Often, innovation comes from the need to solve a simple problem. CheckFree founder Pete Kight's initial goal, while far-reaching, was straightforward enough: eliminate paper bills and checks for the health and fitness industries. But the path for CheckFree from concept to market leader in electronic bill pay wasn't easy.
According to Kight, who founded CheckFree in 1981, some 30 venture capitalists turned him down at the start. Corporations were slow to adopt electronic funds transfer, and banks were reluctant to go online, much less take the lead in championing electronic payments, he adds. But despite all this, Kight says, he held on to his belief that paper could be eliminated from payments.
"Our biggest challenge was the fact that we had three constituents in electronic bill pay: the bank, the biller and the consumer," Kight explains. "We could only grow as fast as the slowest of those three at any given time. By far the slowest to move and adapt to the technology change were the banks," he continues. "They didn't really want the Internet or online banking to happen, as it represented a significant change that they always worried would be used to disintermediate them from their depositors."
Kight served as CEO of Norcross, Ga.-based CheckFree until it was acquired in 2007 by Fiserv (Brookfield, Wis.), where he served as vice chairman until 2010. He remains on the company's board of directors today. Kight's current day job is as managing partner of private investment firm Comvest Group. He also is proprietor of Quivira Vineyard and Winery in Healdsburg, Calif.
Two Epiphanies for the Price of One
Looking back at CheckFree's ascension as a major player in electronic payments, Kight says his success came as much through his belief in a better way to receive and pay bills as it did through persistence. "While looking for a solution for that industry problem in the late '70s, I came across the fact that the insurance industry was utilizing the ACH network for monthly payment of premiums," Kight recalls. "That realization created an epiphany: If nonbanks were allowed to utilize electronic funds transfer, paper would eventually lose. At the time, banks were just starting to roll out ATMs, and it was clear to me that the banking industry would never be the innovator to make electronic payments work."
Kight's vision not only led to the founding of CheckFree, an electronic payment service that predates the Internet era, it ultimately presaged the recent revolution in online bill presentment and payment. In the early days, Kight relates, the payments were all standing-order, corporate-originated debits. But that changed when Internet service providers CompuServe and Quantum (which became AOL) began using CheckFree in the late '80s to collect monthly usage payments in a recurring fashion. "As we worked more with CompuServe, we developed the second epiphany: Consumers originating their own payments would adopt [e-payments] much faster than corporate billing departments," Kight says.
That epiphany led to the development in the early '90s of simple checkbook-bill payment PC software that CheckFree gave away on local bulletin board websites, according to Kight. From there, the company began working with corporate billing and accounts receivable departments to figure out electronic settlement.
During those early days, Kight notes, he wanted to offer CheckFree as a branded experience for banks. But early on, not a single bank was interested. "It was immensely frustrating to be receiving lots of flack from the industry telling us, and me personally, that ... we should know our place and simply wait for them to be ready," Kight says. "We knew the consumer didn't want to wait, and we passionately believed we were doing the banks a favor by pushing them beyond their comfort zone."
Kight kept working, demonstrating demand for the service, and finally got banks to see it his way -- that banks had the advantage in consumer trust when it came to paying household bills. "We convinced the industry that we could be trusted, and once we started signing up the banks in large numbers we ceased marketing CheckFree as a consumer brand" around 2001, he says. "In the end, we helped the banks retain their leadership."
