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SINCE 1994, THE EXCLUSIVE MONTHLY REPORT ON INTERNET
BANKING PRODUCTS & MARKETS
Number 86
strategies for financial institutions
____________________________
Internet banking
Epayments
Security
Email
Service
Online marketing
Inside
Spotlight on iPay Technologies, LLC ..................... 4
Vendor snapshots.......................... 12
Conference calendar........................ 19
Best of the
Web:
fyiAlerts from CharterOne............ 20
Adding Value to Electronic
Payments (part 4)
Outsourcing options grow
Definition:
Retail Epayment
Any funds
transfer or non-point-of-sale payment (aka bill payment or remittance)
initiated online; including consumer-to-consumer, consumer-to-business, or
account-to-account.
|
T |
he
tech sector may be on the decline, but banks have more choices than ever for outsourcing
bill payments and funds transfers. Two of the newest
entrants, PayCast (ð p. 8-11) and iPay Technologies (ð p. 4-7) provide clever solutions to allow your
users to electronically redistribute funds among their own accounts at any
financial institution or send money to other individuals. And don’t overlook
the payment specialists that have not only survived that past two years but
continue to innovate at a surprising pace, especially CashEdge (ð p. 15) which is about to announce a much-needed overnight
funds transfer option.
Another
new entrant, ATM switches such as First Data’s NYCE
(ð p. 19) and Concord’s Star
System (ð p. 16). These ATM giants are in the final stages of enabling real-time transfers
between any cardholder. Star System is the most aggressive, mandating that all
member financial institutions be able to receive card-based interbank transfers by
so users will be able to transfer funds to anyone in the
In the first three parts of this series published earlier this year
(OBR 81, 82, 83), we made the case for banks to take a creative approach to
electronic payments, using the FedEx model of reliability, speed, and tracking
to create premium-priced payment options. Two years ago that would have
required a multi-million dollar project. Next year, many banks, especially
those in the Star and NYCE network, will be able to create these new revenue
streams for less than $100,000.
Jim Bruene, Editor & Founder
jim@netbanker.com
iPay Technologies Delivers Full-Featured ePayments at an
Affordable Price
By the end of the year (2002), tiny iPay Technologies with just 30 employees will likely be the only vendor supporting all five major retail epayment needs: pay-anyone bill pay, electronic-only bill pay, small-business bill pay, interbank transfers, and person-to-person payments. If that isn’t enough, they have several other interesting payment products in the works. This company has vision and the ability to develop new technology without incurring massive development costs.
The privately held company is primarily funded by
insiders, including CEO Dana Bowers and Chairman Mike Bowers; long-time customers First Interstate
Bank (MT) and Arkansas National Bank; and two private investors. To this point
they have survived without venture funding and are projecting cash-flow
breakeven within six
months (Q1 2003).
The company
currently has 250 clients, up from 206 at the beginning of year, with a
year-end target of 300. Its active subscriber base has grown from 18,600 on Jan. 1 to 32,000 in July.
Last Dec. (2001), it processed 64,000 transactions, in July the number was
118,000. Monthly dollar volume has grown from $15 million to $29 million. Fifty
percent of payments are electronic; the others are paper checks mailed from
iPay Technologies Bill
Payment Volume
|
|
Dec 02 (est.) |
July 02 |
Dec 01 |
Annual Change |
|
Customers |
45,000 |
32,000 |
18,600 |
|
|
Total payment volume |
||||
|
Number |
118,000 |
64,000 |
180% |
|
|
$ |
$29 mil |
$15 mil |
170% |
|
|
Average monthly volume per customer |
||||
|
Number/mo |
3.7 |
3.4 |
18% |
|
|
$/mo |
$245 |
$235 |
(8%) |
|
The company was founded in 1998 as CallMeBill and began processing
telephone and online bill payments. NetZee acquired the company and its 85 contracts in the fall of
1999 for $3.2 million. The unit grew to serve 550 financial institutions with
NetZee’s purchase of the online banking assets of Concentrix (formerly CFI
Proservices) from Harland. As part of the deal, NetZee picked up Concentrix’s
bill-payment unit in
In Jan.
