E-bills beat a path to your e-mail

It takes money to make money.

For many large enterprises, such as financial institutions and utilities, however, it takes too much money to keep the cash flowing.

Bankers, in fact, estimate that billers spend about $1.50 per bill just for paper, postage and support staff. Multiply that $1.50 by millions of customers each month, and you're losing a bundle. But cut that cost to 50 cents or less, and you can swagger with confidence into your company's next stockholders' meeting. That type of savings is the promise of EBPP (electronic bill presentment/payment).

Enterprises have been sending bills and receiving payments over the Internet for a while, but the concept has yet to take off. That may begin to change later this month, when three financial services giants, which issue a combined 300 million bills a year, launch Spectrum, a standards-based, interoperable, secure EBPP infrastructure that will allow enterprises from a wide range of industries to send bills over the Web and receive electronic payments.

The Spectrum EBPP venture, backed by Chase Manhattan Bank, First Union Corp. and Wells Fargo Inc., faces a number of challenges, including the immaturity of key financial industry Web standards and possible delays due to the enormous task that billers and banks could face integrating online bill presentment systems with legacy applications. Spectrum also faces potentially potent competition. Still, if Spectrum can leverage its members' market clout and successfully launch an open, secure, reliable network, the success will go a long way toward showing that EBPP is ready to enter the mainstream.

Experts say it's only a matter of time before that happens. According to Ovum Inc., of London, and Killen & Associates, of Palo Alto, Calif., the number of electronic bills sent to consumers will increase from 300 million this year to 18.8 billion to 32.8 billion by 2005. The companies estimate that electronic payments will grow from 600 million this year to 40.4 billion by 2005. Forrester Research Inc., of Cambridge, Mass., estimates that EBPP will account for 13 percent of all consumer bills in five years. Forrester said in a recent report, however, that EBPP will not begin to gather momentum until 2002.

The banks supporting Spectrum hope to accelerate the pace. The infrastructure will arrive in two phases. This month, Spectrum members will field-test bill presentment by sending electronic bills to one another across a secure VPN (virtual private network). From now to next spring, Spectrum developers will fix problems, add electronic bill payment and work through a "Y2K blackout period."

Although Spectrum officials haven't announced customers, organizers are talking with "more than a dozen of the largest financial institutions," according to June Felix, a Spectrum steering committee member and Chase senior vice president in New York. After signing up big banks as customers, Spectrum will target utilities, insurance companies and consumers.

The first phase of Spectrum will be built around a bill-processing hub at a Chase facility in Texas. The hub will let each bank route electronic bill payments through a single connection to other Exchange members. By next spring, a mirror site at an as-yet-undetermined location will come online, providing failover and security protection.

With Spectrum, bills, rather than being mailed to consumers, will be sent over the Internet to the Texas facility, where they will first pass through a firewall and load balancing system running on a cluster of Ultra 2s and Enterprise 450s from Sun Microsystems Inc., of Mountain View, Calif., which is the technical leader on the project. That system will send the invoices to a bank of Cisco Systems Inc. switches and routers and a Sun E-4500, a midrange UltraSPARC II system that acts as a proxy server.

That server, equipped with application, Web server and directory service technology from Netscape Communications Corp., in Mountain View, Calif., runs e-bill payment application BillCast from Just in Time Solutions Inc., a San Francisco developer. That application uses OFX (Open Financial Exchange), a financial markup language that is gaining steam in the financial services industry. OFX transforms the invoices from different billers into standard electronic bills that can be understood by online bankers and other Web-based financial services companies that will pass the bills on to consumers. The proxy server also houses a biller directory that stores biller identification data using Oracle8.

The use of directory services and data mapping makes Spectrum's architecture "technically elegant," said Avivah Litan, an analyst at Gartner Group Inc., in Stamford, Conn. But, as with other competing EBPP systems, experts say, Spectrum still faces three main technical challenges: interoperability among incompatible bank data formats, bulletproof security for transmissions that travel over the public Internet and interfaces to join legacy banking systems with Web applications.

Of the three, interoperability is perhaps the biggest challenge. Spectrum will use OFX 1.5 as the main interoperability tool for incompatible bank data formats. But banking industry veterans say OFX today may not be up to full-fledged EBPP duties. That's because OFX, a 2-year-old combined effort of Intuit Inc., Microsoft Corp. and another EBPP network, CheckFree Corp., of Norcross, Ga., was originally developed as a batch-oriented technology that specifies direct connections between clients and financial institution servers as well as data synchronization and error recovery rules.

