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).
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?
Stop for a moment and think about the implications of what is called
electronic bill presentment or "scan and pay:"
with it then or anytime. You log into a secure area, the Paytrust
bill center, and review the bill and/or pay the bill.
you to view, whether you are traveling or at home.
$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.
year you get a CD-ROM containing the entire year’s records.
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
"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."
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.
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.
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:
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."
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.
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
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.
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.
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
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
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.
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
"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."
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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