Remarks by Bill Gates
Microsoft Corporation
NACHA Payments 98 Conference
March 9, 1998
Seattle, WA

[Due to the varying sound quality and subject matter of tapes, the information in this transcript may contain inaccuracies. ]

MR. GATES: Good morning. I want to show some exciting opportunities to take the latest technology, and really expand what banking and the ACH can do for customers. Our framework for this is what I call the Web lifestyle. This is the idea that over the next decade most adults will be using the Web many times a day, without even thinking about it. Now, to make this happen, we're going to have to dramatically improve the technology.

Fortunately, these technological improvements are coming at a very rapid pace. At the center of it, is the miracle of the microchip. Moore's law predicts that every two years the power of that chip more than doubles. And that's why the price of computing has come down by a factor of 1 million over the last 20 years. This has taken computers that were once simply a tool of large organizations and brought them down to the individual level.

We'll be taking that extra power to make these devices not only less expensive, but also to make them far more approachable, and to provide a simple, natural interface. For example, one of the software technologies that Microsoft and many others are investing in, is speech recognition--the ability to avoid having to use the keyboard and simply talk to the machine.

The PC we have today is dramatically better than even the PC of just a few years ago. There's over 80 million of these devices sold every year. The storage size has gone up, the quality of the screen, the graphics, the overall software quality has dramatically improved. That's partly because of the size of the market. The structure of the PC market is very competitive.

You can switch hardware from one company to another without changing any of the software. An the reason the software is improving so rapidly is that the high volume of the standard platform, through Windows, has allowed people to increase their investments, and yet sell at a lower price, because volume lets them offer to lots and lots of people.

Now, this PC technology is going to expand in both directions. At the high end, we'll see PC-based systems that out perform the mainframes that have been used for the most demanding tasks. Down at the low end, we'll see very small PC technology devices, that you can carry around in your pocket.

Sometimes people ask me, where are we in this PC revolution? Well, I think it's interesting to compare it to other advances that have become commonplace, things like the automobile, or the telephone. We can see from this chart that many of these products took over 40 years, between the time they were introduced and the time that half of U.S. households were taking advantage of that advance. We add in here the PC and the Internet, we can see that they're off to a much faster start than any of the other technologies. The tools of the information age are bringing change faster than we've ever seen before.

You can see the PC there, at slightly over 40 percent of all households. And in the next couple of years we'll pass over 50 percent. In fact, if you simply look at households that include children, the number is much higher, well over two-thirds of households have a PC.

Now, the Internet is lagging a little bit behind that, because there is extra cost in paying for an Internet connection. You have to pay a monthly fee, that's today something like $20. That fee should come down at the same time as the interconnection speeds improve, very, very substantially. So I believe that the PC and the Internet will achieve a curve very similar to what we see here for television, radio and microwave, and become completely pervasive.

Because it's a tool of communication, the more it catches on, the more likely people are to use it. When you only have electronic mail for one person, it's not worth much. But, as more and more people are using it, you'll see it on business cards, and you'll expect everyone to be able to communicate in that way. In fact, throughout banks we're now seeing the adoption of a single, standard electronic mail system, and the elimination of lots of paperwork inside the bank, as all of those paper forms are replaced with electronic screen forms.

The efficiency you can gain by getting rid of that forms paperwork is very, very substantial. And so the bank, internally, can get its employees thinking about these electronic tools which would be the same thing that business customers, and customers at home will be expecting the bank to work with, as they too adopt the Web approach.

Now, when I say Web lifestyle, what kind of things am I saying people will do? Well, everything that involves information. If you want to buy a new house, you'll go out and see what property is available. You'll even look at mortgage choices that way. If you want to buy a new car, you can already go out to a lot of sites on the Internet and get information. And then you can find out, what is the blue book for a used car, what did the dealer pay to buy that car, which might be helpful in negotiation. You can actually close the transaction over the Internet.

