Analysis: JPMorgan Chase Acquisition of Xign a Watershed Event in e-Payables Space

Rise of dynamic discount management progressing as banks target intersection of transaction management and financing, PayStream Advisors says

Charlotte — April 23, 2007 — Electronic invoicing and supplier payment automation has finally made it to first base and is quickly rounding to second. The events of the past six months — including the acquisitions of both Harbor Payments and Xign Corporation by financial titans American Express and JP Morgan Chase, respectively — give strong reasons to begin looking at home plate, according to PayStream Advisors, a Charlotte, N.C.-based financial research and consulting firm.

"We see these acquisitions as a broader sign that dynamic discount management (DDM) will be a 'home run' for the financial services industry," said Henry Ijams, managing director of PayStream Advisors.

What is a home run in the financial supply chain arena? For many bankers, it's the intersection of transaction management with financing. After all, banks earn upwards of 30 percent of their fees from lending activities. Technology investors once thought that the financial supply chain was about extending electronic data interchange (EDI) into the Internet to eliminate paper in the purchase-to-pay cycle. But what really delivered value for system users were accelerated approval, improved transaction visibility and access for financiers to lend money for trade payables (i.e. open account). Dynamic discount management (DDM) has propelled this once fledgling "" invoice network technology into the mainstream, according to PayStream.

PayStream's analysts see DDM models as a core driver of invoice automation and credit the work of savvy technology captains like Tom Glassanos, CEO of Xign, and Rick Langer, co-founder of US Bank's PowerTrack, who saw invoice and payment automation as much more than moving information.

"Not surprisingly, the most active players in this new DDM market are folks who know how to make money by cementing the relationship between buyers and suppliers — namely financial services providers who already issue purchasing cards, including US Bank, Bank of America, American Express and JP Morgan Chase," noted Ijams.

Now each of these dominant purchasing card players has a base runner in e-payables. While it remains debatable whether banks will continue to dominate these networks, one factor is certain: this is a very attractive segment for banks. The amount of open account trade payables (potential amounts which can be financed) is 100 times larger than outstanding bank loans. Disbursement management, including DDM, is a relatively small market, generating $750 million in annual fees, yet PayStream research sees this market growing at an annual rate of 18 percent — giving it the potential to become a $1.7 billion market by 2010.

With JPM Morgan's acquisition of Xign, one fact is very clear, PayStream said. Not only do these four banks have a significant advantage in the new DDM market, but they have staked a claim, which will likely cement their position as leaders in payables automation for some time to come.

PayStream currently is developing a new research report on dynamic discount management for publication in the third quarter.