Paytrust

Scan and Pay

Ed McLaughlin

Flint Lane

Electronic Bill Presentment

Corrections or additions?

This article by Barbara Fox was published in U.S. 1 Newspaper on

August 25, 1999. All rights reserved.

Showcase for E-Commerce

by Barbara Fox

Two CEOs have start-up companies in Princeton. Both

have staked their careers and their fortunes on E-commerce, an industry

that did not exist even five years ago and one that makes its own

rules as it goes along.

Both are aggressively homesteading — trying to grab as much cyberspace

real estate as possible, trying to achieve the status of "category

killer" before their competitors do. Both are impressively funded

by venture capital but desperately seeking more funds. Both are trying

to grow at a rapid pace and go public while Wall Street’s fascination

with Internet companies remains high.

The first CEO, Jim Medalia, is selling equipment for leisure activities.

His Kingston-based company, Justballs! Inc., offers balls — every

kind of ball imaginable — to consumers, coaches, and institutions.

The second CEO, Ed McLaughlin, is selling time — time for additional

leisure. His Emmons Drive-based company, Secure Commerce Services,

scans all your bills and puts them online at paytrust.com. You can

see your bills on your own private web page and pay them with a click

of a mouse.

Medalia and McLaughlin have exciting stories to tell, and they will

tell them at the seminar for U.S. 1 Newspaper’s Technology Expo on

Thursday, September 2, at 4 p.m., part of the Princeton Chamber trade

show at the Doral Forrestal. Exhibits are open from 11 a.m. to 5 p.m.,

and the day also includes a luncheon (speaker Peter Halstead, Summit

Bank) and a wine tasting. The seminar is free, but readers are asked

to preregister (see coupon on page 4).

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Paytrust

Every busy person wants to cut down the time it takes

to do personal bookkeeping. Marriages, in fact, have foundered on

the issue of which spouse will take care of the bills. Some time-saving

methods have indeed been deployed, such as online banking, but they

all have a tiresome flaw: Paper bills still come to your mailbox to

be opened, processed, and stored.

Ed McLaughlin, Flint Lane, and their cohorts at Secure Commerce Services

(better known as Paytrust) took online banking one step further: They

scan your bills onto a website, http://www.paytrust.com.

For one monthly fee, $7.95, you authorize up to 25 payments on your

personal, secure web page, and your bills are stored there for instant

access. They had the pilot program up and running in January and did

a public launch in June. The full demo is online and the consumer

gets three months free. Paytrust has grown from 8 to 20 people, and

next month it will expand at Emmons Drive from 1,700 square feet to

a 6,000 to 7,000-foot space.

Designating someone to pay your bills has been available to the elite

for some time, McLaughlin points out. "Michael Jordan doesn’t

pay his own bills. Tell us who your billers are, and what the account

is, and whether it’s AT&T or your lawn service, we will do almost

everything else for you," says McLaughlin. "On the payment

side it is like electronic banking. On the presentation side —

that is where we are completely different."

This difference, the novelty of Paytrust’s idea, could be one of the

biggest bottlenecks for electronic bill presentment. Admittedly, more

and more people are trusting their credit card numbers to online retailers,

and last year’s holiday shopping totals set a new record for cyberspace.

But will they trust a third party to collect their bills? And will

the desire to save time overcome their inertia?

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Scan and Pay

Stop for a moment and think about the implications of what is called

electronic bill presentment or "scan and pay:"

No more incoming bills in your mailbox.

No more old copies of bills piling up on shelves and drawers.

E-mail tells you that the bill has arrived, and you can deal

with it then or anytime. You log into a secure area, the Paytrust

bill center, and review the bill and/or pay the bill.

Whenever you want to check a bill, it’s on the Internet for

you to view, whether you are traveling or at home.

You can authorize prepayment ("If my electric bill is under

$75 pay it on the due date") or decide to pay each bill separately.

Your payments will tap your bank account on the day you specify, and

you can set up quarterly payments ahead of time, avoiding late charges.

You can integrate your payments with Quicken or any other financial

software.

You can print out any bill or no bills, and at the end of the

year you get a CD-ROM containing the entire year’s records.

