Bill.com hits the banks when they're down

Bill.com hits the banks when they're down

Summary: Banks have already failed so massively at their core business of lending money that governments have had to bail them out. Now a SaaS startup is challenging their payment processing cashcow.

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If things weren't bad enough for the banks already — revealed as so inept at their bread-and-butter business of lending money that governments across the globe have had to bail them out — now their cashcow business of payment processing is under competitive threat.

This week, SaaS startup Bill.com launched a new service that allows US-based small businesses to pay their suppliers electronically for a low fee of 49c per payment — irrespective of the size of payment. The fee compares well to the $1-$3 per payment many banks charge for the same service, and is significantly less than the percentage-based fees charged by debit and credit cards or online services such as PayPal.

The service uses the US banking industry's Automatic Clearing House (ACH) system, which processes most payments in around two working days, and which currently provides fat margins to banks that charge multiples of the actual cost in fees (an ACH transfer costs your bank anything from 25c down to as little as 2.5c). Many businesses, of course, are still in the habit of sending payments by more expensive wire transfer, which generates even larger cash profits for the banks. Bill.com's ePayment service offers customers a way to sidestep those costly fees at the same time as processing their accounts payable with fewer errors and less effort.

To take advantage of ePayment, businesses have to sign up to the $25-per-month Bill.com application, which automates the accounts payable function for small businesses. Incoming invoices are emailed, scanned or faxed into the Bill.com system, which then provides email workflow to manage internal approvals. Once approved, payment can be scheduled to fit in with cashflow, and the system handles payment by check (at 99c a go) or electronically (at 49c per payment). Sophisticated fraud detection systems monitor for irregular activity to help protect against abuse.

Payments are made from Bill.com's account, which customers must keep topped up with the funds required to pay their bills. Bill.com automates this process via ACH (at its own cost, so customers need to cluster payments so they don't end up paying their own bank an ACH fee for every bill to be paid as well as Bill.com's fee). I'm sure many businesses will derive great satisfaction from paying their banks the minimum possible. The excessive charges banks have levied their customers for many years is money they've just left lying on the table. It's high time someone scooped it up to share more equitably with small businesses (only a minority of whom survive on borrowed funds — most have cash in hand).

Although Bill.com only launched its service last year, it has a strong pedigree in its CEO and founder, René Lacerte (pictured), who previously founded PayCycle, the online small business payroll provider that Intuit last month agreed to buy for $170 million. It is marketed to accountants by the AICPA's CPA2Biz subsidiary, which also promotes online financials provider Intacct. The company isn't quoting customer numbers, but VP of marketing Jeff Schultz told me this week there had been "tremendous growth" in the most recent quarter after the close of the tax year and that the daily volume of payments had "gone through the roof," with some single payments as high as $250k.

The service is especially appealing to accountants, Schultz told me, because it means they can use the same interface to manage all their clients, rather than having to negotiate the various online payment systems of a host of different bank accounts. "We're able to provide a consistent user experience," he said. "If you've got an accountant doing bookkeeping and payments for thirty different clients, it's easier for them not to have to deal with the idiosyncracies of those different banks." Even if clients are using Bill.com themselves, accountants find it much easier to deal with than going through an unloved 'shoebox' of paperwork at the end of the quarter or financial year.

The ePayments service has a directory of 4,000 bill issuers already set up, but users can easily add any new payee, including independent contractors, local suppliers or even expense reimbursements to individual employees. Schultz told me there are plans to allow any small business to register its details to the Bill.com payment network, which would allow bill issuers to set up their bank details without having to share them with others. It would also create the foundation for a possible marketplace initiative later on where suppliers could promote their products and services.

I could speculate that another future possibility is to offer a full range of small business banking services, but let's not get ahead of ourselves here. Perhaps more likely is that a financial services company might acquire Bill.com once it realizes the gaping market opportunity the banks have left exposed. "The banks are not looking at this at all," said Schultz. "The small business payment network is not something that's on their radar."

