Online Resources Corp. is working to enhance its online bill payment system and use the technology driving it to improve its offerings in areas like customer retention and collections.
Matthew P. Lawlor, the Internet banking services provider's chairman and chief executive, said it is seeking to improve risk management for the banks by accelerating payments while helping customers avoid insufficient funds fees.
"Consumers want speed of payments, and they want certainty of payments," he said. "They want it done as quickly as possible - not three to five days, but within a day. And second, they don't want to ever get an NSF, ever."
Financial institutions also want certainty about when they will receive funds, he said, so Online Resources is enhancing its Web-based collection service so that it will guarantee fund availability before approving a payment. Mr. Lawlor said he had no target date for introducing the enhancement.
The collection service uses technology it acquired in late 2004, when it bought Incurrent Solutions Inc., which specialized in providing online hosting services for credit card accounts.
Mr. Lawlor said he wants Online Resources to use the same technology for collections that it developed for online bill payment.
These services rely on Online Resources' approach to online bill payment, which differs from that of other major providers.
Most online bill payment systems use the "good funds" model or the "risk" model. Both typically debit consumer accounts using the automated clearing house system; they differ primarily in the time between when money is drawn from the customer's account and when a payment is sent to the merchant.
The issue of which model to use gained some prominence last month, when Bank of America Corp., the nation's leading online banking provider, shifted its bill payment to the risk model, costing its vendor, CheckFree Corp., some float income it had received under the good funds model, in which it held consumers' money overnight.
Instead of using either of those models, Online Resources withdraws money from consumer accounts using what are essentially PIN-less debit transactions. Its patented system uses an electronic funds transfer network like the ones that drive automated teller machines, Mr. Lawlor said.
"We piggyback on the ATM network architecture out there," he said. "It took us six to seven years to build out" its network.
Just like ATM and point-of-sale debit networks, the Online Resources system can check the availability of funds immediately. This setup is designed to ensure that payments do not bounce, and consumers are not charged insufficient fund fees.
"NSF is important, and it's a good source of revenue for our clients, but this isn't the way to get it," he said.
If Online Resources' system observes that a consumer's checking account does not have enough money to pay a bill, it can suggest using a credit card account or credit line held with the same bank.
"Ninety-five percent of the time, it's already there," Mr. Lawlor said. "Most people have lines of credit backing up their accounts."
He said this also presents an opportunity to sell a credit line to a checking customer, but since so few customers lack one, it is a low priority. Still, "that's where we're going," he said.
In this way, he said, the system is designed to "help our clients deepen the relationship" with consumers. Even though it does not try to cross-sell a credit product, it may be enough to prompt the consumer to use the Online Resources customer's credit account instead of a competitor's, he said.
The company also is developing a way to use the PIN-less debit method for real-time credits. It plans to start selling that capability in the second half of 2006 as an expedited payment product.
Mr. Lawlor said such services could help differentiate his clients in the minds of the consumers. "You don't stop with just a simple bill payment model."
Payments - including those to individuals that must be made by check - are delivered to the recipient in 1.8 days, on average, he said. By yearend, he said, Online Resources anticipates cutting the average to 1.5 days.
Beth Robertson, a senior analyst at MasterCard International's TowerGroup Inc. research unit in Needham, Mass., said Online Resources' method of bill payment is faster than the one most companies use, but still slightly slower than the one used by CheckFree, the online bill payment leader by volume.
Online Resources' system most resembles the good funds model, which waits until an ACH withdrawal is complete before sending money to the biller, she said. However, "they can accelerate the whole process as one would in a risk model," in which the payment is sent to the biller before the bill payment provider receives the funds.
"Because of these attributes, it really does offer a good combination" of both models, she said. "Nobody has the type of extensive network that Online Resources has."
She said she is not surprised that Online Resources is developing a collection service alongside an expedited payment service. "A lot of the firms that offer expedited payments also offer collection services," because the two services can run on the same transaction systems.
