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CheckFree dives as competition looms

Shares of CheckFree Holdings (Nasdaq: CKFR), which provides electronic billing services, tanked 22 percent, down 8 7/16 to 29 1/4 Wednesday on fears that the company would be squashed by competiton from traditional banks.

CheckFree was hammered following a press release that announced a new company to compete with the leader in online billing.

Chase Manhattan, First Union and Wells Fargo plan to form a new company, called The Exchange, to meet growing consumer demand, and accelerate the adoption of online bill presentment. Based on an operating platform from Sun Microsystems, The Exchange will function as a hub, allowing members to route electronic bills through a single connection to other members of The Exchange. Upon receiving the bills, these members will, in turn, deliver them to customers.

The new company is "nothing that threatens CheckFree," said CEO Pete Knight in a 2:30 p.m. EDT. conference call. He admitted surprise that Chase Manhattan, First Union and Wells Fargo, which are clients of CheckFree's services had embarked on the venture to compete with them for billing clients. But he believes CheckFree can ultimately benefit since, the more players involved, "the larger the market will get." He sees the venture as "a significant opportunity to work with these banks," which currently account for just under 20 percent of CheckFree's revenue.

"The market is overreacting," said Steve Olsen, an analyst with Pacific Growth Equities. Olsen said CheckFree is a bargain with today's dip.

Olsen said says the scope of The Exchange's competition with CheckFree is narrow. "CheckFree's value added is its ability to do payment as well as presentation, and CheckFree still has the best distribution," he said.

This is not the first time CheckFree has taken a blow on the markets. It has recovered from a low following a series of downgrades and a lawsuit last March.

Integrion, governed by Bank of America, Bank One, Washington Mutual, and Visa, also plan to use The Exchange, which is scheduled to begin operating by year-end.