Bill Payment

Not much good news for Bill Express today. Their share price has fallen to 10.5 cents, from 12.5 cents yesterday. There is a growing volume of dissent among newsagents about the unilateral removal by a $250 per store per month marketing subsidy by Bill Express last month.

While I am no lawyer, the documents I have seen now from several newsagents suggest that Bill Express has breached the agreement it had with these newsagent. In one case, Bill Express wrote:

In a nutshell, this guarantees that, combined with the other rebates we pay now, you won;t be out of pocket.

Thanks to the Bill Express action last month, this newsagent is out of pocket.

In another Bill Express document provided to a newsagent as part of their representations, Bill Express said:

Express Shop has formed a Marketing Support/Incentive program to offset costs to your business. This incentive is equivalent to making up the shortfall of up to 200 bill payment transactions and in recognition of your efforts in meeting the criteria outlined below and will effectively ensure that you are at a break even or better position.

Thanks to the Bill Express action last month, this newsagent is no longer at a break even or better position – even though they have done everything required of them by Bill Express.

It appears that Bill Express is prepared to breach its agreements and commitments with newsagents, both written and oral, in order to preserve cash. given the action individual newsagents are talking of, this may well prove to be false economy by the company.

I was disappointed to receive advice from the ANZ, a bank which has done well out of its relationship with Bill Express in newsagencies, announcing a change in merchant terms and conditions. They have removed the $500 break fee if the merchant agreement is broken within two years and replaced with a break fee of $250 regardless of when you break. Given that many agreements entered into when Bill Express guided people to an ANZ merchant relationship would be more than two years, it’s another fee newsagents need to navigate.

I am curious that the ANZ would send out this announcement following the announcement a couple of weeks ago to Bill Express newsagents taking away the marketing subsidy which, for many, was the difference between losing money or breaking even on the service.

It’s as if the ANZ has heard opf the newsagent anger, anticipated a mass exodus and sought to place a barrier in front of newsagents considering quitting Bill Express and the ANZ merchant arrangements. Why else announce what is effectively a new break fee right now?

Newsagents are wondering what to make of the response from Bill Express yesterday to queries from the ASX in the light of the decision by them to reduce their financial commitment to and support of newsagents. On a related matter, some I have spoken with who have advised Bill Express of their decision to exit the relationship say they are having difficulty actually moving this forward. The extraction process seems broken at the Bill Express end.

An interesting story about Bill Express was on page 61 of yesterday’s Australian Financial Review:

Small fry that nearly got away

The earnings announcements of many small financial services names may appear to have slipped by unnoticed in the February reporting season. But they yielded noteworthy results – some good, some ugly.

Bill-payment network Bill Express released its results on friday after the market closed. It revealed a net loss of $2.05 million for the six months to December 31, against a net profit of $3.9 million last time.

The company had a $1.8 million accounting loss on its investment in prepaid technology providor ETT, as well as $3.4 million in marketing costs for its bopo prepaid Visa card business.

Bill Express said, however, that the loss on ETT would be offset in the second half, when it sold the investment at an expected profit of more than $2.5 million.

Bill Express is using newsagents, its key retail network with 3,500 outlets, to help turn the financial situation around. Two weeks ago they announced the removal of a marketing subsidy of $250 a month paid to newsagents. This subsidy was like an income guarantee. Many newsagents only took on Bill Express because of the minimum income guarantee. The guarantee was not part of any agreement between Bill Express and the newsagents.

In response to the removal of the marketing subsidy, many newsagents are looking at how they can quit the Bill Express network. If this happens in any numbers, the pressure Bill Express is under in terms of share price will escalate. With its shares down 46.9% over the last year and 30% in the last six weeks, the last thing Bill Express would want is further share price pressure.

In response to the many calls from newsagents venting anger over their treatment by Bill Express this week, Tower Systems put an offer into the market yesterday to facilitate access to the eziPass alternative:

Newsagents angry at the removal of the $250 per month marketing subsidy by Bill Express are switching to eziPass from Tower Systems.

eziPass offers 300 electronic products including phone recharge, tourist attractions, tollway payments, movie downloads and other products. Details can be found at www.ezipass.com.au.

Access to eziPass does not require newsagents to sign a long contract. Payment for stock is made weekly and margins on some items are considerably better.

eziPass is available immediately from within the Tower Systems software, providing newsagents with a good alternative to Bill Express.

In response to overwhelming demand, Tower Systems has created a special offer, bundling Point of Sale and eziPass for newsagents not using Tower today. This special offer is available for a very limited time.

While Tower Systems is making a standalone version of eziPass available to all newsagents in mid April, many are making a move today, preferring an integrated solution.

An announcement is expected next week on a preferential banking relationship with competitive rates. Tower Systems also anticipates an announcement regarding Optus and Vodafone for its eziPass platform.

Tower Systems already serves over 1,450 newsagents nationally.

Bill Express has misread the market and, I suspect, now regrets their treatment of newsagents. They will need to act quickly to stop their retail network shrinking. In their letter to shareholders yesterday they talk about restructure. They don’t say that they expect newsagents to carry $875,000 a month of the cost of this.

JULY 2008 UPDATE => for my latest posts on Bill Express, click here.

Bill Express (ASX code – BXP) has unleashed a firestorm of anger among newsagents, its retail network, by removing a long standing marketing subsidy making the relationship loss making for many. The subsidy was removed prior to Bill Express advising newsagents.

