The Battle To Be Your Online Bill Collector
Every year, American business sends out 29 billion bills. And by any measure, the exercise isn't much fun. For companies, printing, processing and posting a typical consumer bill runs about 90 cents. And for recipients, there's not only a demand for payment, there's a wad of solicitations that nearly everyone throws away.
But for banks trying to make it on the Internet, bills are cool. Bankers see bills as surefire eyeball-grabbers in an environment where it's tough to command consumer attention--and a key to protecting their existing business managing cash for big companies. Increasingly, banks are battling high-tech competitors for control of Internet billing, or electronic-bill presentment, as it is called.
To be sure, this is a fight over a business that is in its infancy. Few bills are now sent via the Net, and online payment systems often involve a paper check. But the technology exists to send bills from businesses to customers and route payments back on the Net. By the end of next year, industry analysts estimate upwards of 4.5 million households will be receiving bills online. What's more, sending and handling bills over the Net should be about 40% cheaper than paper delivery, says the Gartner Group, a research firm in Stamford, Conn.
SLOW TO ACT. The question is who will become the bill collector on the Net. Bankers reckon that if they can turn their Web sites into mailboxes for electronic bills, they can become key entry points on the Net--portals, even. That would enable them to sell other financial services online. The fear is that existing portals, such as Yahoo! or even America Online, will become centers of bill payment and, in turn, siphon off existing bank businesses. "Banks have been slow to get into this," says Kenneth J. Kerr, a Gartner analyst in Durham, N.C. "But they realize there is a threat here and they need to get aboard."
Banks have their advantages. They can offer customers simultaneous access to their bills and their money. Banks have long relationships with billers, such as utilities and retailers, and centuries of experience in protecting people's money. "Payments are our core business and we are not yielding this space to anyone," says Joseph G. Sponholz, Chase Manhattan Corp. vice-chairman.
The obvious appeal of Internet billing is the contact it offers with consumers. "Mass adoption of electronic bill presentment represents a billion-dollar advertising opportunity," says Neil Lustig, director of electronic-commerce solutions at IBM, an active player in Net billing. Lustig predicts Internet bills will be tailored to the customer. A bill for a sweater, for instance, could include an offer for matching slacks. But doing this right will require marketing savvy--a quality few banks have demonstrated.
MUSCLING IN. Big banks also are worried that technology companies offering bill presentment could muscle into one of their fastest-growing businesses--managing cash for big companies. After all, distributing and collecting bills is a close cousin to cash management.
Last month, the battle over Net billing took a bruising turn. CheckFree Holdings Corp., a Norcross (Ga.)-based tech company that delivers bills on the Net, wound up pulling a secondary stock offer after a coalition of Chase, Wells Fargo, and First Union said they were forming a venture--the Exchange--to route bills to their customers. Investors saw a challenge to CheckFree, and the company paid dearly. On June 21, CheckFree had sold 3.8 million shares to investors at $39 each. But by June 23, CheckFree's shares had plunged to $28.75. The company canceled the sale the next day.
Exchange officials said the timing of their announcement was coincidental. But CheckFree's chairman and chief executive, Peter J. Kight, said Chase--which is still a CheckFree customer--had been upset with his company's efforts to offer bills through Net portals. "Chase didn't want us to do it," he says.
At this point, predicting how the industry will shake out is premature. Banks and technology companies already have formed several alliances aimed a delivering bills on the Net. More combinations are likely. What's clear, though, is the banks know they are running out of time to get their Internet billing act together.
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