An ACH-Based Bill-Pay Pilot Promises Fee Income to Banks

An electronic bill-presentment and ?payment system that uses the automated clearing house network picked up some momentum recently with the addition of a second participating bank to its pilot program and could gain more as processors serving thousands of banks start linking to the system. Dollar Bank, a Pittsburgh-based thrift, last week joined Wells Fargo & Co. in a 15-month test of the Electronic Billing Information Delivery Service (EBIDS). The participating biller is Verizon Communications. The pilot, which began Sept. 18, is expected to run until the end of next year and is intended in part to create a revenue stream for banks in bill payment and presentment, says Rob Unger, senior director of e-billing and payments at NACHA, the Herndon, Va.-based organization that regulates the ACH and is sponsoring EBIDS. For years, banks have supported online bill payment as a free service to attract and retain customers but have lately found the service increasingly expensive to maintain without fee income. Indeed, U.S. banks and credit unions will spend more than $900 million in outsourcing parts of their electronic bill-payment services this year, a figure that's expected to rise to $1 billion by 2010, according to a recent report from researcher TowerGroup Inc. (Digital Transactions News, Aug. 27). “Banks are looking at how to make money [from online bill pay],” Unger says. “We're trying to turn the revenue paradigm on its head.” While Unger will not discuss pricing, he says the EBIDS business model calls for billers' banks to pay a fee to consumers' banks for each enrollment and then again for each transaction by the enrolled customer. Billers' banks collect reimbursement for this fee, plus a markup, from their clients. “You can see the exponential opportunity” for fee income, says Unger. The advantages to billers, he says, include good funds and accurate remittance data. With EBIDS, a consumer who enrolls through his bank's online-banking program can receive and pay bills electronically through that same program. Once notified of an enrollment, the biller generates an ACH file containing amount owed, minimum payment due, and due date. This record flows via the ACH from the biller's bank to the consumers' bank, triggering an e-mail to the consumer alerting him that a bill has been received. Upon logging in, the consumer can view the entire bill by clicking on a hyperlink. Specialized single-sign-on technology called Security Assertion Markup Language (SAML) authenticates the consumer so he doesn't have to log in again to view the bill. When the consumer pays the bill on his bank's site, the bank creates an ACH credit that flows back to the biller's bank. The consumer receives online confirmation that the payment was made and the biller receives funds within one or two days. Since the payment is an ACH credit rather than a debit, Regulation E rules giving consumers 60 days of recourse on payments don't apply. Unger says the pilot is now confronting what he calls “the poultry problem,” the familiar chicken-or-the-egg difficulty most nascent payment systems cope with as the provider, the processor, and the consumer each waits for the other to make a move before acting. “Billers want to know what distribution opportunity there is and banks want to know what bills they can acquire,” he notes. One possible solution could be in the offing. Unger says four companies that provide processing and software services to banks have agreed to participate during the pilot. Fidelity National Information Services Inc., iPay Technologies LLC, PM Services Corp., and Yodlee Inc. will run EBIDS as part of their application-services-provider (ASP) models, Unger says. That should make it easier for client banks to adopt the program, as it would do away with most implementation issues and costs, he says. With these companies on board, Unger says, EBIDS will potentially reach about 2,100 banks and some 11 million active online-banking customers.