Internet Commerce Hinges on Merchant Buy-In

With all the hype surrounding Internet commerce, weeding the realistic and probable from the overblown and foolish can be a daunting task. Indeed, forecasts of banks' future roles in on-line commerce run the gamut, from providing on-line versions of core competency services to selling their own versions of merchant software to hosting merchant Web sites via acquired Internet service providers (ISPs). And as interest in electronic commerce grows, revenue possibilities mount.

At the most basic level, banks that want to stick closely to their core competencies can tap an existing number of options to accept credit card purchases and provide on-line merchants with transaction processing, including VeriFone's vPOS (virtual point-of-sale) and vGATE (financial institution virtual gateway) software for accepting transactions.

stealing business

While banks can purchase servers and software to receive on-line payments, for them to actually make money in this medium, their merchants need to be convinced that getting on the Web will be safe, convenient and similar to what they do in the physical space. That means end-to-end, bank- branded secure solutions for conducting commerce, solutions that go beyond encryption of credit card numbers to a total management of the on-line retail operation.

Enter a growing array of available options: AT&T's SecureBuy Service, tools for building merchant Web sites; CommerceWAVE's MerchantWAVE, a transaction-ready solution for merchants to create and host secure storefronts; and Microsoft's Merchant Server, a commerce solution that enables merchants to set up an on-line store, tracking customer buying patterns and setting up the site to market specific products or offer special promotions to customers based on their shopping history.

Microsoft's Mike Dusche, financial services industry manager, contends that banks have an opportunity not only to offer an additional service channel to merchant customers, but also to steal business from banks that don't offer the same services. The caveat: Banks must aggressively sell merchants on their services.

Banks like Wells Fargo, renowned for its aggressive approach to on- line innovation, need little prodding. The San Francisco-based bank already has more than 850 merchants processing payments on the Internet using a solution developed in-house, though it's designed only to handle the payments piece. Now that the bank is offering a Wells Fargo-branded Merchant Server, bank officials expect most of their existing merchants to sign on with the new service and new ones to join. The attraction for merchants is obvious: In the nameless, faceless world of cyberspace, consumers have little way of determining the legitimacy of any merchant, and a bank brand in the window of a merchant's storefront can go a long way toward providing a sense of security, and ultimately (become) the incentive for spending money.

According to Wells Fargo's Deb Rossi, svp, merchant services, the bank is looking to become a solutions provider-a "facilitator," conceivably generating consultative fees along the way-developing strategic alliances with ISPs and companies like Microsoft and VeriFone so that merchants deal with fewer entities to get up and running.

The effort has already proved worthwhile; about 99 percent of Wells Fargo's on-line merchant customers were not customers previously, says Rossi. Even more, once a gateway or pipeline for information has been established between merchants and the bank, institutions like Wells Fargo can start to become proficient providers of new financial analysis packages.

But the Internet playing field is a rigorous one; applying old practices to this new medium will likely result in failure. The idea, says Gartner Group financial services industry research director Ira Morrow, is to take your reputation, experience and competencies and recast them with the new channel. Both Morrow and Forrester Research's David Weisman, director of money and technology strategies, agree that setting up a separate group or division to address the issues is critical to success.

BancOne, for example, has various teams within its merchant operations dedicated to improving service delivery in the virtual space, says David L. Strider, president and CEO, BancOne Point-of-Sale Services Corp. At the moment, Strider is focusing heavily on providing Web-based EDI solutions for business-to-business commerce because he sees that as having the greatest near-term return. "Businesses typically have a greater degree of comfort and expertise in using technology. And businesses, by their very nature, have recurring transactions taking place," he says, adding that the bank is waiting for security issues to be resolved before tackling merchants.

Either way, when security issues are settled, banks will be in a position to act as "conduits," as Bank of America's BA Merchant Services svp Jim Aviles calls its new role as an entity that helps, advises, educates, and, packages information for their merchant customers. "I want to ensure the proliferation of transactions, that transactions are conducted securely and with integrity, by delivering software, an Internet gateway service, certificate issuance, and retailer education regarding available technologies," he says.

-CherylJ.Prince tfn.com

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