with billers to hold down its costs. The company "can negotiate the rates and transfer the cost savings to us, so I think it's a good thing." Sovereign also uses CheckFree's services.
Cathy Graeber, a principal analyst at Forrester Research Inc. of Cambridge, Mass., said the difference between the two approaches is most visible when a customer has a complaint.
Under the Yodlee system, consumers must contact the biller and present a payment confirmation code that Yodlee retrieves from the biller's site for the consumer. However, she said that consumers who initiate payments through bank sites will contact their banks first when they have a problem, and Yodlee's system does not provide the banks with information to help them resolve the problem.
Since CheckFree works directly with more billers, it can give banks the information they need to track the payment and help the customer, Ms. Graeber said.
Also, late-payment fees are a source of revenue for billers, and they likely will not welcome a service such as Yodlee's, which could cut into that revenue.
Still, there is one place where she said Yodlee's system has a clear advantage over CheckFree's: "With Yodlee's scraping capability, you can get a ton of bills" that billers do not offer to CheckFree.