That's gone from about 1 percent of car sales, now about 3 percent in just the last year. You've get a guaranteed price and somebody actually comes and delivers the car to you. And so it's, in many ways, the simplest way to do what can be a fairly complex transaction.

There are a lot of popular Web sites now that relate to news events. You can get the latest stories and drill down, see a lot more information than you ever could before. If there is a court case, you can even go in and see the electronic filings. If it's a legislative matter, if you've shared your zip code, then when you see the article about the legislation, you can see how did your representative vote, what comments did they make, or what particular effect will that have on the area that you live in. So getting information over the Internet is far simpler than any other means. It's easy to find. And the information is very up to date.

The key things that are holding people back today is that it's just a lot of trouble to connect up that phone line, wait for it to dial up, and you have to learn a lot of different commands in order to navigate the Internet. Well, these are the things that I can guarantee will change. And so it will be drawing more and more people in. A scenario like taking a picture of your kids and putting it up on the Internet, mailing it to relatives, that will become very, very simple.

And so it will draw people in, and you'll expect all of your services to be available through the Internet, the ability to send a question to your doctor, the ability to schedule an appointment. If you want to look for a creative gift, the Internet will be a great way to do that. This will be the electronic marketplace. And it will be completely global, every type of information you can imagine will be out there for you to connect to.

One of the fascinating things is to see how this is being used in education, how teachers are now sharing with each other, students are reaching out to find other students, who have similar interests. Institutions of higher learning, like universities, are putting up lots of the latest material. And researchers are able to collaborate far better than ever before, by having this medium. So the Web is the communications breakthrough for the information age. And we see lots and lots of investment going into making it better and better.

Now, one area where this is just at the very beginning, and we haven't seen much yet, is the Web and banking. I'd contrast that to the Web and investment. In the investment area we've seen a very substantial switch for people who want to see their portfolio over the Internet, get the latest information over the Internet. There are sites like our own investor.com, where literally over a million people are connecting up to the Internet, on a monthly basis, and seeing what's going on with their investments. And so there are lots of accounts now, out on the Web, Web brokerage accounts, where about 3 million people are doing their trading and communicating that way. So it's becoming a very big part of investing.

In banking, it's actually slower in the United States than in some other countries. Although you have a lot of bank Web sites, those sites don't let you do much. They tell you where the branches are. They might tell you about the job opportunities. But, they don't present personalized home pages where you can see the status of your account, and engage in transactions.

We expect the number of sites that give you that account access will rise dramatically as standard, building block software, from people like Microsoft and others, become available, that make the marginal effort to put up that site very, very low. And so this will become a new way of interacting with your bank, not replacing the telephone, or face to face interaction, but becoming something that customers absolutely will expect to be able to do.

As the Web expands, the nature of the devices, that connect up will gain a lot of variety. Some people call these PCs, some people don't. But, they're all devices driven by very advanced microprocessors. They're all devices that use the standard Web protocols, and let you get out to the information that's out there on the Internet.

The PC itself has become more and more portable. We have PCs today that are only a couple of pounds. For me, I simply couldn't do my job without that device. Everywhere I go, I'm connecting up to electronic mail. I'm reviewing business results, looking at spreadsheets with pivot tables to understand where things are strong, where things are weak. Sending around mail to people asking them to look into various things. And so, it's become a fundamental tool.

We talk about businesses that do this right having a digital nervous system, relying on electronic means to collaborate and make better decisions than companies who are still doing it the old way. Well, the portable PC isn't the final say in the small device. We'll have devices that are more wallet-sized and yet have the same rich functionality. So, you can carry it with you, always have your schedule, your messages, your address book. One of the great things we're doing now is making is so that whenever you update information, no matter whether you're using your PC or one of these smaller devices, you automatically move that information between the various computers. And so, you don't have to think about moving that information around. If you change an appointment, it will show up for everybody who wants to look at that calendar. So, information sharing is becoming a lot better.

