Online Resources Corp. says the most substantial benefit of acquiring the bill-payment rival Princeton eCom Corp. is the ability to execute last-minute payments from its bank customers' Web sites.
Though last month's acquisition leaves Online Resources far behind the bill-payment leader, CheckFree Corp., it creates much tighter competition for second place.
In buying Princeton eCom, "the No. 3 guy and the No. 4 guy got together to become No. 2," moving ahead of Marshall & Ilsley Corp.'s Metavante Corp., Matthew P. Lawlor, Online Resources' chairman and chief executive, said in an interview last week.
Beth Robertson, a senior analyst at MasterCard International's TowerGroup Inc. in Needham, Mass., said it is "very likely" that Mr. Lawlor is correct.
However, "it's hard to say for sure" who is No. 2, she said. "I would say that they're very close, if they haven't already achieved it."
Metavante and Online Resources both handle 16.7 million payments a month, though Online Resources' figure includes only bill payments, while Metavante's includes things such as automated balance transfers, Ms. Robertson said.
Regardless of which company holds the No. 2 spot, neither one is close to CheckFree, which averages 100.7 million payments a month, including walk-in payments, she said. Before the acquisition, Princeton was No. 3, and Online Resources was No. 4.
Most vendors agree that the best way to raise transaction volume while bringing in fees is to provide last-minute payments for a fee while keeping other payments free.
Yodlee Inc. says the bill-payment software it began selling this summer can provide instant confirmation from billers, but the Redwood City, Calif., vendor, a specialist in account aggregation, does so through the tools that billers provide on their own Web sites. Relatively few of the billers that Yodlee lists as payees have directly negotiated relationships with it.
CheckFree has promised a last-minute payment service next year for banks. (It inherited a similar service for billers when it bought PhoneCharge Inc. of Ansonia, Conn., in January.)
For its bank service, CheckFree is negotiating directly with billers; it plans to share part of the last-minute fee with billers in exchange for their cooperation.
"Everybody's talking about it," Mr. Lawlor said. "It's no secret, and it's a good idea."
Online Resources has been working on an instant payment system, and expects to introduce it in the first quarter. Buying Princeton eCom made that expectation all the more certain, he said.
"With Princeton, we not only get that real-time - we deploy it much faster," Mr. Lawlor said.
Princeton eCom's 1,600 biller relationships gives Online Resources' emergency payment service a critical mass of 40% to 50% of online billers participating in its last-minute payment service during the first quarter, he said.
Online Resources initially planned to negotiate with Princeton and other providers to establish guarantees for last-minute payments that Online Resources initiates from bank sites. Buying Princeton eliminated the need to negotiate many of those connections, Mr. Lawlor said.
After the acquisition, "we believe half of the electronic payments coming out of our platform are captive to our network," he said.
Because Online Resources now owns numerous relationships with billers as well as banks, it needs to promise payments only to itself, rather than negotiating and testing connections with other providers - a process that could have taken three years, he said.
Since Online Resources debits money from a user's account over the automated teller machine network, it has instant access to the funds. It does not credit funds this way, so payments still take a day or more to get to billers through the automated clearing house network or other means.
But when a vendor had a relationship with the bank and the biller, that single debit is enough to guarantee that the payment is on its way.
The last-minute system still needs to be tested, but buying Princeton cut through many of the bureaucratic delays, Mr. Lawlor said.
CheckFree has recently talked up its own plans for emergency payments, but it downplayed their importance in an earnings conference call last week.
"The expedited payment market is a finite market," Pete Kight, CheckFree's chairman and chief executive, told analysts and investors. "That's a good, high-dollar business, but it isn't huge."
Executives from CheckFree and Metavante declined interview requests for this article.
Fiserv Inc. announced last week that it would provide its own bill-payment service for institutions that use its core processing products and services. The Paytraxx service is based on the PayIt software it offers for credit unions.
Kim Killingsworth, the senior vice president and general manager of the Paytraxx business unit, said the Brookfield, Wis., vendor plans to add the last-minute payment feature its service in the fall. "The reality is the expedited capability is only good for the biller relationships that you own," he said. "You're going to have to do it with more than just the billers you have."
Ms. Robertson said she expects heavy competition for this business, and Online Resources' speed in delivering the service to banks may not give it a long-term advantage, she said. "It's not going to be that everybody else is caught in the dark and not trying to do the same."
