Models of B2B Payments
In the B2B payment universe, there are three types of payment systems: those that replace the traditional role of the bank or finance company, those that work with banks and finance companies to provide a service that banks and finance companies can offer to their own customers, and those that use the ACH system (but not necessarily by offering EBPP) to process payments. In the first category, you find companies like Actrade and TradeCard. In the second category, you find solutions like Orbian, iPin, and Virtual Purchase Card. In the third category are E-Check 2000 and others.
What to Look for in a B2B Payment System
B2B payment systems can help expedite both transactions conducted on exchanges and those conducted between existing trading partners. Regardless of the model of the payment system, you should expect to see some degree of each of the following qualities in a B2B payment system:
- Provides assessment of the creditworthiness of buyer to the seller (or guarantees the payment by the buyer to the seller)
- Provides some guarantee to buyer that goods will be of the quality specified and will be delivered (escrow-type service)
- Permits sellers to conduct business with unknown parties without fear of repudiation or fraud
- Provides a faster collection of funds, usually at some discount rate, to the seller; may also extend the payment window of the buyer at some additional cost
- Removes expense, hassle, and security risks associated with paper changing hands after the initial accounts are set up
- Provides reporting of the delivery of goods, approval, invoicing, payment, collections, etc.
If your customers are primarily businesses, then you probably are well versed in the problems that these systems intend to solve. Many solutions exist and I have limited space with which cover them, therefore I’ve attempted to examine a few in each category. By all means, do your own research and get recommendations. As with B2C solutions – and EBPP solutions – there are probably more today than the market will ultimately support. The “best” solutions will not necessarily prevail (life is not fair). The solutions with the most committed partners will stand the best chance. Expect the field to narrow within the next year, with those that have already achieved critical mass and those backed by major players in the technology and financial sectors faring best.
Actrade: In a Category by Itself
The granddaddy of online B2B payment systems is the oft-awarded Austrade. Austrade is in a category by itself. While it’s a finance company, it has a different twist on the finance company model because of participants in its program issue (purchase) E-TADs to vendors (electronically generated checks drawn on accounts with Austrade), who can then sell the E-TADs back to Actrade for cash. Austrade handles the credit risk for the vendors. After the initial paperwork is signed, everything is handled digitally, with secure certificates residing on the issuer’s computer to guarantee authenticity. Any business in an online exchange that does business with unproven trading partners or any business that has long collection cycles will find that Actrade’s E-TADs fit the bill.
Austrade is poised for growth. I don’t usually report on management changes in this space, but Alex W. “Pete” Hart, recently joined Actrade’s board of directors. Mr. Hart was president and CEO of MasterCard International from 1988 to 1994. It wasn’t unusual to see offline business executives taking prominent positions with dot-coms or dot-com service providers in 1999, but now that the shine is off the dot-com (and B2B) apple, it says something about the future of Austrade that it can attract talent and experience like that to its board.
TradeCard: Finance and Logistics TradeCard offers a system that handles transaction procurement, fulfillment, risk management, payment decision-making, and settlement. Using TradeCard’s platform, virtually any type of transaction can be initiated, tracked, and settled.
revenue revenue offers a payment system aimed at exchanges. Their software permits exchanges to offer their own clients a suite of payments and collections services, including accounts receivable, collections, and credit guarantees, along with workflow systems. Interfaces are available for all three parties: the exchanges, the buyers, and the sellers.
eFinance: Assessing Creditworthiness finance is a complement to B2B payment systems. It permits businesses to build credit scorecards, then score prospective customers to make the best credit decisions. Their solution also has a fraud-screening component, which allows businesses to set up rules so that some, all, or no transactions are automatically approved.
eCheck2000 eCheck2000 offers a payment system for businesses that fits the bill for small and medium-sized businesses engaged in B2B commerce. eCheck2000 permits businesses to accept funds directly from a customer’s checking account, using ACH. eCheck2000 has a direct relationship with the Federal Reserve Board, which means that ACH transactions don’t have to go through a member bank. This keeps costs low for businesses. Accepting a payment is simple for businesses and making a payment is even simpler. The first time the buyer pays a specific vendor through eCheck2000, they are greeted with a pop-up window that asks for their banking information. Setup costs are low and transaction costs are extremely competitive. Sellers can import their payment information directly into QuickBooks.
Leaving the Banks in the Middle The big (thus far unsettled) question in B2B payment systems is will bank retain their position of prominence for business transactions? The payment systems described thus far have sought to eliminate the bank’s role, thus reducing the costs for the businesses and the revenues for the payment system companies. Some companies, however, are gambling that banks and other financial institutions are not going to give up the opportunity to have the money exchange hands through them without a fight. As with PayPal, having reached critical mass in C2C and B2C payments without an offline bank at the helm, it’s not inconceivable that one or more B2B payment systems will achieve critical mass outside the banking industry.
It’s more likely, however, that banks will reevaluate their reticence to offer these services and sign up with one of the following systems. Expect to see these services or others offered by your business bank within the next 18 months. If you don’t, consider switching banks.
Virtual Purchase Card Virtual Purchase Card offers a product to banks and other financial institutions called Virtual Purchase Connection. This permits banks and finance companies to offer their own clients the ability to see – before any decision to accept payment is made – that the prospective customer has the ability to pay. Businesses are used to invoicing, but invoicing requires a degree of trust. Banks that implement the Virtual Purchase Connection – including Wells Fargo and Fleet – give their customers the ability to make and accept payments directly through their existing accounts, as if the buyer and seller both used the same bank. This reduces the risk for the seller and the cost of processing an invoice for the buyer.
Orbian: Where Citigroup and SAP meet You can’t quickly write off any venture created by Citigroup and SAP. Orbian would otherwise be too little, too late. Orbian offers a financial credit instrument comparable to Austrade, but is still in beta (with implementation slated for late 2001). Thus far, their product consists of press coverage about their product. Since their product will be one that includes banks, rather than replaces them, and will likely work directly with SAP, expect it to be relevant from the outset.
VCHEQ VCHEQ offers its solution to banks, permitting them to retain their relationships with business clients, and offer an immediate settlement for global transactions.
When Trust Isn’t Enough Escrow services have a place in B2B commerce – particularly since marketplaces frequently permit trading between partners who have no existing relationship. The two systems described below offer online escrow services for businesses, marketplaces, and auctions.
PitneyEscrow and PitneyPay Pitney Bowes offers both an escrow service and a hybrid billing system. PitneyPay is new and has not yet been implemented. PitneyEscrow has been around for a while. Together they will permit businesses to guarantee the quality of purchases made from new trading partners by setting up an escrow account. Buyers then have the opportunity to approve goods received before the funds are released, pay via ACH debit, and pay multiple parties as part of a single transaction. The suite of Pitney services is clearly targeted more at the buyer than at the seller, but they represent a good way for businesses with reservations about online transactions to get their toes wet without risking anything.
Source: e-commerce guide