InformationWeek

March 27, 2000

IT Impact:
The Check Isn't In The Mail
With its recent acquisitions of TransPoint and BlueGill, CheckFree has livened up a stalled market

By Jeetu Patel

Jeetu Patel hings looked awfully promising early on for the electronic bill presentment and payment market. When Microsoft entered the market with the TransPoint LLC consolidator offering through a joint venture with First Data Corp. and later Citibank, most felt that Microsoft's marketing muscle would help drive demand for consumer E-billing. Microsoft entered an area that payment-processing vendor CheckFree Corp. was already pursuing within its strong base of customers for its financial services.

When IT investments in electronic billing grew far more slowly than predicted, a shakeout was inevitable among the dozens of companies that had flocked to the electronic-billing software and services market. CheckFree has made two major moves within the past three months--acquiring TransPoint and E-billing software vendor BlueGill Technologies Inc.--that will shift the competitive landscape.

The TransPoint deal, still subject to government approval, is the more significant of the two because it joins the two major E-billing consolidators, each of which has had trouble signing up enough billers to gain traction in the marketplace. Billers considering the consolidation route now have an easier decision. The merger creates a larger pool of billers that can reach customers through the consolidator sites or through the Microsoft Network portal.

TransPoint's price was steep--more than $1 billion in CheckFree stock (17 million shares) in a stock-swap deal in which Microsoft, First Data, and Citibank will wind up owning about 23% of CheckFree.

It seems as if CheckFree made the deal to eliminate its Microsoft-backed competitor and expand its reach through new distribution channels, which may be enough for CheckFree. The deal wasn't designed to gain an advantage in personnel or technology. TransPoint personnel will remain Microsoft or First Data employees, contracting their services to CheckFree. In addition, CheckFree has its own technical infrastructure and data centers, and may not need to use TransPoint facilities over the long term.

A more technology-driven deal was CheckFree's acquisition of BlueGill in late December for $250 million in stock (the deal is awaiting final approval). BlueGill makes one of the leading software packages for designing and presenting bills over the Web. The product rounds out CheckFree's offerings by providing a straightforward and flexible development environment that it can use in its own consolidation services or continue to sell as packaged software to billers. Whether a biller wants to implement a direct-bill system or work through a consolidator (or both), CheckFree has it covered. BlueGill also gives CheckFree improved flexibility for business-to-business E-billing.

But it's unclear whether CheckFree, a services company that makes most of its revenue from transaction-processing fees, will succeed as a software vendor--especially when many of its customers already have partnerships with a number of other software producers. Rather than go head to head with E-billing software vendors such as Edocs Inc. and Just In Time Solutions Inc., CheckFree may decide not to market BlueGill as packaged software, but instead bundle the product into its other offerings.

CheckFree's recent deals give the company instant momentum--fewer competitors, more customers, broader reach, and better technology to leverage. But the moves are also healthy for the electronic-billing market as a whole. Increased attention to the market will ultimately raise consumer awareness and, the vendors hope, participation. We also expect to see billers start to mobilize in larger numbers in an attempt to reach customers through every means possible--by syndicating their bill data through their own sites, consolidator sites, personal banking sites, and consumer portal sites.

But CheckFree still has one hole in its offerings--consumer-oriented consolidation services. Sites such as CyberBills, PayMyBills .com, and Paytrust are gaining popularity for their convenience; consumers have their bills mailed to the provider, which scans the bills and presents them online. When biller-focused consolidators failed to take off, consumers showed they were willing to pay for the convenience of settling all their bills on one site. CheckFree would be well-served to add this service to its offerings--or acquire it.

Jeetu Patel is VP of research for Doculabs, an independent advisory firm that specializes in helping companies choose the right technologies for E-business. He can be reached at info@doculabs.com.

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