The only potential fly in the ointment is the risk of security scares. The Washington Post's Brian Krebs this week highlighted the lack of protection for businesses who fall victim to online banking fraud. It's easy to forget that the blanket refund guarantees offered to consumers don't extend to business accounts. Yet many users remain unaware of how easily their own online behavior can expose business accounts to cyber crime. Small businesses taking advantage of the Bill.com service should make sure they have rigorous security policies in place to keep login names and passwords totally secure. With those precautions safely in place, Bill.com looks like a great way to manage cashflow and save on unnecessary bank charges. I only wish it was available here in the UK, but currently it's US-only (though the service does cut checks for non-US payees in certain currencies).

PS: I've often wondered why SaaS providers don't use ACH to collect subscriptions instead of relying on credit card payments or manual invoicing. It will be interesting to see how many SaaS vendors get added to the Bill.com payee roster.

Topics: Enterprise Software, Banking, SMBs

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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23 comments
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  • Fees?

    My bank has web bill pay for free and ACH transfers are free as well. What kind of banks are these people using? lol.
    JT82
    • I dunno

      Wiring costs money.

      But ACH or bill pay is free both at my small town 100+ year old bank and larger regional bank.
      someitguy79
      • ACH costs

        Bill pay via ACH is often free to consumers on their personal accounts, but businesses usually face fees, especially above a certain volume of transactions or value of payments.
        phil wainewright
  • Patents

    I'm sure someone has a patent on this idea, and they're waiting for critical mass to be achieved.
    epitax
  • RE: Bill.com hits the banks when they're down

    >revealed as so inept at their bread-and-butter business of lending money that governments across the globe have had to bail them out

    Not. The banks were forced by the government to make high-risk loans to unqualified people. The banks would never have made those loans if left to themselves, but the government was doing its social engineering thing. But that might have been OK if not for all loan bundling and speculation in the financial markets.
    Vesicant
    • It was all profit motive.

      You need to read "My Manhattan Project: How I helped build the bomb that blew up Wall Street."
      http://nymag.com/news/business/55687/

      When you're finished, you can come back and retract your statement about the government "forcing" banks to make massive profits on high-risk loans.
      daengbo
      • You've never heard of the Community Reinvestment Act?

        So I read the article. It's about turning mortgages into securities, which is what I said was the problem in the first place. On the first page, the author specifically states that many critics say that mortgage packaging is a root cause, and that he doesn't disagree. But the article says absolutely *nothing* about where those mortgages came from in the first place. The closest it comes is on page 5, where it says that banks were charging higher interest on subprime loans -- as if that's either a surprise or wrong. And for the record, I said the government was responsible for forcing the loans to be made at all, not that they forced the banks to make a profit.
        Vesicant
        • That Act encouraged banks to make REASONABLE loans

          To poor people. The problem was that reasonable
          loans turned into extremely large loans, and
          another problem was that we had been in a home
          buying bubble for quite a few years, where home
          prices were MUCH higher than the numbers when ran
          said they should have been.
          Lerianis10
          • The Act forced banks to make bad loans.

            The Act forced the banks to lend to people that would not normally qualify for a loan. I.e. to make 'good' loans to buy property in an area, the banks were <b>required</b> to make other 'questionable' loans to those who actually lived in the area. The fallacy in the logic behind the Act was the assumption that those that lived in the area would actually be able to repay the loans.

            By forcing the bank to make loans to underqualified applicants, it artificially introduced excess money into real estate. That of course led to an increase in the price of real estate. On its own, this wouldn't have been too bad.

            The mortgage-backed securities issue that used leverage to inflate potential profits also drove more money back into the real estate market. This feedback fueled the runaway increases in real estate prices.
            Letophoro
          • Not true

            My belief, as well as others a hell of a lot more familiar with the mortgage industry, is tha what really hurt the banks was that once mortgages began being packaged and sold as investments to others - mutual funds, etc., the push began to create more mortgages - in essence, create more product to fill the surging investment demand.

