FINANCIAL SERVICES INDUSTRY UPDATE

Yodlee Wrings Costs Out of Bill Pay Systems

Do you love the customer-service benefits of electronic bill payment systems, but hate the cost of third-party consolidation services? Yodlee Inc. thinks it has the answer. The six-year-old Redwood Shores, Calif., company is building a competitive edge through its ability to harness disparate data sources and unify information for consumer-facing applications offered through retail banks and brokerages.

Yodlee's leading product, BillDirect, not only gives consumers a central, secure Web interface for paying bills electronically, it can open a new revenue stream of increased interchange fees from card payments for banks that offer the application to their customers. "Bill pay can go from a cost center to a profit center," says Joe Polverari, senior vice president, strategy and development.

The technology behind the scenes
Powering this Yodlee-hosted service is a sophisticated backend data center that uses Oracle database technology for security and reliability.

BillDirect offers an alternative to the two traditional models of electronic bill payment solutions: the consolidator model, and the biller direct model. With the consolidator model, consumers must pay bills using consolidation service providers, a process that means inconvenient "floats" of perhaps five days from when consumers schedule a payment and when the creditor receives the funds. And if a problem arises, consumers must work through the consolidator, not directly with the creditor, which can lead to additional delays.

The consolidator model is costly for banks, too, which typically pay fees to consolidators, while offering the service for free or little cost to consumers. "Depending on which consolidator they use, banks may pay anywhere from $4 to $7 per user per month to provide that bill pay service," says Polverari. "It's become an increasing financial burden."

In the second model, biller direct, consumers connect directly with billers, such as credit card, insurance, and utility companies, through the billers' own secure Web interfaces. Consumers usually receive immediate credit to their accounts once they make a payment. Consumers also have the benefit of viewing bill statements, including all transaction details, as well as direct confirmation from the biller that the payment has been received. Billers benefit because the service drives customers to their Web site promotions and decreases the costs of paper statements. However, consumers must bounce from site to site to pay a month's worth of bills.

Easier for customers, less costly for banks
Yodlee's answer, BillDirect, is a hybrid model that aggregates disparate data sources and integrates the various biller back-end systems behind a single Web interface. "Consumers access the application as part of their bank's website and leverage the Yodlee technology for the best of both the consolidator and biller-direct experiences," Polverari says. "It's the only model that offers significant benefits for all constituencies: the banks, the billers, and consumers."

These benefits include the ability to make same-day payments with the flexibility of using credit or debit cards; two of the highest rated consumer priorities relative to online bill pay. "From the bank's perspective, they've taken this $4 to $7 consolidator cost per month and translated it into a far lower cost, because our platform is considerably less expensive on a per user basis. In addition, they earn interchange revenue from every card payment made. Banks start making some hard economic returns on the back-end by generating anywhere from $3 to $7 per consumer per month just in interchange fees."

BillDirect providers currently include America Online and LowerMyBills.com.

Powered by Oracle
To assure that Yodlee can reliably offer this service to its customers, it relies on Oracle database technology and embedded clustering capabilities for redundancy, business continuity, and security. "We've been focusing on integrating hardware encryption and layers of firewalls between us and the database and between the database and the consumer," explains Peter Hazlehurst, senior vice president of product development.

He adds that Yodlee is now investigating moving all of its backend operations entirely to the Oracle technology stack, including Oracle Application Server, which Hazlehurst gives high marks for fast Web performance, support for front-end clustering, and strong support of Java Message Service. "We've been looking at whether we can simplify or consolidate some of the stack layer with a single vendor," he explains. "We have about 1,000 servers, and it gets more and more complicated to manage them. A single-vendor solution would make things easier."

Polverari adds that the Oracle reputation helps in Yodlee's sales efforts. "It's easier as a smaller company handling sensitive financial data to say our applications are built on top of Oracle, because everybody understands that language and speaks it," he says. "Retail banks and brokerages are all running Oracle at some level, so it removes uncertainties that might otherwise be there."

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