Payment providers battle for b-to-b

By Published on .

When it comes to online payment options, business-to-consumer sites outshine their b-to-b counterparts. Now, consumer credit card and authentication specialists are diving into b-to-b, building applications for individual merchants and e-marketplaces that make it easier to process financial transactions on the Web.

CyberCash Inc. and VeriSign Inc., best known for their business-to-consumer work, are among the most active vendors in this space.

This month, CyberCash released software designed to integrate Web transactions with corporate financial systems from Oracle Corp. and IBM Corp., and said it would provide purchasing card and electronic funds transfer capabilities on top of its credit card services. VeriSign trumped CyberCash on Dec. 11, when it signed a deal with VerticalNet Inc. to provide online payment processing to 57 of the vertical industry e-marketplaces VerticalNet offers. And just last week, CyberCash upped the ante again, announcing a merger with Network 1 Financial Securities Inc., creating a company that's expected to clear $100 million in revenue in its first year.

The moves underscore the race to put b-to-b payment systems on the Web. Today, only 14% of all business transactions are done electronically, including those using older electronic data interchange and wire transfer, according to Gartner Group Inc. Yet much of the $6.3 trillion in b-to-b spending on the Web forecast by 2005 will be handled electronically, according to Jupiter Research. Armed with that promise, payment services are readying for demand.

Invoicing lags

Avivah Litan, VP-payment services for Gartner Group, cited just-completed and yet-to-be released Gartner research showing that only 33% of large manufacturing companies have enabled sales of their products over the Internet, and only 8% are willing to send an invoice for products sold over the Internet. Though online invoicing is projected to grow to 34% by 2004, instant payment through purchasing cards and EFT is by far preferred, she said.

Many business products simply aren't suited to anything less than instant payment when it comes to Web sales, said Dave Hodson, chief technical officer for the online corporate print shop iPrint Inc. iPrint specializes in items like Post-it notes with custom business names or personal messages.

"It is important for many of our transactions to have the guaranteed payment from the credit card companies,'' said Hodson, who estimates 50% to 60% of iPrint's business is done via credit cards.

However, iPrint is adapting its system to handle EFT and purchasing cards, and increase margins, he said.

"In the next few years, if a purchasing manager uses a credit card to buy online, they'll probably be fired,'' said Ali Ersheid, director-product marketing for CyberCash. "Today, many Net markets take the actual transaction offline, but Net markets are going to have to be able to do business electronically,'' he added.

A big reason why businesses will resist credit cards are fees.

The average merchant bank charge of about 2.5% can erode profit margins in large business transactions. By comparison, the fee for a large EFT might be as low as $1. Purchasing cards are attractive because they likewise carry lower charges, as well as force buyers to obtain products and services from approved merchants, reducing so-called "maverick" procurement.

Competition for the b-to-b payment systems business will be fierce, said Gartner's Litan. Beyond CyberCash, CyberSource Corp., VeriSign and Ec-Finance, nearly every one of the 20 largest U.S. banks is developing b-to-b payment mechanisms, she said.

Moreover, b-to-b specialists such as Edocs Inc., Clareon Corp., TradeCard Inc., BankServ and Bottom Line Technologies Inc. are going to be factors in the arena, said Dave Potterton, research director for e-financial services at Meridien Research Inc.

One goal of the Network 1 Financial-CyberCash combination will be to deliver payment-processing systems capable of handling both real-world and Internet transactions. CyberCash gets automated clearinghouse capabilities necessary for real-world electronic funds transfer transactions, and plans to marry those to its Internet EFT transactions.

"The idea behind the deal is to get settlement of the transaction handled electronically," Potterton said.

"If you are in a b-to-b environment and orders come in electronically, the purchases are recorded electronically but the purchase order for settlement drops to paper- what's the point? Settlement is the next piece in the puzzle.''

Most Popular
In this article: