Online banking will soon no longer be the only means of paying bills over the Internet. At least two mutual fund companies are now building the capabilities to allow investors to pay bills online from their money market fund accounts.

Within the last two weeks, Scudder Kemper Investments of New York as well as Federated Investors of Pittsburgh have disclosed that they have formed partnerships with Home Account of Emeryville, Calif., an independent vendor and distributor of electronic bill payment services, in order to add bill payment services. Home Account has built bill payment capabilities for the online sites of Bank of America as well as First Union, both of Charlotte, N.C.

Alliance Capital has offered a similar bill payment capability, called, since 1996, also through a partnership with Home Account as part of the cash management services it offers to broker/dealers, said an Alliance spokesperson.

Both Scudder Kemper, the 18th largest money market fund sponsor, and Federated, the fourth largest money fund provider, are initially introducing the electronic bill payment service on money funds sold through broker/dealers.

These money funds are usually part of a brokerage firm's central asset management account that offers a variety of services to clients. Often, brokerage firms that do not have the economies of scale to offer their own money funds will seek alliances with outside money fund sponsors and offer those funds to clients. A money fund investment option usually exists so that a brokerage firm's clients can temporarily sideline cash.

Scudder Kemper will decide on a case-by-case basis whether to charge the individual brokerage firms offering the bill payment service depending on the "overall relationship" with the brokerage firm, said Terry McBride, director of the cash products group at Scudder Kemper.

Scudder Kemper also plans to take its new bill payment and bill presentment programs into the retail money fund realm in what appears to be a first for retail money fund investors. Over the next few months, Scudder Kemper will create a bill payment capability for its retail customers who own shares in any of six selected money funds Scudder markets directly to investors, said McBride.

Scudder Kemper is currently deciding how to pass along the cost for the bill payment services to its retail customers, McBride said. Retail customers would probably be more tolerant of a service fee than a higher expense charge to cover the costs, he said.

Bill payment works in the following manner: On the broker/dealer side, investors will be able to get access to their brokerage account online via their broker/dealer's proprietary website and they can pay bills from their Scudder Kemper-managed money fund account. Although the bill payment site is customized for each brokerage, the Home Account Internet server accepts and carries out the bill payment instructions provided by the investor.

Scudder Kemper will invite direct retail money fund investors to log onto Scudder's proprietary fund account site.

An investor can specify what amounts to pay to which specific companies, such as a utility company, credit card company or retailer. The money fund account is then debited for that amount and the bill is paid electronically. Investors will be able to program the company's bill-paying website with information about recurring bills, change payees or amounts to be paid and even obtain electronic receipts at the site confirming payment.

Scudder Kemper will also allow investors to receive and pay e-bills - electronic bills that are automatically sent to a customer's e-bill account tied to the money fund. This is known as "bill presentment" and allows investors to do away with traditional paper-based bills.

Although Federated will offer the bill payment service, it has no immediate plans to offer the bill presentment service, said Phil Hetzel, senior vice president at Federated Investors. Hetzel said Federated had not yet set a formal launch date for the service.

Scudder Kemper began thinking about adding a bill payment function to its broker/dealer services 12 to 15 months ago in response to demand from brokers, said McBride. On the retail side, the new service has the potential to give the firm an edge against competitors such as Strong Capital Management of Menomonee Falls, Wisc., Vanguard Group of Malvern, Pa. and Dreyfus Corp. of New York, McBride said.

But the competition also includes traditional banks that have been among the earliest adopters of the e-bill payment technology and have increasingly been attracting assets that had previously flowed into money funds.

In the first eight months of 2000, money funds attracted only $130.1 billion while bank savings products drew in $235.4 billion, according to a study conducted in August by iMoneyNet of Westborough, Mass. on the comparative cash inflows of money market funds and equivalent bank products such as demand accounts and certificates of deposits.

For money funds, that represented an increase in assets of only 8.3 percent over the same eight-month period in 1999 - the first time since 1994 that the growth rate of money funds dropped below 10 percent, according to the report.

Banks meanwhile enjoyed a seven percent increase in asset inflows over the same time period, propelled in part by higher interest rates. That dramatic slowdown in retail money fund asset inflows meant banks took in more new cash than money market funds for the first time since 1997, the report said.

"Electronic bill payment should make money funds even more competitive with bank checking accounts," said Peter Crane, vice president and managing editor of iMoneyNet.

"Demand is still out to the jury," said Hetzel of Federated. Electronic bill payment is still not universally accepted but it will eventually be essential to offer it as part of the full package of services, he said.

"It is just one of those services we feel we just have to offer in this cash management marketplace," he said.

Demand for the service could rise sharply.

"We are seeing a lot of interest as [fund companies] seek to deliver more services to their customers," said Chuck White, president and ceo of Home Account. "Two years from now, this will be a widely accepted practice on money market funds."

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