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.

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.

If one begins with the purchase card providers — American Express, MasterCard and Visa, GE Capital, and U.S. Bank — their most recognizable offering is their ability to track the complexities of payment initiation and remittance and reconciliation on a corporate purchasing card. But much more is going on with the card providers.

For example, both Visa and MasterCard have invested expenditures in new product offerings to make the most of the utility of corporate purchase cards as well as to facilitate non-card payments for B2B transactions. In the case of MasterCard, their MasterCard e-P3 solution also complements the benefits of purchasing cards and makes available an ACH-like solution through its electronic bill payment and presentment service.

Most of the card providers have begun to approach the payment market through partnerships, establishing their footprint in the B2B space. MasterCard, for example, in collaboration with a South African technology company, developed and launched globally its MasterCard SmartLink for enterprise resource planning (ERP) systems, which feeds data directly into a company's ERP system. MasterCard, along with its partners Xign Corp. and Velocent, a unit of eOneGlobal, also provides a solution that integrates the purchase card into billing and payment automation (BPA) systems.

Meanwhile, card providers today can support BPA technology with such automation features as buyer-approved electronic payments, online invoicing, payment status availability and improved data capture and reconciliation, as well as support for more payment options and ACH.

The more traditional third-party providers are in the thick of it, too. The electronic invoice presentment and payment (EIPP) providers such as Avolent, BCE Emergis, BottomLine Technologies, Pitney Bowes docSence and edocs are emerging as the players to assist companies in satisfying their one-to-many and many-to-many needs as they refocus and change their business models.

The market then has the payment hubs such as Velocent (formerly BillingZone), Burns, TradeCard and PeopleSoft, as well as electronic payment providers like Clareon (which is now part of FleetBoston Financial Corp.) and Xign.

Some of these players are well-established brands with deep pockets, while others are privately funded startups. According to the analysts, the entry of large, well-financed players raises the bar for others in the space, making success for competitors without large wallets seem difficult — assuming these well-funded players can move beyond their credit card roots. Both have the networks and computer systems to manage B2B transactions, as well as strong brand names.

One analyst suggests that for the biller side, four of the strongest players are BCE Emergis, Bottomline Technologies, CheckFree and BillingZone, now part of Velosant. For the payer-side, Xign, Bottomline Technologies, iPayables and U.S. Bank's PowerTrack are recognized as very strong contenders.

Says Paystreams' Ijams: "Banks are coming into the [B2B payment] space in a new way, showing that the market is becoming a more critical component of their treasury management offerings, as well as a more strategic component."

Adds TowerGroup's Robertson: "The newest thing the players are focusing on involves billing and remitting oriented products geared toward payers. In the past, the solutions were more biller-centric. This additional piece extends functionality and allows payers to receive invoices electronically in the manner they want. It also allows more streamlining for the biller side, too. This new aspect allows parties to send and receive bills electronically without the biller making a direct investment in electronic billing technology."

An even bigger opportunity in the payment space on a national level may give the players — especially banks — even more incentive to truly make the financial process seamless. Both houses of the United States Congress have passed legislation that allows banks to exchange electronic check images and use them in place of the actual checks. The legislation, dubbed Check 21 for the Check Clearing for the 21st Century Act, should win quick approval by this fall.

"When a business writes checks in the future, the involved parties to the payment will be working with an image replacement document," says Financial Insights' Capachin. "But companies need to realize that the Check 21 legislation destroys the float. On the flip side, the gain for corporations, however, is quicker payment."

A Smoother Drive in the Future

Exciting opportunities will take place in this market over the years. Some predict that because of Check 21, for example, paper checks will be a thing of the past sooner than anticipated. Regardless, the financial supply chain can expect further efficiencies.
A first move is the payment market transitioning to a more networked model where buyers and sellers can swap invoices with a single connection and in a common standard.

"Consolidating the market and building successful standards is very important," says Ijams. This is especially so as the financial supply chain extends its reach to the mid-market."

Jeanne Capachin suggests that paper checks will disappear faster than previously predicted. "Two years after imlementation of Check 21 business won't receive paper checks É all execution and reconciliation processes will be done from images. And if they are writing checks and want a paper check back they will be paying a premium for it."

In addition, Capachin says banks will offer more B2B network services in partnership with companies like Xign and U.S. Bank's PowerTrack.

The way Robertson sees the market is that it boils down to "a much greater focus on moving to electronic interaction so that the entire supply chain can be electronic from beginning to end."

What to Expect

If you're a Fortune 500 company, expect the card and third-party payment providers to move toward building a stronger network that facilitates the one-to-many and/or many-to-many model. Solutions should also be robustly functional around specific needs of different market verticals.

"Effective connectivity and collaboration will be the glue that will connect ERP systems with financial systems as well as the trading partners working with an organization," says Capachin. "The third-party providers are extending services that banks would typically provide."

Robertson adds, "One thing that's important to look for is vendors that have experience in their industry, work with their trading partners and are familiar with the particular trading environment they operate in."

Regardless, companies investing in this technology and the services attached to it can expect more and more options and functionality in automated payments. Says Capachin: "The ones that look the strongest into the payment solution will be the ones looking the deepest into the supply chain."

For more enablers in the Payment space of the Global Enabled Supply and Demand Chain Map, check out "Version 6.0 ," of the Map on