Fiserv's new billpay solution for checkout faces challenges

New pressures facing the billpay industry include compliance with the Americans with Disabilities Act and mounting discontent from consumer-advocacy groups related to the fees payday lenders charge for their services.

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TowerGroup in 2007 estimated that walk-in billpay accounts for about 6 percent of all bill payments in the United States. And most of the people who use the service are cash-preferred or underbanked — a group that represents about 40 million households. That segment typically pays and buys prepaid cell-phone minutes at convenience stores, neighborhood bodegas and payday lenders, not traditional financial institutions.

ADA compliance, consumer advocacy drive self-checkout change

Many retailers, because they are not banks, have opted for self-service billpay offerings, rather than tying up clerk time behind the counter for transactions that could hinder regular retail business. But the use of a self-service terminal or kiosk poses its own challenges — namely when things such as audio-enabled transactions and keyboard or keypad height are required to meet strict guidelines set by the government for ADA compliance.

And more and more states are starting to take the ADA and financial services issues very seriously.

In California, proposed legislation would require that any location that accepts utility payments meet ADA requirements. In Ohio, pressure from consumer groups led to tightened legislation that put caps on the interest rates payday lenders can charge. And in Cleveland, Tenn., Check Into Cash, another CheckFreePay customer, announced plans to shutter 32 of its 92 shops because of similar business pressures. Other states are expected to follow because of economic pressures and concerns about the high interest rates payday lenders charge.

As a result, many payday lenders in Ohio have closed or are closing, and those closures are pinching CheckFreePay's business in those states, said Paul Harrison, senior vice president and general manager of Fiserv's CheckFreePay.

Many of those payday lenders are agents for CheckFreePay, and if they close, CheckFreePay has to replace those locations so that its billers maintain sites for payments acceptance, Harrison said.

"It would be very difficult and expensive for these small stores to be ADA-compliant," he added.

So CheckFreePay has developed a barcoded system that allows users to pay bills at the checkout lane, and it expects to promote and, perhaps, soon launch its solution to the likes of Kroger, Wal-mart, etc., to help reduce its reliance on payday lenders.

"At CheckFreePay alone, 38 percent of the walk-in locations we support in Ohio are payday lenders," Harrison said. "We will have to replace these agents to keep support for our billers."

Overall, CheckFreePay processes payments for about 160 billing clients at more than 13,000 agent locations.

The changing landscape led Fiserv Inc. to partner with PayScan America Inc. through an exclusive license for PayScan's patented barcoded payment process. The system integrates the PayScan process with the Fiserv CheckFreePay Link platform.

With the barcode system, CheckFreePay will offer walk-in consumers the ability to pay household bills at retail checkout lanes. The smart barcode will store processing rules and customer information, including the account number. And the system can be deployed at an existing point-of-sale terminal, whether it's in a self-checkout lane or in an assisted checkout lane.

CheckFreePay plans to launch a pilot program in early 2009.

The bills can be paid by cash or debit. Harrison said interchange fees on credit cards make payment by credit cost-prohibitive.

Consumer fees range from $1 to $1.50 per transaction. And in states that prohibit user fees on utility payments, the biller will pay the surcharge, Harrison said. The agents and CheckFreePay will share the fee income.

Challenges in store for billpay at checkout

To be successful, CheckFreePay will have to change the behavior of cash-preferred consumers if it wants utilities and agent locations to sign up for the service, said Hamed Shahbazi, chief executive of TIO Networks Corp., a recognized leader in aggregated self-service payments.

"We don't see in-lane bill paying becoming a material consideration in the marketplace, at least for a while," Shahbazi said.

Why? Cash-preferred consumers may currently use CheckFreePay or another billpay system through a kiosk or clerk-assisted transaction at their favorite check-cashing spot or convenience store, Shahbazi said. But they aren't likely to use the service at checkout.

Others, like Jennifer Roth, a TowerGroup analyst, agreed. The new CheckFreePay format may likely find success at grocery stores and discount retailers but not so much at payday-lender sites, where cash-preferred users are accustomed to having financial services fulfilled and met.

"If a consumer is going to a check casher, why would they then go to a supermarket to pay their bills, when they could pay them at the check casher, unless difference in fees is large enough," said Jennifer Roth, research director of global payments services at TowerGroup. "I don't see how they're going to move consumers to use a new service."

Roth did see growth potential in walk-in bill payment services as the economic downturn means consumers may struggle to pay bills on time. Cardtronics in Novemberannounced a deal with MoneyGram International to provide MoneyGram money transfer and ExpressPayment urgent bill payment services at advanced-function ATMs in 7-Eleven convenience stores in the United States.

"With the financial crisis, people will be making more last-minute payments, and if they don't pay online or over the phone, they may be more likely to use walk-in bill payment," Roth said. "Providers like Fiserv and MoneyGram are looking for other channels to pull people in."