You should all read this. just saw it in the local newspaper, front page of the business section..........gives a good account of ebill efforts and echoes my sentiments that the REAL profits in this stock and other ecommerce stocks will be in 2-5 years....pattience my friends and buy these babies when they are beaten up. this is still the first inning.
PAPER OR PLASTIC?
GEORGE RAINE
OF THE EXAMINER STAFF ÿMarch 1, 1998
WHILE ELECTRONIC PAYMENTS ARE ON THE RISE, AMERICANS' LOVE AFFAIR WITH CHECKS KEEPS THE PAPER TRAIL STRONG
Rob Anderson of Alameda was not motivated by altruism when he stopped writing checks and began paying bills by computer. He had no sense of a greater societal good. Nor did he do it to help enhance the economy, although he sees a clear economic benefit to electronic commerce.
"It's basically a lot easier way for a consumer to track expenditures," Anderson reasoned.
In fact, Anderson doesn't use cash much, either. "It's just more efficient on the computer," he said. "There's a record."
Anderson belongs to a tiny but growing minority class of consumers who have switched almost totally to on-line banking and he hasn't looked back.
Three years ago, he began paying checks via his Mac, using Quicken software and a check service called CheckFree. For $9.95 a month, the service allows him to pay bills electronically from his checking account at the University & State Employees Credit Union.
"You can reconcile daily what checks have hit and what haven't and move money around accordingly," he said.
His electronic payments cut costs for all business entities involved in electronic transfers, said Anderson, but he wondered when he would actually see those savings.
"The big question is when they'll be passed on to the consumer," said Anderson. "I have my doubts, but maybe they'll come. It's a competitive market."
Part of what is holding up those savings is the love affair that Americans have with their paper checks. Last year, we wrote 63 million or more checks, up about 1 percent from the year before. While checks account for 77 percent of total noncash payments in the U.S., they account for an average of only 23 percent in the other major industrial countries.
And while we can pretty well dismiss the notion of the "checkless society" that the prognosticators 25 years ago said was about to dawn, research shows that even the United States is slowly moving toward one.
The slice of the pie chart of U.S. payments occupied by electronic transactions may be tiny now - just 3 percent, or 21 billion transactions, analyses show - but the sector's remarkable growth rate is unlikely to be stunted by protests from the technophobes among us.
Consider these developments:
*Beginning Jan. 2, 1999, the federal government will be required by law to make all its payments electronically, with the exception of tax refunds and cases in which it's a hardship for recipients to open accounts. This will save the government $100 million in processing and postage costs.
*There are more than 3.5 million on-line banking households in the United States today, an increase of more than 2 million from 1996, according to the American Bankers Association. By 2001 that number should exceed 18 million, according to an analysis by Jupiter Communications, an economic research firm in New York.
*Bank of America processes some 20 million checks a day at its facilities in San Francisco and Los Angeles - second only to the Federal Reserve Bank nationally. However, its "HomeBanking" customers are making more than 850,000 on-line payments per month, up 80 percent from just a year ago.
*All-Internet or "virtual" banks are now being developed on the World Wide Web. The banks without branches include CompuBank (www.compubank.co.il), which describes itself as a "comprehensive, on-line real-time banking system."
*There are 70 million debit cards in use, a 48 percent increase from 1996.
"I like to equate checks with having a big glacier in your backyard with the sun shining on it," said Bill Burnham, the electronic commerce research analyst at the securities firm of Piper Jaffray in Minneapolis. "You know it's going to melt but it's going to take a while."
There is evidence of a glacial shift toward electronic transactions. Burnham has found that the check share of the total U.S. payments in 1995 had fallen to 77.4 percent from 81.6 percent in 1991.
In 1995, check volume exceeded $73 trillion - almost seven times the size of all other retail electronic payments combined. However, the growth rate in paper-check dollar volumes is well below that of electronic payments and is actually falling when adjusted for inflation, he said.
"This slowdown in (checks') growth rates is indeed leading to a slow but gradual decline in checks' total share of payment volumes," said Burnham.
Burnham's research jibes with estimates from financial institutions and the National Automated Clearing House Association, all of which anticipate a leveling-off of check-writing in about 2002 and then a slight decline. Alternative forms of payment - which include debit cards, on-line payments, and "smart cards," which store value much the way BART tickets do - are clearly ascendant.
