The Global Enabled Supply and Demand Chain Series: Payment

It may not look like it yet, but the "financial supply chain" is coming together for many corporations, and things are about to get much more enabled.

[From iSource Business, August/September 2003] Since iSource Business' last article on the B2B payment market (February/March 2002 issue), more than just "a lot" has been going on in what some experts have dubbed the "financial supply chain."

Though the vision for a paperless payment process actually began as early as the 1970s, Corporate America continues to use the paper check as a primary means of payment. Automated clearing house payments (ACH) and wire transfers were — and still are — the most widely used systems that reflect some semblance of automation in the financial supply chain.

From that 30-year vision in the finance world to today, unlike many European countries, the struggle to automate the payment process continues. According to Celent Communications, a research and advisory firm specializing in the financial industry, 82 percent of B2B payments are carried out with paper checks. These paper-written payments represent 65 percent of the total value of B2B payment transactions.

But why? Gwenn Bezard, senior analyst for Celent, says, "As cross-border trade continues to become more and more significant, businesses constantly run into complex payment issues at this level. Plus, with Web-based cash management solutions available at a keystroke, integrating all pieces effectively will become critical to businesses. The real issue is not at the payment level as much as it is fitting all the pieces together for seamless integration."

Henry Ijams, managing partner with PayStream Advisors, another financial industry advisory firm, calls the financial supply chain, "The final frontier in terms of automation. The concern and amount of time devoted to automating the physical supply chain just did not exist in the financial supply chain up until a few years ago. As finance leaders grasp more clearly that the financing process costs are directly impacting the other process costs, they'll understand their true costs up and down the chain."

Ijams also suggests that the buyer and seller have stronger incentives for a better financial supply chain since both can mutually benefit on cost savings and improved processes. "The payment issue is really about information delivery," says Ijams. "And if most of the pain is around the information, then we simply must address the issues of collaboration, visibility and predictability. It's the same language we use in the physical supply chain."

So, Where's the Market Stand?

According to PayStream's Ijams, in the B2B payment space, mainstream adoption by corporate America of automated payment technology and services will occur in the next 18 to 24 months.

Right now, giving a quantifying number on the specific growth in the payment space might be a challenge. But most analysts believe that steady growth is occurring. Beth Robertson, senior analyst for the TowerGroup, suggests that the market will grow at 2 to 4 percent for the rest of this year. This is strongly influenced on pace of growth in business in general. "The real dynamic is the evolution away from paper and toward electronic payment in the B2B space," says Robertson.

Jeanne Capachin, research director of corporate banking for Financial Insights, advises that one can always evaluate this market by the decrease in the use of paper checks. "Watch the decline in the use of paper, and you'll be able to correlate it with the growth and success in the B2B payment market," she says. The value-added services to payments banks and third-party payment providers will help the market take off."

The Contenders

Several analysts give a clear overview of the players in the B2B payment space and what each player is doing. The most prominent feature common to all the companies is their effort to build unique service and technology offerings based on what their customers need to enable their financial supply chains.