2001, NetZee announced it would close the
More than
half of the original 150 iPay Technologies clients were credit unions. Banking clients
included Sky Bank (
Company management has a long history in payments.
|
Name |
Position |
Resume |
|
Dana Bowers |
CEO |
Previously VP & GM
Bill Payment at NetZee; CEO of Call Me Bill; Also founded Military Services
Inc. (MSI), a bill pay processor for active duty military personnel via
payroll deduction; worked at Citizens Bank in Elizabethtown, KY. |
|
Mike Bowers |
Chair and VP Risk
Mgmt |
Previously served as a
NetZee exec; also CEO of Dyad Corp; Manager of management consulting, Evans,
Porter, Bryan; Regional President of First Tennessee; President of First City
Bank of New Orleans. |
|
Brenda Ponder |
VP & GM |
20 years in banking and
bill payment; previously at Citizens Bank, MSI, and one of first 3 employees
of Call Me Bill. |
|
Kathy Fripp |
AVP of Admin |
Previously at MSI and
one of original three Call Me Bill employees. |
|
Maria Judy |
AVP Client Relations |
Employee 4 at Call Me
Bill. |
Source:
Company, 8/02
Currently the company has three products:
· Pay-anyone
Web bill payment: Typical program allowing users to send payments to
any individual or company with a
· Telephone bill payment: Same as above but with payments originating by telephone. Telephone users can also use the Web to set up payees or make payments and vice versa. The program handles only 3% of the company’s volume, just 3,000 transactions per month.
· Small business Web bill pay: The company also provides a small business bill-payment program called iPayables, currently used by just 73 business owners. The service features a memo field to add an invoice number that accompanies payment. Users can organize payments into categories and add comments that stay in the history file. The system supports multiple users with different permission levels so a company bookkeeper can schedule transactions, but only the business owner can authorize actual payment.
The company is nearing the end of an intensive development effort to add three new products. All three are expected to be in production by year-end (2002).
· Interbank funds transfers (Me2Me): iPay Technologies will be one of the few turnkey providers of consumer ACH originations (see also BankServ, CashEdge, CertaPay, and PayCast). In order to make an ACH deposit or withdrawal, the user must have ownership of both accounts; it cannot be used to make transfers to/from someone else’s account (although it could be used to send money to a college student provided the parent was a cosigner).
·
Email payments, aka person-to-person (P2P):
Like PayPal, this feature allows users to send money to anyone in the
· All-electronic bill payment: Targeted to entry-level users, this option allows financial institutions to offer fully electronic bill payment for a low cost. It’s simpler to use, payments take only two to three days, and service quality is high. The downside is that only about 3,500 fully electronic merchants can be paid; just those equipped to handle electronic receipt of payments and accounts receivable information through MasterCard RPPS (p. 18).
iPay Technologies sells exclusively through resellers such as Open Systems. The cost of iPay Technologies’ services varies as resellers set their own pricing. The company considers itself to be the industry leader in both cost (low) and quality (high). Its straightforward pricing plan allows virtually any size financial institution to offer bill payment at a reasonable price.
In fourth quarter (2002), the company will adopt a three-tiered
pricing structure:
Tier 1: Electronic money
movement
Includes
unlimited payments to any of 3,500 fully electronic merchants. This tier will also
include interbank funds transfers (Me2Me) and personal electronic payments
(P2P). Because all transactions are electronic end-to-end, it will cost roughly
half of the Tier 2, pay-anyone service.
Tier 2: Pay anyone
Includes
payment to any
Tier 3: Advanced
subscriber module
Includes account controls, bill management, reminders, security
preferences, and additional Web site functionality.
ð
Although we haven’t done the due diligence to verify how the system works over time, based on what the company told us, it appears to be a high-quality service. For example:
·
Research tickets (aka trouble tickets): iPay Technologies
currently researches just 1/3 of 1% (0.0033)
of all payments; down from 0.0048 at the beginning of the year. According to iPay Technologies, this is a
fraction of the industry average of 1%+.
