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Could CheckFree get checked off?

After three major banks align to create their own online billing technology, stock in the Net banking service loses nearly a quarter of its value.

CheckFree, which offers financial institutions an outsourcing service for online transactions, saw its stock lose nearly a quarter of its value today after three major bank customers announced their own joint venture for online billing and payment.

The swift swoon, coming only a day after CheckFree sold $50 million in new shares to investors, has some analysts questioning CheckFree's model. As online banking becomes more critical to major banks, they may bring it in-house.

CheckFree's management was caught by surprise at the news that Wells Fargo, Chase Manhattan, and First Union would form a new company to let major utilities, credit card firms, and other big billers to present bills online rather than through the mail.

"Banking is bringing [online bill] presentment and payment services in-house," E*Offering bank analyst Gary Craft, who was already bearish on CheckFree, told investors today. "As seen in many processing markets, when business economics, transaction volume [or both] get big enough, there is every incentive to bring these services in-house."

Not all analysts are so pessimistic.

"It's clearly a negative for CheckFree, but not something that should have taken 10 points out of the stock," said Steve Olson of Pacific Growth Equities, who has had a "buy" recommendation, his second highest, on CheckFree since February.

CheckFree's stock fell 8.9375 today, closing at 28.75 after trading as low as 27.25.

But even CheckFree chief executive Pete Kight admitted the new venture, dubbed the Exchange, competes with his company's online bill delivery service.

"They did not give any advance notice of the announcement, and it will compete," Kight said on a hastily called teleconference today. "We expect to continue to compete quite successfully."

He added: "We have known that commercial banks wanted into this space. Today we learned that three of them got organized."

So far, the online bill-delivery market is long on promise and short on actual business--Kight said CheckFree has booked only $10,000 in online bill-presentment revenue in the last nine months. Total revenue was $145.4 million for that period.

But CheckFree's bread-and-butter business, letting consumers pay their bills online either directly through CheckFree or through their banks with CheckFree outsourcing the service, could be at risk once the Exchange banks' bill-delivery system is set up.

Industry analyst Avivah Litan of Gartner Group thinks the Exchange banks will add bill-payment capabilities of their own once gets bill delivery running. In the meantime, she suggests, those banks still need CheckFree for a online payments.

Easier said than done, CheckFree said. "Providing all the bill payment capability is not easy, so they would have their work cut out for them," CheckFree spokeswoman Laurinda Wilson said. "It's much more complicated than credit card processing."

She points to CheckFree's ongoing work with another bank consortium, Integrion, which began as an IBM-led effort to work with 18 huge North American banks to create a complete suite of online financial services the banks could offer.

Today CheckFree is Integrion's chief vendor for online bill-paying, a role the company would surely aspire to continue with the Exchange.