The Bill Express action risks newsagents turning off the service and the company being without its retail network. This would upset biller partners as well as telcos such as Telstra, Optus and Vodafone who rely on newsagents to sell recharge through the Bill Express / newsagent relationship.

Some newsagents are calling for a national boycott of Bill Express, some have already stopped accepting bill payment through Bill Express and some are researching possible legal avenues – several having met with lawyers already.

Removal of the marketing subsidy is a high risk strategy by Bill Express. They knew it yet they proceeded. They were told prior to the announcement how newsagents would react yet the proceeded. My assessment is that they chose the lesser of two evils, they chose to save their cash.

In 2003, Bill Express was a small start up in need of capital and a retail network. Newsagents provided both on the promise of shared profit. 3,500 signed up – committing to leases valued at $25,000 each, taking the financial risk and unlocking around $87.5 million in free capital for Bill Express. I was skeptical and arrived late at the Bill Express table. In hindsight, my skepticism was well placed as were the tough questions put by some in the industry.

But that’s history now, newsagents signed up, we delivered the retail network and capital to Bill Express. We signed contracts which are difficult to terminate. Thanks to the withdrawal of the marketing subsidy, we are burdened with around $3,000 a year more in bottom line costs. This is our reward for our extraordinary support. Bill Express, in the meantime, has added $875,000 a month to their bottom line by removing the marketing subsidy.

It is easy to see the winner in this. But it was always going to be so. Bill Express was clever to spin the impression that the subsidy would remain while always knowing that it would end.

It is instructive to break down the four-part Bill Express offer: The bill payment side is loss making; the in store advertising screen system XIP media is a failure; the BOPO debit card is, well, very slow at getting off the ground. Bill Express, as part of their spin to newsagents this week, uses an example showing I can make money if I sign up one new BOPO customer every day. I currently sign up, on average 1.5 a month. One a day is a huge stretch for something with slim margins and a high labour cost; the Dialtime phone recharge component is the only money making aspect for newsagents. However, what we make from this is diluted by the now chunky Bill Express fees.

The numbers put to newsagents by Bill Express this week to show how they can make money are not being believed. Indeed, they make matters worse for Bill Express as they show an organisation out of touch with its retail network.

Recovery from the loss of faith among newsagents looks insurmountable. I wonder at what point Bill Express will have to make an announcement to the ASX about this.

I am conflicted in the Bill Express matter. Seven months ago, I and my team at Tower Systems started work on eziPass, a software product which competes with Bill Express. We developed this product and exclusively integrated it with our newsagency point of sale software. We have also developed a stand alone version which will be available in a matter of weeks free to all newsagents. Up to a week ago, 220 newsagents had signed up with eziPass. Sign ups have increased considerably since the Bill Express announcement this week.

While eziPass competes with Bill Express, my work and that of Tower Systems is pro-bono for newsagents. Neither I nor Tower Systems nor any business assocoiated with me makes money from eziPass. I know that by not taking a cut I was able to maximise the return newsagents achieved from selling phone recharge, attraction tickets, tollway passes and the 300 products through eziPass. This is why many eziPass assessible products have a better margin for newsagents.

While eziPass benefits from the difficulties in which Bill Express finds itself, Bill Express alone is responsible for its problems. It is responsible for promises made on its behalf to newsagents, the failure of the in store advertising screens, the slow uptake of BOPO and the now high cost of its old bill payment technology. eziPass is the smarter alternative. No expensive baggage. No capital outlay. No monthly fee. No onerous contract. No special computer hardware. There are fewer middlemen sharing the pie. It is integrated with point of sale for all 1,450 Tower newsagents and available from April for non Tower newsagents. Free.

I am pleased to be able to offer newsagents an alternative to Bill Express – for many it offers an attractive parachute.

The wrath expressed by newsagents over the last 48 hours is unlike anything I have seen before. They are angry and upset – with justification I would note. I am surprised that Bill Express has remained silent. It’s as if they are resigned to taking a hit because of their decision and that they’d prefer to weather this than reinstate the subsidy. Cash is king I guess.

Beyond the public anger being vented, some newsagents have sought legal advice on action against Bill Express over the removal of the subsidy and misrepresentations surrounding the benefits claimed prior to them signing up for the service. The problem for newsagents is the Bill Express contract many signed. It requires notice six months prior to the end of the agreement that a newsagent does not wish to roll over otherwise it is automatically renewed. Of course, most newsagents have not given such notice and have automatically renewed contracts.

My view is that the Bill Express contract will need to be tested in an appropriate forum. Whether this is tribunal such as the Consumer, Trader & Tenancy Tribunal in NSW or as high as a Supreme Court or somewhere in between remains to be seen. In the meantime, newsagents can vote through their actions by putting as little business through Bill Express as possible.

At my software company we use sales games every year or two to reinvigorate sales and those who manage the sales process. Conducted right, sales games are a win for all concerned. I’m pleased therefore to see that Bill Express is using a sales game to enable newsagents to win back the cost of the recent BOPO debit card in store training. I like the idea because it reminds newsagents about the importance of bill payment and gets them thinking about this and BOPO in entrepreneurial terms.

In the Bill Express bill payment sales game, the bar is not too high. It’s built around newsagents engaging with their customers a little more to increase bill payment transactions. In return, newsagents win a rebate of the cost of BOPO training – a good commercial solution to an issue newsagents would have thought was lost.

I need to declare that I was one of the people Bill Express consulted in navigating this issue as a result of comments here.