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Microsoft e-commerce threatens banks

An online bill payment joint venture with First Data could put the software giant at odds with banks.

Microsoft's (MSFT) bid to enter the online bill payment services market through a joint venture with First Data (FDC) could put the software giant at odds with banks.

The joint venture, MSFDC, will begin testing this year and expects to be fully operational by early 1998. The new service will let companies, such as electric utilities or phone carriers, present bills to consumers online.

But that could put MSFDC in competition with banks that want to offer similar "bill presentment" services themselves. MSFDC said companies will be charged a fee about the cost of a postage stamp but those revenues will not be shared with banks.

MSFDC, however, will provide banks a free bill payment service that can be integrated into their online home banking services--allowing them to brand it with their own names and levy fees against their banking customers.

But customers looking for online bill payment services may opt to go directly to MSFDC's bill payment Web site. That may not sit well with banks, either.

Cliff Condon, senior analyst with Forrester Research, thinks MSFDC's unwillingness to share revenue derived from companies will hurt the joint venture's effort with banks. He also cited the separate MSFDC Web site as another challenge.

"Banks do not like that," he said. "They don't want to lose control of that [customer] relationship."

Nonetheless, four of the largest U.S. banks--Chase Manhattan, Citicorp, Bank of America, and Wells Fargo--have agreed to serve on an advisory committee to MSFDC, along with representatives of utilities groups and billing services. But bank representatives said they're just advisers and have not committed to using the service.

"We see our bank as a logical provider of these services to our customers," said Dudley Nigg, Wells Fargo's executive vice president of online financial services. He observed that CheckFree is pilot testing a bill presentment service now and that Visa has indicated it plans a similar offering.

"Frankly, Microsoft looks like an organization that can create the kind of software and infrastructure needed for this to happen," Nigg said, adding that he hopes Microsoft will make its server software available to financial institutions as a product, not just a service.

But that's not Microsoft's intent, says Warren Dent, director of marketing for MSFDC.

"Our forte is clearly software development, but we believe you cannot do this without some service aspect. That's why we partnered with First Data," Dent said. "We are not trying to compete with financial institutions--it's meant to be a bank-friendly offering."

Financial terms of the deal were not disclosed, but Microsoft and payment processor First Data will be equal partners in the Denver, Colorado-based effort. An advisory board has been set up by the two companies to address the specific functions and products the service will include. The new venture will employ a dedicated executive management team, with the two parent firms occupying spots on the board of directors.

"MSFDC is an important part of Microsoft's strategy to further electronic commerce on the Internet," said Bill Gates, chairman and CEO of Microsoft, in a prepared statement.

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