Customer Systems Editor
In a billion-dollar deal that ignited the electronic billing presentment and payment (EBPP) market, CheckFree, First Data and Microsoft recently joined forces-a jarring move that shook up stocks, sent analysts scurrying and launched competitors in frenzied scramble for wider market alliances.
Though mergers may be deemed as quasi-humdrum occurrences in the energy sector, this is one of the first major mergers to hit the burgeoning and nascent EBPP market. And its effect, promises First Data Corp. chairman and CEO Ric Duques, “will impact consumers, billers and others, like the post offices.” The CEO added that the tri-star deal sought to focus on four primary goals: to heighten the “critical mass” of billers, advance application functionality, increase scale and transaction capabilities and draw greater domestic connectivity relationships between billers and walk-in billers, like post offices and Western Unions, “in this highly fragmented and competitive industry.”
If Duques is right, the move could profoundly affect how consumers pay for their bills-by cyberspace or snail mail-and who stands to glean a cut from each electronic bill. And, in one swift move, the February merger also heralded the “thinning” of the EBPP marketplace vendors.
“Overall, if these types of mergers continue to happen, and we think they will, they`ll leave fewer companies or vendors for utility companies to deal with, thereby making their EBPP decisions easier and quicker,” said Allison Bacon, an AMR Research associate. “In this merger, since both companies have such a large presence in this space, and with CheckFree`s relationship with Quicken and TransPoint`s relationship with MS Money Central, mergers like this could ultimately lead to a larger customer base for utility companies to reach. Plus, they won`t have to have duel relationships with these companies anymore.”
Terms of the mega-merger between the e-billing giants CheckFree (Nasdaq: CKFR), an EBPP provider, and TransPoint, an EBPP joint venture between First Data Corp. (NYSE: FDC) and Microsoft Corp. (Nasdaq: MSFT), included that all outstanding ownership interests in TransPoint, which are held by Microsoft, First Data and Citibank, will be transferred to CheckFree, and certain joint marketing agreements will be established, in exchange for 17 million shares of CheckFree`s common stock. Based on the closing price of CheckFree stock`s on Feb. 15, the transaction was valued at approximately $1 billion. And, when the transaction closes, Microsoft, Atlanta-based First Data and Citibank together will own 23 percent of CheckFree.
Promises for a “killer app”
As for how the companies plan to work together, CheckFree and Englewood, Col.-based TransPoint plan to join their technologies and resources to accelerate moving the billing and payment process from paper to the Internet. They also plan to advance the rate at which consumers sign up for electronic billing and payment by working together to make the service more familiar, easy to use, safe, reliable and more readily available to consumers.
Promising consumers a “very big killer app,” Pete Kight, chairman and CEO of CheckFree said of the merger: “By combining CheckFree`s electronic billing and payment expertise, First Data`s broad electronic payment and reconciliation leadership, and Microsoft`s software application and Internet expertise, we are aligning the components necessary to accelerate the move to the Internet to receive and pay bills. Our goal is to expand the use of electronic billing and payment so that it approaches 30 percent of U.S. households receiving and paying bills online by 2003.”
The companies said they plan to work closely to develop open technology standards and simplify the overall service model so that: consumers have more options and can receive their bills wherever they choose on the Internet; billers gain the broadest distribution possible without using multiple systems; consumer service providers such as banks, brokerages and portals can deliver bills from the combined biller bases of TransPoint and CheckFree without having to implement duplicate systems; and Microsoft will become a major online consumer retail provider for CheckFree`s electronic billing and payment services via MSN MoneyCentral and other (non-disclosed) online payment services.
Technology and interoperability
In a press conference, the companies stated that they were making a unified and strong commitment to utilizing and developing open financial exchange (OFX) and interactive financial exchange (IFX) technologies. Developed by Inuit, Microsoft and CheckFree, OFX (www.ofx.net) is an Internet-oriented client-server specification that features a direct connection between the client and the financial institution`s server. IFX, though only in Beta testing now, promises to offer richer graphics, response and transaction capabilities than electronic data interchange (EDI) and OFX. Both IFX and OFX have the capability to interact with extensible markup language (XML).
When the merger is finalized, CheckFree, Microsoft and First Data will collaborate on the development of new products and services, and use each other`s technologies. Some of these agreements include that the companies will work together to develop electronic invoicing and payment for Microsoft`s business-to-business (B2B) initiatives, as well as for future financial electronic commerce services, including the integration of First Data`s payment solutions.