Activity at the electronic alternative to the traditional paper-based check collection system, the Automated Clearing House, or ACH, is up 15 percent over year-ago numbers, according to NACHA, a Herndon, Va.-based trade association for the automated clearing house network.
ACH, which was developed in 1972 by 10 California banks belonging to the San Francisco and Los Angeles Clearing House Associations, is most often used to conduct scheduled, small-value transactions, such as Social Security payments, the direct deposit of paychecks and dividend payments.
Banks and other financial institutions have reason to encourage ACH activities, said NACHA, since they reduce processing costs by $3 billion a year nationally.
But warnings from consumer advocates are being heard, too. Consumers Union in San Francisco says the new technologies - "smart cards" in particular - raise questions about equal treatment among economic classes, said analyst Gail Hillebrand.
"The technologies present both a positive opportunity to improve access to banking services, and a negative opportunity for banks to further segment and stratify the market for banking services to the detriment of low- to moderate-income working families and others," Consumers Union wrote.
In April 1997, a Consumers Union policy paper questioned whether banks would use electronic money or banking to compete for wealthier customers, while increasing the price or reducing the availability of branch-based and other non-electronic services.
However, charges that banks assess for the new technology suggest that on-line customers are paying their own way so far. Bank of America's HomeBanking program allows customers to electronically confirm deposits, transfer funds between BofA accounts, see if a check has cleared and view BofA credit-card statements free of charge, but unless a customer has one of several premium accounts through which a waiver is granted there is a charge of $5.95 a month for on-line bill-paying capability.
"We believe our bill-payment option is very competitively priced and that it provides customers with a tremendous amount of convenience. If you look at the $5.95 a month in terms of what you get, it's less than the price of a book of stamps, which you would be buying if you were mailing all those checks," said Jeff Hershberger, a BofA spokesman.
Although bankers regard electronic commerce as a compliment to traditional checking accounts - and are making the technology available to customers now - they fully expect that broad usage is some years away.
"Checks are here to stay," said John Hall of the American Bankers Association in Washington. "However, while consumers like to maintain the old ways, they also like more convenient ways of making purchases."
In part, the breakdown between check and electronic payment users is generational. "My 71-year-old mother would never consider paying her bills electronically, but I don't think my 17-year-old son knows where the branch is," said Bob Wynne, a spokesman at Bank of America in San Francisco.
"Payment systems are really part of the economic fabric of a society and change comes glacially to them," said Piper Jaffray's Burnham. "You can huff and puff but you really can't push checking accounts over."
Indeed, said Burnham, the United States is an international anomaly in average check-writing. Germany, Switzerland and Austria have replaced most checks with an ACH-like system called Giro, in which payroll is automatically deposited and mortgage and other scheduled payments are made electronically, said Burnham.
Check-writing in Canada in the past few years declined sharply, falling about 15 percent, he said, largely because the six banks that dominate the country got together and decided they wanted to reduce the volume of paper checks.
"The United Kingdom and Canada made up their minds and said, "Out, out, damned spot!' to check-writing - and there were some pretty big increases electronically over a space of five to 10 years," said Burnham.
However, to significantly reduce the number of checks used in the United States, said Burnham, would require aggressive promotion of debit cards and "bill presentment" - the ability to receive and pay bills via computer - not to mention a loosening of the cultural and habitual bonds that Americans have with their checkbooks.
Gerald F. Milano, the executive director of the California Bankers Clearing House Association, which provides payments-related services for more than 100 commercial banks, savings institutions and credit unions in the West, exemplifies how checks mean more than just a payment.
While Milano advocates the safety and security of a checkless society, he only recently reached a personal crossroads - finally throwing out the $46 canceled check that he wrote to an Iowa City jeweler 32 years ago for an engagement ring for his wife Cindy.
For 32 years, he said, he thought having the old check was important to his relationship with his wife. "I finally realized it was the relationship that was important," he said.
But even the sentimental Milano predicts that the arrival of a checkless society could come about sooner than we think, depending on how we define it.
"If the checkless society is when the last citizen shreds his checkbook, it's a long ways off," he said. "But if you are talking about when half the transactions of average people are electronic - a kind of threshold of the electronic future - I think it's within two to five years."
for destruction, fill carts at a Bank of America data processing cente
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