CheckFree-TransPoint embrace: A merger for merger’s sake

When you add it all up, few in the electronic bill presentment space seem worried about the $1 billion merger of electronic payment monster CheckFree and TransPoint, an EBPP joint venture between First Data Corp. and Microsoft with only a few billers onboard.

The effect of the merger, as described by CheckFree: In order to drive consumer adoption, Microsoft, First Data and CheckFree plan to advance interoperability among electronic billing and payment systems, as well as among other financial electronic commerce applications deployed on the Internet. CheckFree says it will continue to support billers using TransPoint’s Biller Integration Service (BIS) and EBPP for three years, supported through First Data’s Denver data center.

Hint at open exchange

The companies will work closely to develop open technology standards and simplify the overall service model. The result, they hope:

? Consumers will have more options to receive their bills wherever they choose on the Internet.

? Banks, brokerages and portals will be able to deliver bills from the combined biller bases of TransPoint and CheckFree without having to implement duplicate systems.

? Microsoft will become a major online EBPP service via MSN MoneyCentral and other non-disclosed online payment services.

Landscape has changed

Many EBPP and electronic banking companies know in their hearts that the landscape has changed, and not necessarily for the better. The Feb. 15 announcement that CheckFree will swallow up TransPoint has certainly left losers in its wake. Because CheckFree gained a scant few new billers, and not much in capitalization, it merely removed the other big player in the field, a competitor says.

CheckFree officials say they plan to use Microsoft to create “unique Web capabilities for consumers on MSN and MoneyCentral,” but EBPP executives say it’s all over for TransPoint. “CheckFree simply took out its competition,” says Brian Valente, vice president of marketing at Just in Time Solutions Inc. Just in Time provided Spectrum, another CheckFree competitor, with open financial exchange (OFX) and certification software. Just in Time is also a marketing partner with CheckFree. “Microsoft is exiting the market, and First Data’s electronic payment and reconciliation software will just die a natural death,” Valente says.

“TransPoint got no traction,” says Steve Greenwood, senior vice president of marketing for Princeton eCom. “They sold out for a lot of money so CheckFree could claim it’s the only end-to-end solution. CheckFree insinuated that TransPoint and Microsoft would focus on core competency, which is consumer software, and that could, in the medium to long term, be deemed competitive.” (Editor’s note: Billing Concepts nabbed 51 percent of Princeton eCom’s stock shortly after the CheckFree announcement).

Billers and financial institutions drive the issues

“The ones who drive the issues are the billers and the financial institutions,” one industry source says. “What [the merger] does is clarify the issues for the industry: deciding which business models will be used, what the role of the biller is, and who is going to serve as consolidators.”

The merger could help hasten the electronic payment industry’s move to OFX or another open protocol—if CheckFree keeps its promise to move to an open standard, that is.

Although Valente likes CheckFree’s talk about open standards, he is skeptical. “CheckFree should put their money where its mouth is,” he says. “The proof is in the pudding.”

The discussion about open standards or a single standard is one that dogs each sector of the industry, and electronic billing is no exception. The two schools of thought in this arena, however, fully expect an eventual migration to Integrated Financial Exchange (IFX).

Where OFX used to be narrowly focused on personal financial managers, the IFX forum is working on designing specs that can be used by different types of entities. Automated teller machine vendors are looking at it, as are consumer service providers, payment service providers and biller payment providers. The significance lies in the hope that all these parties’ servers will someday be able to talk to each other (see “EBPP: Standardization Seen as Critical,” Billing World, December 1999.)

Although CheckFree has a proprietary system known as CSAPI, it may work well between the worlds of IFX and OFX, bridging the two most common standards.

Will CheckFree create a hybrid standard that can accommodate both schools? “CheckFree will prevail, because their application programming interface is well-developed,” says Avivah Litan of the GartnerGroup. “CSAPI is optimized for billing with XML and OFX. There’s a new version they’ve proposed, to use XML with a little IFX thrown in. CheckFree will call the shots. To appease the industry they will support OFX 2.0 with XML and IFX functionality.”

Winners and losers

The clear winners: telecommunications companies and billers, Litan says. “Now billers don’t have to have two separate systems to contend with, and consumers can get more content because there will be more interoperability. For instance, MCIWorldCom and GTE had two interfaces each, one for CheckFree and one for TransPoint.”

