E-Billpay Tug of War: Banks and Billers Vie for Top Role in Replacing Checks with E-Payments. the Cleveland Fed Spearheads a Back-to-Basics Alternative

A milestone passed almost unnoticed late last year. For the first time ever, people and businesses made more payments over electronic channels than by writing paper checks--44.5 billion to 36.7 billion, according to the comprehensive 2004 Federal Reserve Payments Study published in December. The milestone actually was reached in 2003, which was the latest data the Fed had, and no doubt has receded further into the distance by now. The Fed estimates that between 2000 and 2003, the total number of noncash payments grew at a compound annual rate of 3.8%, which was faster than the gross national product but a little slower than personal consumption. In that period, the number of checks declined by 4.3% annually. Of the electronic payments, automated clearing house payments grew by 50% over those years, edging out the 45% growth in various types of plastic credits and debits. In a separate tally, the National Automated Clearinghouse Association reported that in the third quarter of 2004, ACH debits grew faster than ACH credits, due mainly to a 500% growth in accounts receivable conversions (ARCs). These figures indicate how the payments industry is adapting to a new era dominated by electronics. The transition is still in a developing phase, so banks and their service providers are placing their bets on which alternative(s) will win the hearts and wallets of consumers. For consumers, many options To quickly recap, the story so far: CheckFree, still the dominant player in the arena, is nearing the third decade of its campaign to get billers and customers to use the system. If a biller is not set up to receive an electronic payment, CheckFree cuts a paper check and sends it by mail. As recently as five years ago, about half of the payments were sent electronically and half by mail. Today, 83% of CheckFree-processed payments are handled electronically, end to end. That may be the industry's highest all-electronic percentage, although all providers now have historically high electronic rates. Consumers pay their bills mainly from their banks' websites, entering the amounts owed from bills sent in the mail. CheckFree and a handful of full-service competitors--Metavante, Princeton eCom, Online Resources, and Fiserv--offer nice packages of options for a bill-paying consumer. Among them: * Single sign-on to a website for all the billers the consumer deals with. She only has to enter the amount and click Pay. * Indicate a future date for payment, thereby avoiding the need to sign onto the website on exactly the days she wants to make the payments. * Specify recurring automatic payments of the same amount every month. * Integrate--though not always seamlessly--pending payments into her account register. What could be sweeter than all those time- and stamp-saving features? How about this: What if billers were able to send their statements directly to the consumer over the internet and onto her bank website? The consumer could see all the details of any statement simply by clicking on a link to the biller's website--if there is one. No more a messy stack of paper statements. Thus was born EBPP, electronic bill presentment and payment, the paradigm that is now called the consolidator model of bill payment at a bank's website. For billers electronic bill presentment would cut costs--chiefly printing and mailing monthly statements. A disappointing start With some exceptions, however, the presentation part of the consolidator model hasn't worked out anywhere near as well as expected. Consumers find that it wasn't much of a boon to have anything less than all of their bills presented at their banksites. And all may never happen. Think dentist or gardener, who won't automate their receivables. And there are inevitable glitches in getting the correct electronic addresses for the lockboxes of big corporate billers, plus the absence of universal standards of interoperability. …

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