Yodlee Leaps into Tough E-Billing Game. Ready?

Yodlee, the account-aggregation company, has thrown its hat into the ring of the highly competitive electronic bill payment and presentment market.

In August, the Redwood City, CA-based company launched a new bill presentment service called BillDirect, tailored exclusively for financial services companies. BillDirect aggregates information from nearly 2,500 billers in a model that preserves much of what analysts say is good about the direct billing model for paying bills electronically. To pay billers directly, customers click on a link presented at their bank’s Web site that takes them to the biller’s Web site.

In so doing, Yodlee places itself in direct competition with CheckFree Corp. and Metavante Corp., which together dominate the electronic-payments market. It also places itself in indirect competition with banks such as Wells Fargo Bank and Bank of America, which have developed their own in-house methods for presenting bills electronically to customers.

Some analysts say the new model may do a lot to wake up the moribund bill presentment market, which has struggled for years to gain traction with both billers and users. “This is the model of the future,” says Avivah Litan, vp of financial services for Gartner, based in Stamford, Conn. “This is what I call the post office model. It is what the billers want, and the banks. It is what everyone wants.”

Yodlee’s BillDirect works seamlessly in the background of a bank’s own Web site. When customers log on to the bank site, their bills are presented to them in a stripped down version that tells them the amount they owe and who the biller is. In order to pay, they click on a link, which opens a new window that takes them directly to the biller’s Web site where they are automatically logged in and have the option to pay from either their bank account or another payment vehicle, such as a credit card.

The service has many additional features that industry observers say consumers want, such as expense reports, e-mail alerts, billing history, and future payments.

“Consumers don’t want to visit five to seven sites, and if you can consolidate at least six bills in one place, that’s what is needed for critical mass,” says Hill Ferguson, general manager of Yodlee EBPP.

Ferguson says Yodlee works with about 150 financial services companies in the account-aggregation market, including 30 of the top 50 top global financial institutions. So far, it has signed up only one large bank client for its new BillDirect service, but it declined to identify it. He added the company is in late-stage talks with several other banks.

An advantage to Yodlee’s offering is that it will help banks present bills at a fraction of the cost of competitors, and that it relieves them of a processing function they may not want. According to Litan, banks pay CheckFree and Metavante between $4 and $6 per customer per month to handle their bills. By contrast, Yodlee charges around $2 per customer per month. “This is good for banks because they get the stickiness of their [on-line banking] sites, but they don’t have to pay for the payment processing,” she says.

Research indicates Yodlee might be on to something. In 2003, nearly 14.4 million households paid bills directly at billers’ sites, compared to 9 million who did so at bank sites, according to Forrester Research in Cambridge, MA.

While the trend might be toward the biller-direct model, Ron Shevlin, principal analyst at Forrester, says banks are still struggling with a more fundamental issue, namely how to pay for services like on-line bill payment and bill presentment in the first place. “Banks are really wrestling with the business model,” Shevlin says, adding the banks might want consumers to pay for new bill-presentment services, but that consumers are already unwilling to pay for things like on-line bill payment. “Despite the fact Yodlee is bringing banks a good tool, the banks will be hard-pressed to figure out how to pay for it,” he says.

Other analysts say Yodlee’s BillDirect service will be challenged because there’s no “pay anyone” feature, such as what CheckFree offers, where a paper check can be cut electronically to pay smaller vendors.

“I can go to CheckFree and I can pay any bill, whether electronic or not,” says Beth Robertson, a senior analyst for TowerGroup in Needham, MA. “With Yodlee, I can only pay bills from billers who offer bill payment.”

Meanwhile, entrenched competitors in the EBPP space think their delivery models are the right ones. CheckFree, for example, says its own method is easier to use and more secure for the consumer than a biller-direct model. Officials declined to comment specifically on Yodlee’s BillDirect model. “Customers have a single point of contact for all problems—they would call their financial institution—and the infrastructure is integrated end-to-end between the financial institution and the biller,” says Steve Olsen, evp and general manager of CheckFree’s electronic commerce division, which presents the bills of about 280 billers. “This provides complete tracking in the billing and payment process.”