The small devices we have right now are four- or five-hundred-dollar devices. They've just gotten color screens, and the ones with color screens have proven to be very, very popular. The battery life is going up, and so that small device will eventually sell in the same volumes as the PC itself. Although, today, compared with the 80 million PCs sold every year, there's only about four million of the small mobile PC companions.

We've even introduced the idea of a computer in your car. This is what we call the Auto PC, and this is the first product where we're relying specifically on speech recognition to allow it to be usable. We don't want you to have to look down in order to interact with the computer. And so, instead, we have simple voice commands that let you pick a radio station, or say where you want to go, and then we give you directions by using speech synthesis.

Another hot area is in the TV set. We have a product called Web TV that lets you connect to the Web using your TV display. This, today, is connecting up over the phone lines, but in the future more and more, we'll be using the cable connections. And the beauty of that cable connection is that you don't have to wait while it dials up, and it's a lot faster. And so the information comes up on your screen very quickly.

That idea of an intelligent TV, a digital TV, is a pretty exciting one, because even simple things like making the TV Guide easier to search, easier to get detailed information, seems to have a lot of appeal. Making it so you can chat with people while you're watching a TV show and share ideas, allowing any ad that you see that catches your interest, allowing you to simply click to get more information is also something that appeals to both consumers and advertisers. And so we will revolutionize the TV viewing experience by bringing in not only higher quality images with digital techniques, but the interaction that the connection up to the Internet is able to provide.

Now, people who are pioneers in using these products are having a lot of fun with them, but they're also doing a great job telling us how we need to make it easier to install all these things and get them working together. In fact, we've put together a little video that talks about a typical experience for somebody who is trying to use these devices today. So, let's go ahead and take a look at that.

[Video.]

MR. GATES: So, the Internet is at the center of all of this. And it's a public network, which means that anybody who gets out there, there's really nobody between you and your customer. The communications companies and some of the online services are signing up a lot of people, and that gives them a position to do home-page promotion before any customer who wants -- who knows your address or your URL, they go straight there, and it's up to you exactly what you present to that customer, no matter what technology you use, or how they're making that connection. And so, this is the most open system that there's ever been, and the variety of activities will all be tested in the marketplace.

It's fertile ground for innovation, and incredible investment. In fact, the number of companies related to the Internet getting venture funding or going public is really quite amazing. It shows what high expectations people have that is to move from the high-end niche phenomenon it is today to being a very mainstream activity. One of my key points is that the retail payment system can fit in here in a way that takes advantage of all of its rich capabilities, and creates something that's better for the user.

What's missing? Well, the better devices, the increased bandwidth, and a framework for electronic commerce. Most of these things are falling into place. The regulatory issues that encourage both phone and cable companies to build the high-speed connections to home could hold this back for a few years, but no more than that. There are tricky issues related to encryption that the laws are being debated right now exactly how that should be used. But, once again, I don't see anything that will block the vision that we have here. The speeds we able to get across these fiber-optic cables are going up as fast as the processing speed. So, again, we see exponential improvement. And so, as we get that installed, we won't be held back by that at all.

Now, security is one of the things people talk about as a key issue. The only tough security issue is knowing who is signed on and communicating with you. Today, password systems are used. In the future, that will probably change to be something that involves use of a smart card as well as a password, very similar to what's done on the ATM network.

When people talk about security, the are various aspects include things like the identification. That's really the key one. Also the ability to avoid somebody tapping in, the ability to avoid someone coming in and doing something to your server or systems that is not authorized, and being able to prove later on exactly what transactions took place. The basic technologies for all of these things are very well understood. In fact, the software is very much in place. You simply need the infrastructure and a common agreement on authentication will be done. Outside the United States, particularly in Europe, the smart card is catching on. Banks are issuing those very broadly. Some governments have chosen, like in Denmark or The Netherlands, to issue them to virtually everyone, and so they can go to their PCs or the public kiosks that really are just PCs, and do payment activities, or interact with their -- any of the things they have to do with the government.

