Citigroup Inc., making its play for the corporate payment-automation business, has decided to plug into an established supplier network rather than develop its own.
Ariba Inc. announced Tuesday that Citi would integrate the Ariba Invoice and Payment network with its own electronic payment and supplier finance offerings.
Amol Gupte, the head of Citi's North American treasury and trade solutions unit, said the company plans to integrate Ariba's procurement and invoice automation technology with Citi's suite of payment and working capital services, delivering better "spend analytics" to Citi's corporate clients.
"The only thing that overlaps between Ariba and us is the client, and that is a great thing," Mr. Gupte said.
Citi and Ariba spent more than six months in detailed discussions and due diligence, he said. Citi expects to have its first customers using the service by the end of the year.
In contrast to rivals in the market, Ariba has an existing network of 160,000 suppliers, spread across 115 countries, Mr. Gupte said. "Their supplier base is very global, and so are we. This is really the sweet spot between cash and trade."
Business-to-business payment automation is becoming an increasingly prominent issue for both large and small financial companies. JPMorgan Chase & Co., American Express Co., and MasterCard Inc. all launched corporate payments portals last year to promote electronic invoicing, reconciliation, and payment, primarily for large and middle-market businesses and their supplier networks.
Nacha, the electronic payments association, is studying ways to promote use of the automated clearing house system to small and midsize businesses, and this week the American Institute of Certified Public Accountants announced an alliance with the payables management start-up Bill.com Inc. of Palo Alto, Calif., to help small businesses manage their accounts payable online.
Drew Hofler, Ariba's senior manager for financial solutions, said Citi would be able to integrate the Sunnyvale, Calif., vendor's network of 160,000 suppliers, enabling its cash management customers, mainly corporate buyers, to better integrate sellers' invoices and payments with their own internal accounting systems.
Banks are better off sticking to their expertise in finance and payments and using partners like Ariba for other, related services, Mr. Hofler said.
"Banks are fabulous at their core strengths, such as payments," he said. "What banks aren't as good at is innovating and staying ahead of the curve in the software space. Every semiannual or quarterly update we make is going to be available automatically to their customers."
The Financial Insights Inc. research unit of International Data Group Inc. predicted earlier this year that five to seven new "payment hubs" would come to market in 2008. Aaron McPherson, the firm's research manager of payments, said Citi's offering fits that profile.
Corporations have not shown a great deal of "explicit demand" for financial companies to provide electronic invoicing and supply chain management, but "they do want these banks to be pursuing these offerings," Mr. McPherson said. "If they have an integrated solution, they can be successful."
The problem can be as much a matter of integrating a bank's own business units as it is the corporate supply chain, he said. "Getting the different product groups — transaction services, trade finance, commercial lending — to work together has been a pretty tall order for most banks."