CheckFree and BlueGill Technologies (acquisition pending) will utilize Microsoft technology to develop and deploy electronic billing and payment solutions, and CheckFree will capitalize on First Data`s electronic payment technologies, including processing, settlement and electronic remittance capabilities.
BlueGill Technologies, already a TransPoint software partner, will provide immediate interoperability between CheckFree and TransPoint electronic billing and payment systems. CheckFree, Microsoft and First Data said they promise to “bring interoperability to a new plane,” by helping EBPP to become an interactive channel that integrates with other web-based applications.
CheckFree will use Microsoft Windows NT(R) operating system and SQL Server(TM) database software in its development of electronic billing and payment solutions for billers, as well as Microsoft Windows NT and the Microsoft BackOffice(R) family in its data center. CheckFree also will support Next Generation Windows Services from Microsoft. CheckFree will utilize First Data`s array of electronic payment and reconciliation services.
Next stop: A post office near you
In an interesting twist of networked and streamlined business processes, these EBPP players are set to tackle the next big competitor-the post office nearest you. And it`s not only post offices, but Western Union offices that are on the plate to be integrated or expunged in the kill-or-be-killed world of e-billing. For instance, under terms of the merger, a recently signed agreement between Western Union and TransPoint will be transferred to CheckFree, potentially doubling the number of electronic connections CheckFree and TransPoint currently have in place.
“There may be opportunities to utilize First Data`s Western Union agent network of more than 82,000 locations, reaching 176 countries. First Data also has key agent relationships with 28 post offices, including German Post Bank and French La Poste, for example, that could further extend CheckFree`s international reach,” CheckFree`s Kight said.
Like money in the bank
As part of the transaction, CheckFree will receive an exclusive five-year relationship with Microsoft to provide electronic billing and payment technology used in applications and services Microsoft develops. During that time, Microsoft will guarantee a minimum of $120 million in revenue to CheckFree. First Data also will enter into a five-year relationship with CheckFree, during which time First Data and CheckFree will market and use each other`s products and services. First Data will provide at least $60 million in revenue and/or cost savings to CheckFree. First Data will sell CheckFree`s EBPP services to its customers, and CheckFree will use First Data`s electronic biller connections and EBPP products and services.
But prior to closing the transaction (and regulatory approval), Microsoft, First Data and Citibank will collectively contribute $100 million to TransPoint; all funds will be transferred to CheckFree at closing. Microsoft and First Data each will gain a seat on CheckFree`s Board of Directors. Selected for the positions are Ric Duques, chairman and CEO of First Data Corp., and Lewis Levin, who in addition to being president and CEO of TransPoint is a vice president at Microsoft.
Outsourcing: Letting the little guys play
In similar news, Atlanta-based Derivion, an e-billing application service provider, and CheckFree recently struck an agreement to pursue electronic billing and payment within the small and mid-tier biller marketplace. The agreement will leverage Derivion`s inetBiller as an e-billing offering for companies that want to provide e-billing quickly by outsourcing the process.
Offering a cost-effective solution for small and mid-size billers-previously out of reach for smaller companies-the new enablement engine and CheckFree`s e-billing distribution points bring e-billing to minor EBPP players.
“The agreement with CheckFree is an important acceleration in our strategy to provide small and mid-tier billers with a turnkey solution that delivers ultimate flexibility and options,” said Greg Rable, Derivion`s CEO. “Derivion customers will now have additional high-visibility destination points on the Web including Yahoo!, Quicken.com, Charles Schwab, BankOne, and many others.”
Avivah Litan, research director at GartnerGroup`s Financial Services said that outsourcing is a popular option among billers presenting consumer bills on the Internet and is used by 40 percent of those already presenting bills on the Internet. She also explained that the use of low-cost and fast-to-implement outsourcing services will grow considerably in the next year, as nearly half of all major U.S. billers recently surveyed by the firm will be presenting customer bills on the Internet by the end of 2000.
Who will choose EBPP`s 800-pound gorilla?
From the utility industry point of view, said Guerry Waters, vice president of META Group`s energy information strategies, “Most of the electronic billing and payment solutions have been treated as pretty ho-hum by the industry. But we think that sooner of later the customer will decide, so the energy utility companies need to be prepared to do business with any of the EBPP companies or payment portals, Yahoo!, Quicken, or whoever. In the end, energy utility companies need to be prepared to be driven by customer choice.”
So as surely as “merger mania” will continue to sweep across the energy industry and downsize the EBPP players, the only question left remaining is: Who is destined to become the 800-pound gorilla in the clearing landscape of electronic billing and payment?