"Because we are working for the consumer, we can work with

any bank or biller, and we are working with over 400 billers and every

major bank in the region," says McLaughlin. "We have already

paid over $1 million worth of bills. We had an extensive pilot and

our service is already proven. Internet enthusiasts are dying to use

a service like ours."

Only about 1 million of the 15 billion total bills in the United States

were paid electronically last year, says Bill Gates in his book "Business

@ the Speed of Thought," but he predicts a meteoric rise.

Indeed, the Gartner Group suggests that revenue from

electronic bill payment will rise from $250 million this year to $1.7

billion in 2002. Though only 60 percent of large banks offer online

bill payment now, say these consultants, virtually all banks will

have this in 2002. Processing costs for bill payment, according to

federal statistics, will drop more than $20 billion a year when consumers

pay online.

"I think it is a great product idea on paper," says Jim Bruene,

editor of the Online Banking Report (http://www.onlinebankingreport.com).

"Frankly, one of the things I do for my subscribers is think up

new combinations of services, and I hadn’t thought of this one. But

whether they can execute it remains to be seen. History has shown

us that, in bill payment, consumers are reluctant to change their

behavior. Paytrust has lots of hurdles to overcome."

If public inertia is one hurdle, look-alike competition is another.

Two similar websites, http://www.statusfactory.com and

http://www.paymybills.com launched within four months of

Paytrust, and more will follow. "We were on a cable show on the

West Coast," says McLaughlin, "and I could feel all the business

plans being written on the back of cocktail napkins."

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Ed McLaughlin

So McLaughlin is racing to homestead Paytrust’s stake in cyberspace.

The son of a surgeon and a teacher in Philadelphia, McLaughlin started

his first company while he was in high school. He majored in finance

and decision science at Wharton, Class of 1987, while working for

a regional bank. As manager of Electronic Data Interchange (EDI) Services

at Information and Financial Services, he designed large-scale document

transmission for such clients as Motorola, Florsheim Shoes, IBM, and

Martin Marietta. Paytrust is his third start-up. He is married to

a woman who is a counselor for emotionally disturbed adolescents,

and they have a baby daughter.

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Flint Lane

His partner, Flint A. Lane, majored in computer science at Rensselaer

(Class of 1988) and worked at Andersen Consulting before taking charge

of research and development activities for BrownStone Solutions, which

managed information technology assets for such clients as Merrill

Lynch, Readers Digest, Pacific Bell, and Boeing. He is co-founder,

president, and chief operating officer.

McLaughlin met Lane when both were executive vice presidents at the

relational database company, LogicWorks, on Campus Drive. Then it

was one of the hottest companies in the nation. Its CEO, Ben Cohen,

was on the cover of Business Week in 1996, but as sometimes happens

in technology start-ups that go public, lost his job a year later.

LogicWorks ended up on its feet, was sold to PLATINUM Technologies,

and Lane began hatching his own idea. The pair bought the domain name

in October of last year and started beta tests in January.

In July, amply funded by venture capital monies from AT&T Ventures

(an early backer of Netscape and Excite) and Spectrum Equity (a billion

dollar fund in Boston and Palo Alto), Lane and McLaughlin activated

a marketing campaign with radio, billboards, direct mail, and online

banners and relationships. On August 4 the company was featured in

a USA Today story, and last week McLaughlin had a full-length interview

on CNNfn, CNN’s Financial Network. Everywhere he brings a well-honed

message: 100 hundred million households are out there with huge piles

of bills, and no one wants to pay them.

The public’s trust will be hard to earn, McLaughlin admits, and still

harder to keep. With this in mind, he and Lane made a couple of significant

choices in customer service and bill scanning, and they believe these

choices will nudge Paytrust ahead of its competition, which consists

of the two look-alike firms, alternative payment methods, and other

kinds of businesses — banks, stockbrokers, and web portals.

Of the look-alike firms, StatusFactory.com was the first to

launch and was several months ahead of Paytrust. It has a website

more sophisticated than Paytrust’s (though Paytrust promises a re-do

very soon.) Based in Santa Clara, California, it was founded by John

Simpson and Murali Chirala, who had worked for Healtheon Corporation,

founded by Jim Clark of Netscape fame.

