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Banks buy into electronic bill paying

Consumers have been reluctant to say "the check is in the email." But that may change following several recent efforts to kick-start the electronic bill-paying industry.

Consumers have been reluctant to say "the check is in the email." But that may change following several recent efforts to kick-start the electronic bill-paying industry.

In the most recent example of the industry's push to get consumers to pay their bills online, 11 major U.S. banks said yesterday they will join a banking consortium called Spectrum.

Formed in June by Chase Manhattan Bank, First Union and Wells Fargo, Spectrum will act as an exchange to route electronic bills between banks and their customers. Some of the new Spectrum members include Comerica, Mellon Financial and Wachovia.

Sun Microsystems and Netscape announced this week plans to help Spectrum create an Internet billing system.

Others that have recently thrown their hat into the ring include America Online, personal finance software maker Intuit, brokerage house Charles Schwab, Microsoft, Citibank and Bank of America.

The reason so many companies are eager to gain a foothold in the market is obvious: About 63 billion bills are issued in the United States every year, according to Andy Eliopoulos, product manager for the Sun and Netscape alliance.

"The amount of money that could be made here is very significant," he said. "The average American pays 17 bills a month."

In addition, companies that grab a significant share of the market also can expect to sell other products and services because consumers tend to stick with their chosen financial institution.

But it's just as obvious why most consumers have shunned the process. Many are unaware that the services exist and some fear Net thieves could tap into their accounts. More importantly, many figure that until they can pay all their bills electronically it makes little sense to juggle two different payment methods.

As Gartner Group analyst Avivah Litan said, "Who wants to join an online bill paying service if you can only pay two or three of your bills online?"

Additionally, the finance industry is faced with consumers who are wary of sending any kind of personal information over the Internet.

"Many people worry about security," said Susan Weeber, group product manager for online billing company TransPoint. "But that will subside as soon as more consumers become educated as to how safe it really is to conduct these kinds of transactions."

Another major hurdle has been overcoming many companies' reluctance to bill their customers via the Net. It's a classic chicken-and-egg scenario: Companies are reluctant to join until more of the public begins paying online. Consumers, on the other hand, are holding out until more companies accept electronic payments.

Less than one percent of consumers currently use the Internet to pay their bills, Litan said.

According to Pete Sinisgalli, president of CheckFree, a leading online billing company, most customers can only receive a handful of their bills over the Net.

But CheckFree and TransPoint, which is backed by Microsoft, First Data and Citibank, have begun offering customers a way to pay all their bills over the Internet, even if some companies don't offer electronic bills.

If a customer needs to send a bill to a company or person that does not accept electronic payments, CheckFree and TransPoint will mail their own checks and later bill the customer for the amount.

Another factor limiting the number of companies that can bill online is the lack of standards.

There is little cooperation between the companies to develop standards and common locations where customers can go to pay all their bills. Instead, online bill-payment companies are "staking out their turf," and that tends to confuse consumers, Gartner Group's Litan said.

The companies that are most capable of solving that problem are large financial institutions. Some online billing companies fear that the banks could swoop in and seize huge chunks of the market. Litan said that scenario is possible should the banks ever band together.

Litan referred to a study by the Gartner Group that found most executives at billing companies and consumers overwhelmingly trust their banks to handle their finances.

"The banks would be almost unstoppable," Litan said. "But they are divided. There is too much competition [among them] right now for them to take over the industry."

Spectrum could change that.

"Industry response to Spectrum has been absolutely phenomenal," Ronald Braco, chairman of Spectrum's board and senior vice president of Chase Manhattan Bank, said in a statement. "Virtually every major financial institution is interested in joining."

It's also worth noting that all three of Spectrum's original member banks have used CheckFree to provide online services but have yet to renew their contracts, according to CheckFree's Sinisgalli.

"Sure we're concerned about them, but we're concerned about a lot of things," said Sinisgalli. "Listen, we have value. We've been doing this a long time. We have the expertise and computer systems that allow us to do this job cheaper than someone trying to do it alone."