CheckFree’s Market Grows, But Biggest Customer Could Bolt

Never wanting for hype, the electronic bill-payment industry may actually have something solid to crow about. Bill-pay processor CheckFree Corp. released a survey this week saying that for the first time, Internet-connected households are paying more bills electronically than by paper check. Tempering the good news for the Norcross, Ga.-based processor, however, was news this week that its largest client may leave. The 2007 Consumer Bill Payment Survey done for CheckFree by Harris Interactive and the Marketing Workshop polled 2,018 respondents in January. CheckFree said the response group was representative of the estimated 82.5 million Internet-connected U.S. households, or about 75% of the nation's estimated 110 million total households. The survey found that 74% of Internet households pay at least one bill online monthly, says Roger Johnston, market research director at CheckFree. Households pay an average of 11.5 bills a month. Online households paid 39% of their bills electronically versus 34% of bill payments by check. “For the first time, the number of those bill payments going over electronically is exceeding the number going by check,” he says. “It's definitely an impressive achievement when you think about where online bill payment was a few years ago,” says analyst Gwenn Bézard, research director at Boston-based Aite Group LLC. Households made 12% of the rest of their bill payments by automatic debits; 6% by automatic charges to payment cards; 7% at walk-up facilities, and 2% by phone, according to Johnston. Bill pay is growing for a number of reasons. Johnston cites the growth of high-speed DSL and cable Internet connections that make paying a bill electronically a much faster process than with older dial-up connections, and lower pricing?often free?on bank and credit-union online banking sites that offer consolidated bill-pay services. “Concerns about Internet security have gone down,” he adds. CheckFree's seventh such survey showed that online payments increased by 4% over the past year while check payments fell 4%. “Some time in 2006 the two lines crossed,” says Johnston. While CheckFree's overall market shows clear potential, the company itself got some bad news this week when an analyst reported that CheckFree's biggest customer, Bank of America Corp., is considering taking at least part of its online bill-pay service in-house. According to CheckFree's fiscal 2006 annual report, BofA accounted for 20.3%, or $173.7 million, of the company's total revenues. The analyst, David M. Scharf of San Francisco-based JMP Securities LLC, said the possible loss of BofA may be one reason for CheckFree's recent acquisition of online-banking software firm Corillian Corp., according the Forbes magazine's news Web site. In a statement issued late Wednesday, CheckFree did not identify BofA but said, “We have had discussions with a large customer regarding the possibility of pursuing an in-house approach for portions of our services. There have been no changes to any material customer contracts. If there are any changes that require disclosure, we will publicly disclose such information at that time.” A CheckFree spokesperson would not comment beyond the statement, and a BofA spokesperson did not respond to a Digital Transactions News e-mail seeking comment. One analyst tells Digital Transactions News that some of CheckFree's large-bank clients are agitating for lower charges, particularly for on-us transactions. Aite's Bézard, meanwhile, says that CheckFree's recent acquisitions, including Corillian, will soften the blow if BofA does indeed bolt. “That will be bad news for CheckFree, no doubt about it,” he says, adding, “it's not going to bring the company down. A few years ago it would have brought the company down.” Corillian reported $61 million in revenues last year. CheckFree's annual report says no other customer accounts for more than 10% of revenues.