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With online bills, you may never write another check

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The last time Dick Richtman ordered checks from his bank was in 1995. Since then, Mr. Richtman has used an online bill payment service to pay his bills, and he has never looked back. "It's been about the most convenient thing I've found," says Mr. Richtman. "It took me a long time to convince my wife to use it, but now she swears by it, too." Mr. Richtman, a retired aeronautical engineer, has been using some form of online banking since 1987. Back then, he used a direct-dial software program that called up the bank directly and allowed him to access his account, transfer money and perform all his financial transactions.

Now Mr. Richtman uses CheckFree and finds that online bill payment has cut out a lot of the time he used to have to spend on writing checks and stuffing envelopes.

Mr. Richtman is one of less than an estimated 1 million North Americans who have opted for online bill paying. Though the meteoric growth originally predicted by industry insiders for the option has not occurred, many expect it to catch on once several consumer fears are addressed.

The service makes sense to Mr. Richtman. "When you figure 33 cents for a stamp and all the time for writing out that stuff, my time is worth a lot more than that." Linda Mueller, a Bank of America spokeswoman, says there are certain events that need to occur before any new technology goes mainstream. "It comes in stages," Ms. Mueller says. "The first step is getting the PC in the homes.

And then it's getting access to the Internet. Now it's a matter of becoming comfortable with the technology." Currently, the most popular online bill payment services are one-step ones such as CheckFree, bills.com and TransPoint (see accompanying comparison chart). With these services, known in the industry as electronic bill presentment and payment, consumers provide the service with a bank account number and authorize the service to withdraw the necessary funds for each bill paid. Users then select the companies or individuals to be paid. Bills are mailed directly to the service, which posts them on its Web site and e-mails users that a bill has arrived.

Two-step bill-paying services let consumers receive bills at home. Users then authorize payments electronically. This service is quickly fading, however, because consumers say they don't want the hassle of handling paper anymore, according to Gartner Group research.

With the one-step service, bills can be paid once consumers OK them or they can be paid automatically when the bills are for under a certain amount. Users can also use financial software such as Intuit's Quicken or Microsoft Money to dial up a participating bank or payment service. This lets consumers integrate payment records into their overall financial planning.

Fees differ

Service fees vary. For example, standard monthly service for TransPoint is $2.95, which allows up to 20 payments per month to major companies only. Additional groups of 10 payments cost $2.95. Premium service is $5.95 per month and allows up to 20 payments to any individual or company in the United States. "The overall goal is to work with the billing companies to streamline costs," says Erin Cullen, a product manager for TransPoint. "We wanted to make sure the customer has complete control." A major advertising push is being planned for www.bills.com in September, says company president David Jones. It will promote a $7 monthly fee that allows up to 20 payments. Consumers who make fewer payments may opt for $1-per-month service and pay 40 cents per transaction.

Gartner Group analyst Ken Kerr expects fees to eventually disappear as the number of customers grows. The ultimate goal, says Don Paré of MessagingDirect, which provides online billing services to businesses looking to offer online bill payment, is to have bills delivered directly to consumers via e-mail. "Really, the online bill payment services are an interim step toward handling the bill payment process," Mr. Paré says. "Consumers click on [the folder], the bill is there, they say 'pay,' and it's done. This is what consumers want." Having to go to a Web site to access bills is unnecessary and inconvenient, he says.

Mr. Paré also says that delivering bills directly to a customer's e-mail account is more secure and effective than Web-based services. "This creates a lockbox around that bill that no one can get into," Mr. Paré says.

MessagingDirect is testing such a system with an "Aggie Card" at Texas A&M University. Using a special e-mail interface, students or parents can transfer money from their bank account to the debit card to purchase products on campus. Mr. Paré predicts that this type of payment system, where money is transferred by e-mail rather than through a dedicated Web portal, will eventually replace Web-based online bill payment services. Jean Ann Fox, director of consumer protection for the Consumer Federation of America, has some precautions that any consumer considering an online bill payment company should look at until online security can be guaranteed. "I would suggest that consumers arrange for automatic bill payment only for those bills that are predictable and familiar and are from companies that you know," says Ms. Fox. For phone or credit card bill totals, which usually vary, Ms. Fox advises consumers to look over their bills and make sure charges are accurate before authorizing payments.

Check bills over

"Give yourself the incentive to check it," Ms. Fox says. "I know it's a convenience for people [to use online bill payment], but you still have to use your off-line common sense." The biggest problem facing online payment businesses, says Mr. Jones, is making people aware that such services exist. "The majority of the public does not know these things are out there," he says. But even when customers know these services exist, getting them to sign up can be difficult, says Michael Allen, an analyst with Aberdeen Group. "Most people don't understand the technology very well, and they're not comfortable [paying bills] with it," he says.

Another hurdle, says Ms. Fox, is lingering consumer mistrust of how online companies handle their customers' personal information despite the prevalence of well-documented privacy policies on almost every reputable e-billing and e-commerce Web site. "There's a fair level of cynicism of whether people actually adhere to their privacy policy," she says.

Online migration

Despite these misgivings, Mr. Jones believes that by 2003 35 percent of all bills will be paid online and that within three to five years 95 percent of all bills will be made available to consumers online. "As the next generation grows up, the only way they will know how to pay their bills is online," he says. In fact, the Gartner Group predicts that by 2004, more than 15 million people will be paying their bills online.

Ms. Mueller of Bank of America says that of her company's 2.1 million online banking customers, approximately 700,000 pay at least some of their bills online, totaling $800 million in online transactions each month. "The problem of getting the technology and access to the Internet out has been overcome," says Ms. Mueller. "We're adding new online banking customers at a rate of about 125,000 a month." While declining to offer specific numbers, Ms. Cullen of TransPoint says that since the launching in February, the service has tripled its subscription base. "It's kind of equivalent to using an ATM in the 1980s. People were a little leery of the technology at first, and now people can't imagine life without them. The same thing is beginning to happen with online bill payment," she says. "It's starting to go mainstream," says Mr. Jones.

Mr. Allen agrees, but he argues that online bill payment providers still have a long way to go to overcome consumers' innate distrust of new technology. "I think it's going to take more time and money in advertising than companies like to hear," says Mr. Allen. Nevertheless, Mr. Richtman still has difficulty understanding why more people are not already paying their bills online. "I'm just flat surprised that people use their computers for playing games and ignore using it for something like paying their bills."
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