So, user identification is the key reason for a smart card, and this can allow for a smart card that's very, very inexpensive. You don't have to put a 32-bit processor on it, or one local program. You can go with fairly simple public key 8-bit type smart cards, whose costs should get down well under a dollar in the very near future.

Microsoft is building in the software support for this. We think that PCs in their keyboards will have a smart-card reader as a standard feature. And so, we're trying to work with all the other people interested in seeing this take off, and make sure we can do our part because having this kind of ID, and having people trust it, is key to many of these applications. In the meantime, the same password approach that companies use internally to protect electronic mail privacy will be what we rely on.

Talking about payments, many of you understand this world much better than I do. I was pretty amazed to find out some of the figures. The U.S. is pretty unique in terms of the number of bills that households pay, over $15 billion yearly. And there's a lot of overhead associated with this. There's $6 billion in preparing and delivering; $1-1/2 billion in the whole collection process and posting funds; and then the consumer spends a lot on this as well. And these figures, I think, really understate the inconvenience.

Let's say you get a bill that you don't think is quite right. How easy is it to see the details, to zoom in and understand all the different information? How easy is it just to send a message saying, is this right, you know, shouldn't it have been at this different rate, and get an answer very quickly? Whereas, today you call up on the phone, you get somebody, they have go through a lot of trouble, and it's an incredible amount of work. It's not just simply sending off a short, little electronic mail message. Perhaps most important, the bill you get today, the marketing opportunity of the person who sends it is very limited, because it's simply in paper form, and it's very hard to customize it to the individual people that you're sending that bill out to.

In the interactive world, the costs go away. The ease of inquiring about the bill are greatly improved. And, perhaps most important, the ability to cross-promote other products from the company who's doing the billing or essentially selling this ad space to other people is dramatically improved. And so this is where the Internet comes in. We can, for businesses and consumers, provide great access. If that consumer wants to say, well, what did I pay last year, last month, you can make that comparison and have the complete history there. Moving information around becomes very, very easy. And the basic design is real-time authorization with deferred settlements. Somebody can go ahead and approve a bill, and then have it be paid on the settlement date.

Now, this is an area that we thought was ripe to come in with some software, and make sure that some critical standards were set so that it can get to the skill it needs to. The problem of getting this going is that it's not interesting for banks to offer this bill presentment as a service unless a lot of billers are involved, and it's not interesting for the billers to do it unless you get a lot of banks. So, you have to have a bootstrap. You have to have somebody pay the cost to put all the pieces in place, and then you've got to go out there and find the pioneers who are willing to really make this happen.

And so, we've put together a group of people with deep software expertise, and partnered with FDC to create a joint venture called MSFDC that is there to make sure that this does get to critical mass. If you think of it from the banks' point of view, why are people going to come to a bank site on a regular basis? You know, they're not always thinking, geez, is there a cheap loan I can get, is there some other type of transaction. The key thing that will bring you to your bank site on a very regular basis and allow the banks to take you the consumer's history and promote other new products they have that might apply to you, it really is bill presentment is the best opportunity there. So, we think about how we can help banks. Part of it is, not only to generate revenue for them for bill presentment, but to make their Web site relevant and really drive up the traffic there so it becomes the best marketing vehicle that the bank has.

So, first, it's a goal to help the retail bank have that service, so as soon as somebody connects to the bank, they see that, the latest bill presentment information. Of course, banks, themselves, are major billers relative to credit card payments and things of that kind, so they benefit just like any other biller. Of course, banks are also providing wholesale services, and so for all the people they're doing that with, they can do the bill presentment remittance through this electronic system.

MSFDC is there to facilitate this. We've got a processing service and we have some software elements. For example, the user interface to the consumer, the software that lets you sign the bills, those things are provided in order to get this going very, very rapidly. The best way really to understand what we're trying to do here is to see it action because we're actually out in pilot use right now. In fact, one of our partners in doing that is Bank One, and so I'd like to ask Matt Cone, who is with our MSFDC Group, to come on out and give us a look at how this all works.

