As an electronic funds transfer service providing businesses with an efficient, cost-effective method of payment collection, Checkfree Systems initially proved successful in the health club market, where club owners recognized the advantages of such a service. By letting customers use Checkfree Systems to automatically pay their monthly dues (either by automatic charges to their checking account or credit card), the club owners kept their membership retention rates steady and eliminated a lot of paperwork.

Once the service had success there, it moved on to other areas, handling the payments for subscribers of on-line computer services such as CompuServe and GEnie. But, as Checkfree Corporation knew, there were even greater opportunities out there.

“Quite frequently,” says Michael Sapienza, vice president of marketing, Checkfree Technologies, “people would call in and say ‘I’ve been paying my CompuServe bill, or my health club membership, using CheckFree for so long, I’d really like to have all my bills paid that way, so get out your pen and paper and take down all this information so you can handle the rest of it.’ And of course our response was ‘Gosh, we’re not really set up to do that.’ But the calls became more frequent.”

Electronic checkbook

And thus the idea for CheckFree was born. For $9 a month, the service lets you pay up to 20 bills (quantities above 20 cost an additional $3 per 10 or portion thereof), using your personal computer (PC) and a modem. Like an electronic checkbook, it keeps a record of all of your transactions, automatically updating the balance with each payment made. Because CheckFree works directly with the Federal Reserve, it is connected with all financial institutions, so anyone can use the service regardless of which financial institution they use or where they live.

All data entry is done off-line, keeping financial records stored safely in your PC, and the software has been designed so that the coded burst transmissions to the CheckFree Processing Center contain only payment information.

Not a new idea

The idea of paying bills via home computer isn’t a new one. Many banks have tried-and failed-with a similar service. The reason most attempts have been unsuccessful, Sapienza says, is that even a bank with a large customer base has a finite number of depositors who own the computer equipment necessary to use the service.

“At best,” he says, “15 to 20% of their depositors are going to have PC’s, and of those, probably only 30% will have modems, so that cuts it down even further. There’s just not enough volume level. We’re the first ones to do it on a bank-independent basis. We don’t have those restrictions and that makes it a lot more feasible.”

Tracking study

In 1984, after the idea for CheckFree was hatched, a tracking study was done to ascertain market demand. One sample was made up of on-line computer service subscribers who had the equipment necessary to utilize a service like CheckFree. Another consisted of a general market sample of approximately 1000 men and women aged 25 to 49.

Without identifying CheckFree, the researchers asked the groups basic questions, such as “If this kind of service was available, would you be interested in it?” They were also asked to define the key features they thought such a service should have, and talk about what things would make it most appealing.

The respondents expressed definite interest. Depending on the sample cell, Sapienza says, between 8 and 15% said they would definitely buy such a service-but with a number of stipulations:

  • The service had to be bank-independent. “Nobody wanted to utilize a service to pay their bills where they had to move their money from their current bank to another bank just to use the service,” Sapienza says.
  • There could be no limitations on the types of bills payable with CheckFree. “If you can only pay your utility and your phone bill, what use is it?”
  • There had to be a flat rate, instead of a per-payment charge. “They wanted to know that it was going to cost X dollars per month.”
  • The system had to be software-based, allowing most of the work to be done off-line so that “only after you were done entering all of your payment information do you transmit the information to the service provider. People want their computers to act as intelligent machines, not as dumb terminals.”

Two more studies

These findings were taken to the development people, to see if the needs of the test market could be met. They could, and by early January of last year, the prototype was nearly ready. But Sapienza did two more studies to verify the 1984 findings and make sure the market was still there.

The first study was conducted in shopping malls in four cities with a high incidence of PC users (Atlanta , San Francisco , Washington D.C. , and Chicago). After a screening process to make sure they didn’t work for a bank, advertising agency or market research firm, the 300 respondents (who were required to either own or have access to a PC) were shown the CheckFree service in the form of an advertising concept.

The second study was a telephone survey of some 300 users of an on-line information service, who were asked similar questions, with similar results. As with the 1984 research, respondents were asked questions about purchase interest and what other concerns.

Convenience and security

What most appealed to people about the service was the convenience of it. “The fact that they didn’t have to go through the pain of sitting down for three hours every month and writing out all the checks. They could do it in 15 minutes and the software would automatically update everything.”

The number one concern voiced by the respondents was security. They wanted to make sure their financial records were kept confidential. Some, Sapienza says, expressed fears that CheckFree was some kind of ominous Big Brother-like system.

These findings were used in the development of CheckFree’s initial advertising and direct mail communication, accenting the benefits cited by the respondents, while addressing their concerns.

Marketing challenge

Though the research showed there was definitely a market for the product, the largest group of potential customers consisted of people who liked the idea of the product, but were hesitant to embrace it right away. They said they would be willing to test it, but they wanted to wait and see what happened when others bought it.

Getting at this group, Sapienza says, is CheckFree’s marketing challenge.

“We think there’s a core group of people out there who have PC’s and modems who would be willing to buy it right away-which is enough to get us going but our growth will depend upon getting to that next level of people who want to see it and touch it first, and have it be established for awhile before they jump into it.”

Marketing efforts

The research also provided a clear view of the demographic make-up of the market—male technology buffs between the ages of 25 and 50 with incomes of around $40,000—allowing CheckFree to concentrate its marketing efforts in key areas.

The company began a basic advertising campaign concentrating on publications that reach PC users, and Sapienza has flown “back and forth across the country” talking to editors of PC magazines to drum up editorial coverage and generate word-of-mouth interest. In addition, hardware or software manufacturers with a mutual interest in CheckFree have been contacted regarding co-marketing arrangements.

“Obviously our service could potentially promote the sale of modems, so we’re negotiating with modem manufacturers to either bundle our software or promote our software, and in return, we’ll promote their hardware.”

Since the advertising kick-off in November, Sapienza says, “we’re selling literally hundreds every day.” In addition to receiving a good deal of positive publicity, they’ve gotten calls from several retailers interested in selling the product, and through an arrangement recently made with Radio Shack, the product will be available nationwide.

But probably the most convincing evidence that CheckFree is a product whose time has arrived was supplied by a decision by Chemical Bank in New York .

“They recently discontinued their home banking service,” Sapienza says, “and they suggested CheckFree as the alternative home banking service to their customers.”