ORLANDO - Wachovia Corp., once a strong advocate of running its own bill-pay service, has abandoned that strategy. Last week Lawrence Baxter, its chief e-commerce officer, talked about why.
The main issues were cost and customer service, he said in a speech at the Bank Administration Institute's Retail Delivery conference here. "We weren't very good at managing the user interface and meeting customer requirements."
Wachovia is in the midst of a major overhaul of its Web site. In July of last year it said it would shift to online banking software from Corillian Corp. of the Hillsboro, Ore., and a bill-payment service from CheckFree Corp. of Atlanta, the industry leader.
Last week it began putting new online banking customers on the Corillian software; current customers are to start moving over next month. New bill-pay customers have been using the CheckFree service since March; Wachovia plans to begin moving others in three phases, starting in February.
Mr. Baxter, an executive vice president, said routing payments was fairly straightforward but exceptions proved expensive. If a bill payment does not reach its destination, customers expect the bank to fix the problem, and doing so can easily cost more than $20 of call-center staff time and resources.
The Charlotte company has 3.2 million online banking customers; 1.5 million of them have enrolled in the bill-pay service, and 700,000 of them use it regularly. In the 12 months ended Sept. 30, it processed more than 66 million online bill payments, worth more than $25 billion. Mr. Baxter said usage is growing "at a substantial rate."
Mr. Baxter said Wachovia is approaching the conversion of bill-pay customers very carefully, because glitches could spur defections. "We can't make a mistake without having consequences to the company as a whole," he said. "It can cost hundreds of thousands if you don't do it right."
Many studies have found a correlation between online banking, especially online bill-pay, and higher balances. But Mr. Baxter said that is true only for customers who are satisfied with their bank's service.
"It's a little harder to prove customers will increase their balances if they love us," he said, "but it's relatively easy to prove that they will reduce their balances if they are unhappy with us."
One irony in Wachovia's signing up with CheckFree is that in 1999 it co-founded what was supposed to be a bank-owned alternative to CheckFree - a bill-payment switching network called Spectrum EBP LLC.
But Spectrum, whose other partners were Wells Fargo & Co. and Chase Manhattan Corp., never really caught on. Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., bought it in 2002.
Mr. Baxter said Wachovia's experience shows that banks cannot run a bill-pay service as well as a vendor dedicated to doing so.
"This is such a sophisticated business that we would rather benefit from the common enhancement that we get from CheckFree than cut off our nose to spite our face," he said.
James Van Dyke, the principal and founder of Javelin Strategy and Research of Pleasanton, Calif., said that many have come to the same conclusion. Electronic-payment processing vendors, such as CheckFree, Metavante, and Princeton eCom Corp., are likely to keep getting customers, he said.
Bill payment "is becoming a very specialized, commodity business - it's definitely a scale business," Mr. Van Dyke said. In the future, he said, providing such capabilities in-house "would make about as much sense as a bank having its own power generating plant."
Matt Lewis, an executive vice president at CheckFree and the general manager of its electronic commerce division, said that biller sites are currently more popular than bank payment sites. But he said that the consolidator model, which enables people to pay multiple billers from one Web site, is gaining ground.
As more people begin paying their bills online, more of them will do so at bank sites, Mr. Lewis said.
"We host more biller-direct sites than anyone else in the country," he said. "Consumers are willing to endure multiple bill-payment sites up to three or so; after that they disappear from the biller-direct sites and reappear at financial-institution sites."