In contrast to Paytrust, which charges $7.95 for up to 25 bills and

unlimited toll-free 24-hour every day customer support, StatusFactory

charges $3.50 for five payees and $8.95 for 15 payees plus 75 cents

for additional bills. That includes 12 months of online historical

records, and 24 x 7 customer support. A CD of your year’s records

would cost $50. Businesses pay $14.95 for 10 bills. Premier service

calls $29.95 for 25 payees, 24 months of historical online data, a

year-end CD, and a deeper level of customer support.

Paymybills.com charges $9.95 per month for up to 15 bills,

50 cents for each additional bill, and 12-hour weekday customer support

by E-mail or toll-free call. It was the last to launch: "The first

to market is not necessarily the one that lasts," insists its

CEO, John Tedesco, one of two just-graduated Wharton MBAs who founded

the firm. Tedesco went to Fairfield University in Connecticut, Class

of 1992, and majored in entrepreneurship and ISSE (information strategy,

structure, and economics) at Wharton. He and his business partner,

Jeff Grass, got the bill paying idea when they returned from a trip

to find a pile of bills with late charges. They worked on this idea

during their second year, tapping their professors — David Croson

and Eric Clemons — for market research help.

"Our understanding of the consumer is superior to everyone,"

says Tedesco. Three days after graduation they were working in Pasadena

in the IdeaLab incubator of Bill Gross, noted for hatching new E-commerce

businesses. They launched a month later, in July, and have 25 employees.

Other time-saving bill paying methods have been introduced with varying

degrees of success. Very easy is the prearranged debit, where you

authorize the gas company, for instance, to tap your bank account

for the monthly payment. You never have to use the Internet at all,

but things get complicated if, one month, you change your mind.

Another service works by telephone, a tedious process for which you

need to do some very accurate dialing. Somewhat easier is the plan

where you go to the company’s website to find your bill and pay it.

Oracle, for instance, is selling its Bill n Pay database system to

billers. That sounds easy, but who wants to log into a different website

for every bill?

The model most like Paytrust’s is online banking: You go to your bank’s

website to establish your online check writing system. This saves

many stamps and checks but you are still stuck with getting all those

bills in the mail.

Competition just means your market is worthwhile,"

says McLaughlin. "While the concept seems fairly obvious a lot

of hard work goes into doing this, and Flint Lane was thinking about

this years ago." Here are the choices he and Lane believe will

set them ahead of the pack:

Customer support. Newsletter editor Bruene takes a pessimistic

view of potential customer service glitches. "If a payment goes

awry the old way, and the check doesn’t arrive, there is no third

party involved. If you put a third party in the middle of it, and

the consumer is paying late fees and being reported to the credit

bureau — there will be a lot of finger pointing." Many times,

he points out, the errors are made by users who insist they did something

when actually they forgot to press the "submit" button. Or,

the users claim they never received their E-mail notifications.

"We are sure we are going to be a wonderful success," says

Paytrust’s CEO. "There are a lot of startups which think they

are playing the lottery, but unless they can provide world class customer

service, getting people to use the site once won’t be enough."

With this in mind, Paytrust offers toll-free telephone customer support,

24 hours a day, seven days a week.

This contrasts with Paymybills.com, for instance, which offers E-mail

or toll-call support five days a week. StatusFactory has 24 by 7 support

by E-mail or toll call, and it charges triple the monthly fee for

in-depth customer service. A service rep explains that for premier

subscribers, StatusFactory would directly intercede with a merchant

to straighten out a billing problem, whereas for regular subscribers,

"we would give you that information and you would take care of

that on your own."

Scanning bills. Paymybills.com took a shortcut in both

time and capital investment by outsourcing its scanning to Virginia-based

Imaging Acceptance Corporation (http://www.imagingacceptance.com).

The imaging company must manually enter several fields to index each

document, and Paymybills.com must also apparently keystroke elements

from each document.

In contrast, Flint Lane has developed and tested his own method for

scanning bills — automated ways of identifying forms and of lifting

information off of the "scan line," the string of numbers

along the bottom of each bill. Patents are pending. "Our technology

reads and converts both the scanline and consumer information,"

says McLaughlin. Neither Paytrust employees nor consumers need to

do any keystroking, and, he says, this cuts down on errors.