Combining those systems will be easier said than done, Litan says. “If you look at TransPoint, it’s a very closed architecture, with no data or print stream transformation tools—the most important tools for putting these bills on the Internet,” she says. “TransPoint is also a closed NT system.”

The merger gives CheckFree a big lead on the market, Litan says. “Spectrum's much further behind than they were, because CheckFree has such an outstanding lead.”

Spectrum: Don’t count us out

Apparently someone forgot to tell Ron Braco, chairman of the board at Spectrum, that Spectrum is losing the race. “We already own the online banking customers, the majority of which are owned by the banks. We have the customer set that [CheckFree] has to deliver to.”

Spectrum, which has more than a dozen bank partners, will do little to change its business model in the face of the removal of TransPoint, he says. “Our model is somewhat a different model. We have a financial services-centric model. We don’t call on the billers. We believe it’s important to protect the competition that banks have with corporate clients, and the relationships with corporate clients. We don’t want to compete with financial institutions that could become partners, while CheckFree does that. Their model is to call out on corporate customers.”

Spectrum argues it’s already open

And, Braco argues, it remains to be seen whether CheckFree will adopt an open standard allowing a free market and connectivity to move electronic money along. He believes that Spectrum’s edge lies in its openness. “Spectrum uses an open model using published OFX documentation. Online vendors, all they have to do is use the OFX to hook up to us. We provide lots of vendor choices; all [banks] have to do is use the OFX specs.

“Our business plan is solid. We’ll have payment capability for presented bills by April, and our plan is to have a PayAnyone alternative by year’s end. We’ll be ready to move forward with IFX by year’s end. We’re not changing course with this.”

What role for BlueGill?

Telecom is an incestuous industry, and the Spectrum/BlueGill partnership underscores how mergers can raise uncertainty. BlueGill, which CheckFree bought last year, will create the interoperability between CheckFree and TransPoint for now. But it also built the e-commerce engine for Chase Manhattan’s internal bill movement system. “We have documentation that goes out to a technology vendor, BlueGill. We are built on BSP using BlueGill,” Braco says, Chase, keystone of the Spectrum triad, still uses that system to move electronic money internally. Will CheckFree cancel BlueGill’s support for Spectrum, CheckFree’s closest rival?

“We don’t know about BlueGill. We hope they will continue to support us in the future. We don’t want to speculate on it,” Braco says. “It is our understanding that BlueGill will retain some kind of independence.”

Bill presentment in embryonic stage

It is a constant thought on telecom managers’ minds: One day you have an ally, then suddenly the landscape shifts. The smart ones know that. “The bill presentment business is in the embryonic stage,” Braco says. “The battle line has just been drawn. We have a lot of room to grow in this business.”

But who will set the standards and direction of electronic bill presentment? In one corner are the banks, with their portals that let consumers pay their bills on one Web site. In the other is CheckFree, which handles the transaction and ensures that the customer’s credit card or bank account can handle the withdrawal.

Thick Vs. Thin

The merger harbingers other changes in the terrain. The average subscriber still doesn’t trust the Web for sending personal financial data, such as bank account or credit card information.

That issue is also close to telcos’ hearts. Do they send all their customer information to companies like CheckFree or Spectrum? Welcome to the world of thick vs. thin. Under the thick model, the billing and customer data is hooked to the consolidators’s Web site. With the thin model, the bill detail is at the telco’s site, which provides a comfort zone for carriers that like to retain control over customer information.

“The thick model is more popular with billers,” Litan says. “79 percent are using the consolidator model for consumer billing, and of that 79 percent, 47 percent use the thick

model. They like it better because of speed to market. But over time, [CheckFree] wants to go over to the thin model, perhaps over the next two or three years.”

All these questions will be answered in time. Companies like Just in Time and Princeton eCom, the banks and other financial institutions just want to see smooth movement of electronic money, without the expense of integrating multiple platforms, protocols and formats.

A common interface will make the world of online payment easier, and a single standard will lessen time to market for new services. Bill presentment and payment companies know that consumers must adapt to the electronic payment system if such services are to pay off. A seamless nationwide system could make that a reality, and finally make Web payments pay off for the billers.

“Customer use is still very low,” Litan says. “Will CheckFree be able to attract more people to accept online bill payment? They can’t lower fees until they add subscribers."

Once the dust settles, it may turn out that CheckFree and Spectrum could complement each other. “They both need each other,” Litan says. “The banks need CheckFree for bill payment. Spectrum needs bill distribution.”