Yodlee Inc. says its online bill payment customers have found a way to turn a profit on one of its services.
The Redwood City, Calif., vendor says some banks are covering the cost of its DirectPay service, which lets consumers use credit cards to pay bills through a bank Web site, through the interchange the transaction generates.
Fiserv Inc. also is testing cards as an online bill-payment strategy, although it is taking a different approach, based on building card balances and charging interest.
Analysts said that DirectPay would appeal primarily to large card issuers, and that most banks are likely to seek other ways of making money from bill pay, such as fees for expedited payments.
Bankers "can completely obliterate the cost of bill pay in general and then begin to turn a profit," Joseph Polverari, Yodlee's senior vice president of strategy and development, said in an interview Tuesday. For some customers, "if the cash flow positive does not exist today, which I actually would submit that it does, it will exist in the near term."
Yodlee introduced its bill payment service, based on its account-aggregation technology, in August 2003 and began processing card payments in November 2004.
DirectPay lets consumers use their bank's site to make a card payment to billers that accept cards, either through screen-scraping or a direct link to the biller. However, the bank can require customers to use cards that it issued.
Mr. Polverari said Yodlee has about 10 bank customers for its bill services, but he would not name them or say how many use DirectPay, except to say that "the majority" use that service or plan to. Yodlee said it has 300 billers available through DirectPay, representing 40% to 50% of consumers' bill payments, he said.
The company said the average bill payment made through DirectPay is $140. At that price, the interchange on two payments per customer would be enough to offset the cost of its non-DirectPay services, it said.
One of those services, where payments are executed as automated clearing house transactions, supports 4,000 billers, Mr. Polverari said. "We can make bill payments to the same places anyone else can make bill payments electronically."
Todd Lesher, the executive vice president and general manager of e-commerce banking services for Fiserv Inc.'s Internet banking and electronic payments group, said it is working on a way to give banks interchange revenue from online payments to the approximately 100 billers that have relationships with Fiserv's BillMatrix Corp.
But even though "some of the issuing banks are much more focused on the direct economics that they get from interchange," that method does not appeal to all banks, nor to billers, which pay the fee, Mr. Lesher said.
So a year and a half ago, Mr. Lesher's unit (then CheckFree Corp.) adapted its system to let banks put bill payment balances on credit cards without generating interchange, because the biller receives the transaction as a check or ACH payment.
"It's still allowing the issuing bank to build those balances," he said.
Two banks are testing that system today, Mr. Lesher said, though he would not name them.
Gwenn Bezard, a research director at Aite Group LLC of Boston, said that Yodlee's pitch makes sense, but the company faces some challenges.
"The business case is certainly straightforward. … There is no question it could help alleviate the cost," Mr. Bezard said.
However, online services have become so important that most bankers are likely to be cautious on a new approach.
Jennifer Roth, a senior analyst at the global payments practice at TowerGroup Inc. of a Needham, Mass., independent research firm owned by MasterCard Inc., agreed that interchange will help offset the cost of bill pay, but "I am not convinced yet that it is going to be able to completely take that out … at least not in the next few years."
The biggest bills — those that could generate enough interchange to make a difference for the bank — are likely for billers that do not take cards, such as mortgage and other consumer lenders, Ms. Roth said. "You can't pay a credit card with a credit card. The majority of the ones that are doing the credit card transactions are your telcos and your cable companies."