Paying bills. Like its competitors, Paytrust uses an electronic

clearing house to pay about 40 percent of all the bills, and it issues

a paper check to the rest. Because it has its own scanning process,

it can include an image of the original bill with the paper check.

This cuts down on errors, because a bill-payer might have more than

one account.

Notifying payees. Paytrust does it for you; just turn

over the addresses of every company that sends you bills.

Paymybills requires you to do your own notifications, but they make

it easy by sending you address labels. Just paste the label in the

change of address box when you get your next bill. If you are in a

hurry to switch over your system, you call the payee directly. Tedesco,

CEO of Paymybills, cites market research proving this method is more

acceptable to the payees.

Promising security and privacy. Everyone in this business

promises the utmost security. Paytrust’s website is insured up to

$1 million by St. Paul’s insurance company, but this information is

buried on a back page somewhere. Paymybills.com, in contrast, has

a "no incorrect postings" insurance policy, derived in part

from the co-founder’s previous work for Traveler’s. It touts this

insurance by featuring the Travelers umbrella on its front page.

Privacy is quite another matter. Only the third party scan-and-pay

services are likely to deliver privacy. They collect your service

fees, so they don’t need to sell your information. Other potential

bill-presenters — portals such as AOL and Netscape — may be

more liberal with information. Consumers may also be wary of the motives

of banks and stockbrokers who try to offer bill presenting pages.

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Electronic Bill Presentment

For instance, in September, 1998, First Union was the first company

to offer electronic bill presentment, so consumers can pay telephone,

regional utility and some gas bills. Now First Union has joined Chase

and Wells Fargo in a consortium to exchange electronic bills that

is expected to jumpstart the electronic bill presentment industry.

Called Spectrum, this exchange is scheduled to go live in November.

But the exchange will do more than get bills paid; it will let both

billers and corporate marketers have access to the retail customer.

Banks have the big advantage that customers can check their balances

when they make the payments. Bill Gates describes the advantages that

a bank bill page will have: "You’ll click on the icon for your

credit card company or department store or utility and go directly

to that company’s site. You’ll have more information about your bills

online than you have on paper today. You’ll be able to drill into

account and payment history. Rather than having to write a separate

letter, you’ll click on an E-mail button to ask a question about a

bill."

But when Gates points out that merchants will use your online bill-review

page to tout additional products and services, that gets McLaughlin

riled. McLaughlin is vehement about how Paytrust.com will withhold

its customers’ information from both the billers and the marketers.

That will be a major advantage of a third-party site like his, he

says.

Partners. McLaughlin may want to protect his own customers

from marketing attacks, but that doesn’t keep him from actively seeking

partners in a pool that includes the banks, the portals, and the brokerage

houses. Likewise, StatusFactory openly touts turnkey bill presentment

services for potential business partners on its website, and these

services are to be delivered by its parent company, CyberBills.

"The banks never had content before," says Michael Killen,

president of a Palo Alto research firm (http://www.killen.com).

"Now they do in the form of the bill. If they get the market concept

right, the banks will see a new developing revenue stream as they

take over the accounts of less aggressive banks. If they get it wrong,

they will lose the heart of an entire class of retail business and

their connection for services and loans."

"The banks are very interested in getting bills electronically

but are not interested in the physical work of putting bills on line.

All we are doing is providing third party convenience. We are completely

complementary to electronic banking," says Mclaughlin.

Marketing. Two months after Paytrust’s launch, McLaughlin

is working with various agencies for different public relations and

marketing and advertising services. "All three of these companies

need to either spend $30 million in advertising or team up with more

trusted names — web companies or financial institutions —

to get some legitimacy to their operations," says newsletter editor

Bruene. "They will have to maneuver quickly. They have no lead

time."

"We have an incredible service and a huge market opportunity that

we are pursuing as hard as we can. We are letting people know there

are a whole lot of us here to deliver this service to consumers,"

says McLaughlin. "My life goal is to create a company and we are

working together to do that."

Secure Commerce Services, 29 Emmons Drive, Suite

E-10, Princeton 08540. Ed McLaughlin, chief executive officer. 609-720-1818

or 877-PAYTRUST; fax, 609-720-1819. Home page: http://www.paytrust.com.


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