The New York Clearing House Association is seeking to form a consortium of banks that would develop Internet payment capabilities for electronic marketplaces.
The consortium would apply aspects of the clearing house's various automated systems to provide much-needed payment services for the business-to-business marketplaces that are rapidly populating the Internet.
Jeffrey P. Neubert, president and chief executive officer of the clearing house association, said he expects to have two to four banks signed on as equity investors in the project by the end of this quarter. The consortium would then solicit other banks to become nonowner participants and bring the payment services to their corporate customers.
The effort builds upon the clearing house's mandate to be a low-cost trusted provider of basic payment services, Mr. Neubert said. "We've always been about building the engine and letting banks compete on value-added services or price."
But the New York City-based clearing house faces plenty of competition not only from banks that intend to develop and market their own Internet payment capabilities, but from nonbank payment providers that are jockeying for a piece of the burgeoning market.
Bank of America, for example, is developing a payment engine for its Banc of America Marketplace LLC, an electronic venue for buyers and suppliers announced in April, said Bill Jetter, senior vice president of the bank's global treasury services.
"Other banks have their own initiatives," Mr. Jetter said. "It will be up to each to decide whether they will be using the association's technology or if they will use their own."
Steve Ellis, executive vice president of wholesale Internet solutions at Wells Fargo, said Wells is "pursuing a number of avenues," including modifications of existing approaches and brand new ones to support payments on its electronic marketplace. "We would be interested in talking to any tangible business model that appears to have legs," Mr. Ellis said.
There is no shortage of nonbanking companies pitching Internet payment proposals to banks.
Oracle Corp., for example, has an agreement with an undisclosed company to develop an online payment system that would complement its electronic procurement software now being used by five financial institutions.
"We have a serious intent to integrate payment options," said Tony Fernicola, group vice president of financial services and sales at Redwood Shores, Calif.-based Oracle.
New York Clearing House intends to combine features of its automated clearing house payments system and its Clearing House Interbank Payments System to offer a platform that combines the information aspects of the ACH with the speed and finality of Chips. The clearing house processes about 300,000 payments, worth more than $1 trillion, per day.
With the payment engines already in place, the clearing house's main priority on the Internet payments front is to build a secure interface to the banks. Mr. Neubert said he expects the system to be ready in 2001.
He added that his first concern is, "Are we too late?"
Mr. Neubert, who is entering his fifth month as head of the clearing house, hatched the idea of putting banks at the center of business-to-business Internet payments after attending a cross-industry meeting of high-level executives who were describing their plans for building Internet marketplaces. None had a strategy for executing payments beyond using conventional methods, he said.
When Mr. Neubert began talking up the consortium, he discovered that other potential providers had already beaten a path to the banks. An executive at one of the nation's largest banks told him that the clearing house's proposal was the 41st he had seen.
"In one way, that's encouraging because it means they haven't found the answer," Mr. Neubert said.