"OFX is really meant for batch file transfers of statements into [Intuit] Quicken and [Microsoft] Money," said Gartner's Litan. "When companies move to exchanging and paying bills over the Internet, the processing isn't necessarily done in batches. There's a lot of difference in routing bills and batch loading statements."

Jim Bressler, Sun's executive director of strategic initiatives in Menlo Park, Calif., said Spectrum developers are mindful of OFX limitations. "OFX happens to be the standard now, but nothing we did locks us into OFX," Bressler said. "We won't have to rip out and replace the architecture when a new standard comes along."

Due out next year is IFX (Interactive Financial Exchange), an extension of OFX that's being developed by the Banking Industry Technology Secretariat. Among IFX's advantages is Extensible Markup Language support.

Spectrum has a better handle on its other challenges: security and integration. On the security front, Spectrum will field the major tools used by the financial services industry. A VPN bolstered by Sun's SunScreen SecureNet software provides data encryption to support the secure transmission of sensitive financial data over the Internet. A separate SunScreen software component, Simple Key management for Internet Protocols, authenticates incoming IP traffic and protects outgoing data.

For additional security, Spectrum will use Ravlin "black boxes" from RedCreek Communications Inc., in Newark, Calif. These devices provide for hardware-based 56-bit DES (Data Encryption Standard) and 168-bit Triple DES encryption. SunScreen and the black boxes work side-by-side with Web security standards such as Secure Sockets Layer to protect communications between billers' computers and the Spectrum processing hub. Digital certificates, managed by VeriSign Inc., authenticate servers by identifying the sender.

For the third critical piece of the EBPP puzzle—legacy connectivity—Spectrum is relying on SunConnect, Sun's 2-year-old open-platform specification for messaging among multiple computing platforms and legacy systems. SunConnect uses BEA Jolt and BEA Tuxedo middleware from BEA Systems Inc., in San Jose, Calif., to manage applications, load-balance transactions and provide global network administration services. NeoNet, from New Era of Networks Inc., in Englewood, Colo., provides real-time data formatting and a data-routing engine for connections to accounting and other back-office systems.

By spring, Spectrum developers hope the EBPP network will be operating as an independent commercial entity, charging bank subscribers an undetermined upfront membership fee and a per-bill transaction fee of 25 cents or less. In addition to the traditional billers, Spectrum will court Web portals such as Quicken and Yahoo that are expected to launch one-stop bill-paying sites where consumers can authorize payments for everything from mortgages to credit cards to phone bills. "The beauty of what we're offering is that any member of the exchange can deliver or receive bills," Chase's Felix said.

However, no one is conceding the EBPP market to Spectrum. Already, Spectrum is playing catch-up in the market to CheckFree, an 18-year-old financial services veteran that owns 80 percent of the market. CheckFree now counts more than 350 customers that use its sprawling network to process more than 11 million e-bill payments per month. "We cut our teeth in bill payment," said Bill Zielke, vice president of product management for electronic billing payment.

Unlike Spectrum, CheckFree uses a proprietary network. Over the last year and a half, the company has pressed to add bill presentment services over the Internet and now says 74 of its target 150 top billers are on board. "To get from a legacy format to HTML is no small feat," Zielke said. "Over 18 years, we've built a processing center with mainframes that can talk to all these legacy systems." CheckFree is also negotiating with Yahoo Inc. and America Online Inc. to set up services where consumers could see bills by clicking on a secure area at either of those sites.

Zielke admits that the banks spearheading Spectrum represent a formidable customer base, but he said there are no shortcuts to launching an EBPP. "[Spectrum] will have to attract billers to come through their channel," he said. "It took us 24 months to bring in 34 billers."

Time to market will be a major challenge for Spectrum. After all, said Gartner's Litan, bank consortia have trouble making decisions at all—let alone in Internet time. Just look at Integrion, a banking consortium that also has targeted EBPP but, so far, has failed to attract enough customers to make an impact. According to Litan, one of Integrion's failings was getting its 18 member banks to agree on and then implement service offerings such as electronic bill presentment.

Chase's Felix shrugs off the potential roadblocks, confident that the existing tight relationships Spectrum's wholesale member banks have with merchants, utility companies and other billers will be a natural segue to electronic billing and payments. To paraphrase no less a banking industry "analyst" than bank robber Willie Sutton, the reason to bet on the power of big banks is because they're where the money is.

Alan Joch, a free-lance writer, covers technology and business. He can be reached at ajoch@monad.net.