            As in other industries, when the pressure is on to create more product, short cuts are taken, unscrupulous brokers (mortgage brokers, that is) arise to fill the void, and you get the inevitable bubble. Couple that with a government administration which had oversight budgets cut, and the bubble grows to the point where it burst.

            Blaming it solely on Democrats, or Republicans, is a worthless excercise. They were all to blame. The potential risk to investors was deemed to be low (wrongly), as was the risk to our legislators and executive branch (lobbying moneys flowing in and budget restraints, respectively).

            BTW, the Community Reinvestment Act was introduced in 1977, so it lived through 3 Democratic and 3 Republican administrations, and control of the House/Senate by both parties.
            NetArch.
          • Why did you say 'not true' when you agreed with me?

            Sure, you used a lot more words. But in the end, you agreed with my assessment that it was the mortgage-backed securities feedback loop that was the major cause of the real estate bubble.

            Loan->packaged->leveraged->Profit->Loan->Repeat.


            BTW: You'll notice that I never said it was Democrats or Republicans that are to blame.
            Letophoro
          • I didn't agree with you

            What I said was that it was the "markets" - the demand for loan-backed securities - that forced the banks to accept riskier loans. Look at how many independent morgtage brokers were found guilty of inflating home-buyers incomes to make the mortgages look better to the banks.

            At best, the CRA was an enabler, not the cause.

            Greed was the cause.
            NetArch.
          • OK, you didn't agree with me.

            Although the difference between what you said and what I said is no more than the difference between me saying 'blue' and you saying 'azure.'

            You look at the 'markets' as the cause of the feedback loop while I look at the 'markets' as part of the feedback loop.

            <i>On its own, this wouldn't have been too bad.</i>
            vs.
            <i>At best, the CRA was an enabler, not the cause.</i>

            Again, I say 'teal' and you say 'cerulean.'

            But have it your way. You didn't agree with me.
            Letophoro
          • The Real Problem Stems from a BAD Idea

            The root of the whole problem was the "idea" that people who really could not afford the mortgages in question, based on historical standards, should be sold the loans. This applies primarily to the "poor" but also applied to the "well-off" once the whole mess got going and they too were buying houses they could not afford. There were both Democrats and Republicans (including President Bush, 43) promoting the idea but it is primarily a socialist concept, "everyone deserves to own a home" and "we should use government influence/power to make that happen". To restate, it was a BAD idea that led to disasterous consequences. Until a significant majority of people in this country understand this, we will repeat this same mistake many times and in many ways.
            Bob C User
  • RE: Bill.com hits the banks when they're down

    Phil,

    Some SaaS and PaaS companies are certainly thinking about and using ACH to automate SaaS and PaaS billing. Intuit's Partner Platform settles with it's partners using ACH via Vindicia's CashBox today.

    -Gene Hoffman
    Chairman/CEO
    Vindicia
    hoffmang
  • RE: Bill.com hits the banks when they're down

    Phil

    All of our ISVs deploying their applications on SaaSGrid automatically accept ACH payments from their customers as it is provided by the platform and save lot's of money that would otherwise go to the credit card companies.

    We currently have several of our customers using this functionality to date and passing the savings along to their customers.

    Cheers,
    Abe Sultan
    VP of Engineering, Apprenda Inc.
    asultan2
  • Only use your bank

    Bill.com succeeds where banks fail?
    BALTHOR
  • is cheap?.

    If Bill is cheap than your current bank but, how to deposit the money?.

    Let's say :bank->service have a $x cost.
    and
    bank->Bill.com->service i think it is a bit more expensive.
    magallanes
    • how about free?

      our bank allows customers to pay their bills free, at least their
      noncommercial accounts.
      arminw
    • No fee to transfer funds in

      This question is answered in the story. Bill.com bears the cost of transferring from your account to theirs, so there's no double charging.
      phil wainewright