MR. CONE: Thanks, Bill. What I'm going to show you here today is some of the software we're creating to help facilitate this bill presentment stuff. And one of the first steps we're doing is creating software that helps billers create rich bills.

Now, we're wearing multiple hats today. And just sort of to help facilitate this demo I'm wearing a couple of different hats, and I thought in the biller stage put my biller hat on. So I'm in this first step, I'm the billing guy for City Power and Light. We're sitting here on some software we're creating at Microsoft called the Biller Integration System. This system lets billers do a couple of things. Create their bills, use graphical rich bills that they're going to present to the consumers. But, it's also a system that helps get data out of the accounts receivable systems, and store it off in our data centers.

So I'm here in the Biller Integration System, and let's take a look at a bill that's been created this morning. This bill here, some graphical people created. And I'm not really crazy about the background color. So I'm going to go in here, change the page properties, go in, browse, take a different background. I like that white background a little bit better, it's a little bit more sharp contrast there. Let's actually save this out, and we'll pull up our browser, Explorer, refresh it, and this bill looks pretty good. I think at this point we want to send this off to all the people that we had -- we have bills to this month.

So, again, this is software we're creating, billers use to create these bills, and this data will be stored off in MSFDC.

MR. GATES: So the biller controls exactly what the presentment looks like?

MR. CONE: And they can change this weekly, if they want to work with outside design firms, to create graphical bills for themes of the month, or different things.

So, for my second demo, I'm going to be a software developer living here in Seattle, and I work at small software company. During my lunch hour, I'm going to log in to my Bank One home page and do some banking. So this is Bank One's site on the Web. And, as you were talking about earlier, many banks are trying to start at home banking for their Web sites. There's a lot of Web sites out there. Almost all of you, I'm sure, have Web sites, but most of them are just putting out, sort of what we call brochure-ware. And increasingly, though there are banks providing at least account access, and now it's starting to provide some bill payment transfer capabilities.

Bank One is actually doing this through Integron, a consortium of some of the larger banks in the U.S., where they're providing their home banking services. And there are some functions here, accounts and transfers. I notice this new icon here, it's bills. And what we're doing at this point is we're putting a new feature in their service. And their server will contact MSFDC to get my Matt Cone bills. I'm going to click on the bill, and here are the bills that have been presented, City Power and Light, and a couple of other billers.

So let me click on this City Power and Light bill, and you can see this is the same bill that I had created in the first step. Here's the bill. I owe them $60.34 on the bill. I can look at how many kilowatt hours that is, if I'm interested. I can actually look at the history, how much I've paid over a period of time. It looks like the bill is down a little bit this month. And a lot of billers have requirements to put terms and conditions and other materials in their bills. They also can have the ability to put in more cross-selling messages. So if the power company wanted to start selling me phone services, et cetera. They could put icons in here, if I clicked on it, it would actually take me out to the biller's site to enroll in those.

So this bill, it looks fine. I'm going to click on the pay button. And I'm presented with a Bank One payment screen. And it's been pre-filled with here our $60.34. And the due day is March 25th. I click submit. And now this payment instruction is sent back to the MSFDC data centers, where actually the bill would be stored until the due date.

Now, I paid all my bills at the office. And I'm at home. And I've sort of casualed out. And it's the next day. And, you know, I'm -- the only reason I subscribe to cable television now is for ESPN Sports Center. So we've been watching Sports Center, and you know, $60.34, I'm just not sure I can actually pay that bill next month. It's kind of a steep bill.

So I'm going to log in through Web TV, and go to the Bank One home banking space. They're one of my favorites. And at my Bank One home page, and here's the same home banking service. And I've got my remote keyboard here. Put in my ID and password. I gone through the same functions that I did before. It's just a different form factor, it's on the television, versus the PC.

