Using Payment Service Providers

Choosing the right payment service provider can relieve a lot of the headaches of handling payments and interacting with so many different parties. In addition, some payment processors offer a bevy of value-added services that make their packages compelling to billers. For example, some payment processors also offer services as diverse as presentment, customer enrollment, validation, reporting, and even financing and cash-management services.

Of course, these capabilities come at a cost. Different payment processors offer different pricing models. Some processors charge a percentage of the dollar value of the transaction. Others charge a flat fee for every transaction, regardless of the dollar volume. Still others charge based on volume or the number of bills converted or presented.

In most cases, the biller swallows the costs of online billing, just as in traditional billing operations. Although customers of the consumer-focused consolidator sites have shown a willingness to pay for online billing, they are not likely to pay more than it would cost to mail in their payments. In the B2B world, some customers may be willing to bear some of the costs of e-billing by paying for things like financial services, but the model is still untested.

So, when it comes to picking a payment service, what are your options? As previously mentioned, there exists three major classes of payment services that organizations can use as part of their EBPP deployments: biller focused, commerce focused, and payer focused.

In the biller-focused area, CheckFree is the leader. The company processes 49 million electronic payments per month, has an infrastructure that can handle massive volumes, and has been active in forming partnerships and making strategic acquisitions. CheckFree offers sound capabilities and services beyond payment, including consolidation and presentment.

But, competitors are poised to chip away at CheckFree’s lead. Princeton eCom is a strong player in this market, with one key advantage over CheckFree: it offers an electronic-lockbox service as part of its offering. This approach makes especially good sense for small and midsize companies (Princeton eCom’s target market) that want to get their lockbox and online payment services in an integrated package. Metavante enters the market with a wealth of experience in the statement-generation-software and payment-processing markets. Its foray into online billing could make the company a formidable player, as it has a strong customer base with financial institutions, particularly in the Midwest.

In the commerce-focused area, the major players include CyberCash, CyberSource, and VeriSign. All three provide good payment services, with support for a wide variety of different payment types. CyberSource has the edge in terms of its breadth of payment services, with offerings for fraud screening^[2], tax calculation, distribution control, and fulfillment management. VeriSign has the advantage in terms of secure transfer services. In addition to payment, the company offers services for secure messaging, PKI, certificate processing, and other site trust services that payment-only vendors lack.

In the payer-focused area, most people immediately think of sites like PayPlace.com and ProPay.com. Although such sites provide a nifty solution for applications such as online auction payments or letting a group of people settle a vacation tab, they are not appropriate for more sophisticated online billing, especially in the B2B arena.

But, two vendors that come from this space, X.com and PayByCheck.com, are now adapting their solutions for billers. Both services make it simple for billers to set up accounts and simply include a link to the service providers’ site, where customers make their payments online. X.com has released a new premium package of its PayPal service in which the payment funds are swept from the biller’s PayPal account automatically through the ACH and into the biller’s external bank account on a scheduled basis. PayByCheck.com is pursuing a similar strategy, but the company lags PayPal in terms of market momentum and customer base.

^[2]Vacca, John R., Identity Theft, Prentice Hall PTR, 2003.