·
One
reason for the lower research ratio is that the company proactively resolves problems before the user
is negatively impacted. The company tracks all outstanding checks; if a check
hasn’t cleared within three weeks, iPay Technologies contacts the customer to determine
whether to stop payment and reissue the check.1
·
Another
quality/fraud control: iPay Technologies makes telephone contact with all new payees.
·
Since
the program is turnkey, iPay Technologies can have a new
installation up and running in as little as two weeks.
·
The
bill payment module can operate as a separate function with its own username
and password, or with minimal extra development, can be integrated within your
online banking program for a single logon.2
·
The
company operates it payment program under the URL <billpaysite.com>.
·
The
company uses a 100% positive pay model; all payments initiated by 4:00 PM (EST)
are sent to the originating financial institution in a debit file (NACHA
format); iPay Technologies clients have until noon (EST) the next day to stop payment on any
payment that is NSF.
·
Users
can request account information via email, including a full list of payees,
confirmation of transactions made during each session, and transaction history.
1It
would be also be nice if the end-user was able to
determine if a payment had been cashed by the payee.
2Our
advice is to go halfway: Don’t make users reenter their username, but do force
them to enter an additional password for bill payment. This makes it much less
likely that a crook can get in using a Web site spoof or fraudulent email
solicitation (see OBR 48).
The company stands in and handles all customer service on behalf of its clients. Each bank has its own 800-number staffed by iPay Technologies reps. Email and live chat are also handled by the same iPay Technologies reps. iPay Technologies does not currently have any clients handling front-line customer service on their own. iPay Technologies firmly believes that the end processor should handle the customer service in order to minimize errors and delays caused by handing problem tickets back and forth between companies.
·
Standard
customer service is
·
A
premium option, used by 10% of iPay Technologies’ clients, extends hours to
·
Each
client has a unique toll-free number with custom welcome script.

iPay Technologies’ single-pay screen is plain looking but it works.

The interface for recurring payments.

Payment history request.

You can view payment history in Excel format making it easy to cut and paste into other applications.
Pros
·
Can get Me2Me,
P2P, electronic-only bill payment, pay-anyone bill payment, and a small
business version all from the same company
·
Users
can easily upgrade through the various options, so banks can set multiple fee
levels
·
Dedicated
reps handle all service for clients
·
Small
company, can speak directly with the CEO or other company founders
·
Simple
user interface
·
Email
and live chat support
·
Proactive
resolution of outstanding checks
·
100% telephone contact with new payees
·
Nearly
breakeven, should be profitable in 2003
· Services resold by core processors and Internet banking vendors; potentially less due diligence if you already have a relationship with the reseller
Cons
·
Small
company processes in a month what CheckFree does in an hour (using 40-hour
week)
·
Limited
financial resources
·
4
years in business (16 months as iPay Technologies)
·
Somewhat
outdated look and feel; however, the company promises a face lift in Q1 2003
· No service guarantees for mishandled payments
If your company can tolerate, or prefers, working with
smaller companies, you should add iPay Technologies to your RFP list. Its flexible
pricing plans, with very low monthly payments, are designed to appeal to smaller
financial institutions just building a critical mass. Currently, 50% of new contracts are
conversions.
But this is not just a price story. The company claims to be the quality leader, experiencing a 0.33% trouble-ticket ratio. iPay Technologies uses proactive methods to uncover potential glitches before the customer gets burned.
We’ve been talking to CEO Dana Bowers for several years and have been impressed with her straightforward approach to the business. She has always treated it like a service business, even during the late ‘90s when everyone wanted to be a tech company. But ironically, even though the company positions itself as high touch and not high tech, it will likely become the first payment processor able to provide all three major epayments services under one interface (pay anyone, interbank transfers, and email payments). And we like the fact that you can talk directly to company founders when needed.
If you haven’t yet launched a bill-payment program, by all means you need to talk to Dana and her crew. If you already offer bill payment but are doing a vendor review, add them to your list. Finally, even if your interest is only the interbank transfer and/or email payment module, they deserve a look. 8