I click on bills, and this pulls up the bills, same thing that I had done online. It will show my pending bills, and the bills that are coming to me this month. And it's coming. I'm going to go and actually change that amount from the $60.34, down to the minimum. And it's coming.

Are you using Web TV at home, Bill?

MR. GATES: Sure.

MR. CONE: All right. So what comes up in the next step is the bill. And I can go and change the payment down to the minimum amount. The bill changed to $20. So, again, because I can't afford the $60.34, and I'm going to go over here and hit submit. Now, this payment just went back and edited the amount that was stored at MSFDC, and now it will be paid $20 on the 25th, rather than $60.34. So you get to sort of see the software that we're creating, the different steps along the way.

MR. GATES: Well, that was very easy. Thanks, Matt. That's great.

Just a few facts about the MSFDC activity. It's an outsourced bill presentment and payment processing service, for banks and billers. Whenever somebody comes to this site, we ask what bank you're with, and then we simply refer you back to the bank's site. No one gets anyone else's data. We don't get any data for data mining. We don't get the customer account name, or anything of that kind.

For billers, if somebody's at a bank that's not signed up, we do a bills-only site. That allows the biller to get at all their customers who are out on the Internet. And banks actually paid to offer this service. And so, like all the things on the Internet that really work well, business-wise, things where there's actually a transaction fee, like airlines sites, have done very well. This is another one that fits into that.

There are some standards on privacy that some industry groups have come up with, one called BITS, that we're definitely endorsing. This system uses the ACH, the underpinning of everything we're doing here is the ACH. For banks, only, there is the ability to do a "pay anyone" type capability. So Matt also initiated a payment transfer to anybody that you have the account information for. And the goal of the joint venture is to make it very easy for banks to get up and running with this. You know, we want to get to critical mass. We need to work with banks of all sizes, and billers of all sizes. And we're very pleased with the reception that we've had for this activity.

I've been talking this morning mostly about bill payment, as a great application for the Web. The Web will only take off because of a broad set of things. There's no one application, like just paying your taxes or just seeing the sports scores, that will drive it. It's that whole mix of things that will make it mainstream.

Microsoft is doing a lot of things to drive this forward. Our biggest role, of course, is providing Windows, making that a lot better. Even doing versions of Windows, which we call Windows CE, that run in those very small devices that will also be connected up to the Internet. We're doing a lot with productivity software, to let you share information, both inside the company, and with partners, using this standard productivity software.

And we're doing a lot at the server level to make it easy, not only to set up Web sites, but have them run very reliably, and to analyze what's going on, on your Web site. If you do certain offers to certain types of customers, to see, are they coming and visiting the Web site, are they accepting those offers. In fact, it's the marketing vehicle that you can know the most about, and try things out very, very rapidly.

And so there is a lot of software that goes into this. These are low-cost building blocks that drive this forward. And certainly, we appreciate the relationship we've had with banks, in terms of helping them pull these pieces together. I'll just summarize by saying, there is a lot of opportunities. Certainly, for the ACH it's a great opportunity here to become the backbone that people use when they're doing electronic payments. And I think you're very, very well positioned for that. We can enable customers to do a lot of neat things. We can strengthen the relationship they have with the bank.

This Web lifestyle, even though it won't happen overnight, I think companies that start now, really make the investments to get out ahead, and in particular get the younger customers who will be the first to go after this, those will be the ones positioned best for the future. Anybody who goes to college today gets really deeply involved in a Web lifestyle, because on that campus they have a very high speed network and all the services are there.

In fact, on many campuses today, you can't even sign up for courses or get your grades or submit your assignments without doing that electronically. And so those people, as they sign up for banking relationships, they will expect to work with banks that are out in front on these things. And they are certainly the customers that you want to retain on a lifetime basis. And so we're doing our best to put a platform together that can make this all easy. I think it is a very exciting thing, and we look forward to working with all of you.

Thank you.

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