The B-to-B portal owned by UMB Financial recently celebrated its first anniversary with 6,100 business clients, about one fifth of which are banks.

Historically, the main goal of America's small, medium-size and even regional banks was to promote trade, says Alexander "Sandy" Kemper, the 35-year-old former president and chief executive officer of UMB Financial Corp., an $8.1 billion-asset Kansas City, MO, bank started by his family. Now heading the company's business-to-business Web site, eScout.com, Kemper says, "We enable banks to do this (that is, to fulfill their principal mission) in an Internet economy. We use technology to turn back the hands of time."

It was about a year ago, in October 1999, that eScout debuted, already serving some 2,500 small and midsize companies at the time of its official launch-a number of banks among them. Through the ecommerce site, the companies were aggregating their resources in order to compete with much larger businesses. They were also looking for a safe and secure business-to-business environment.

Today, eScout serves about 6,100 businesses on its B-to-B network. Of those, nearly 1,200 are community and regional banks, accounting for more than 12% of all U.S. banks and serving more than 1 million businesses.

This past September, eScout announced additional alliances with seven prominent regional banks: Citizens Financial Group, Providence, RI; California Federal Bank, San Francisco; Birmingham, AL-based Regions Financial Corp.; First Tennessee National Corp., Memphis; Allfirst Financial Inc., Baltimore; Marquette Bancshares Inc., Minneapolis; and First State Bank of Texas, which serves the Dallas/Fort Worth metropolitan area from its headquarters in Denton.

What attracts these banks to eScout, Kemper believes, is the importance of small-business customers to financial services companies. Small businesses drive America, he says, noting that about 95% of U.S. businesses employ fewer than 500 people. Moreover, approximately 65% of America's gross domestic product is generated by small business.

"Most of the real economic gain in the last few years has come from small businesses," Kemper says. "Bigger companies have become more inefficient," while the nation's 25 million small businesses have been vibrant for the most part.

Who serves these small businesses? Kemper stresses the point: It is the community and regional banks.

Small business, he says, lacks three things: scale, brand and capital. "In a network like eScout, you can create all three economic aspects to marry with the intimacy of a small business," he says.

Scale, naturally, is created through eScout's networking of more than 6,000 businesses. The company anticipates remarkably fast growth, with targets of 20,000 businesses by year's end and 100,000 by the end of 2001. The participating companies are relatively small indeed, with average annual revenue of about $3 million. Still, that means the network represents members with total revenue of approximately $18 billion.

Brand is no less important. Kemper says 4 million Web pages are created every day. "How will a small business be found?" With eScout, he says, a brand is created, and it's a brand that reflects trustworthiness. He explains: "The vast number of all our members came through a bank channel," which means they carry, in effect, a seal of approval from their financial institutions.

Not One Failure

With respect to the third essential that most small businesses lack- capital-Kemper is again emphatic: "No small business can do what eScout does. We've built a marketplace, having raised $25 million in our first round. ..." While declining to share precise figures, Kemper says eScout has done "hundreds of thousands of transactions, amounting to tens of millions of dollars." Not one transaction has failed, he adds.

For each of those transactions, eScout gets a fee, and Kemper anticipates the company will be profitable by the third-or maybe the fourth-quarter of next year.

Among the newer banking customers of the ecommerce network is San Francisco-based California Federal Bank. Cal Fed, with about $60 billion in total assets, signed a contract with eScout in mid-September to be a "regional champion." Under the agreement, Cal Fed not only can market the ecommerce services to its own 100,000 business customers but can sell the services to other local banks, which then become local champions under Cal Fed.

California Federal Bank's senior vice president, Internet technologies, Lelah Jenkins, says the agreement with eScout allows Cal Fed to "participate in the revenue sharing for the sales we do. We think it will provide a nice return on investment."

But a reasonable-and reasonably quick-return is only one reason Cal Fed joined the eScout service. Jenkins, who works in the bank's Los Angeles offices, says participation in the network will help Cal Fed retain its business customers. "If we didn't offer this," she says, "someone else would eventually. This is a defensive move and we can do something great for our customers."

In general, eScout provides Cal Fed's business customers with the advantages inherent in a sizable ecommerce network: greater purchasing power, additional leverage and logistical advantage in establishing cost-effective services such as shipping, and of course additional marketing opportunities through interaction with other network participants.

Hal Tovin, president and chief executive of Citizens e-Business, a Boston-based subsidiary of Citizens Financial Group of Providence, also signed a contract with eScout. "We're very focused on small businesses, with more than 100,000 small-business customers," Tovin says. He sees eScout evolving into a solutions center for small business and hopes to help Kemper build eScout into a national company. Adds Tovin: "eScout has the vision and the strategy, but didn't have the customers. I have the customers. It's a perfect match."

Tovin says what is unique about eScout is that "Sandy (Kemper) knew this was an efficient way to get customers, through the trusted relationships that a bank has."

Although analysts agree that the banking element of eScout is unique, or close to it, some remain skeptical about whether eScout truly brings value to the table beyond that created by any well-functioning ecommerce network.

"We seem to see people shooting all over the place," launching Web sites with ecommerce sections, says Tom Hathoot, president of Bank Market Technology, a consulting firm in Westminster, CO. "It sounds like a good idea, but have they done any market research? My first questions would be: Who did you ask and what did you say?"

Susan Landry, research director at Gartner, says what makes eScout different from the small-business solutions offered by banks such as Citibank is its local flavor. "In a global economy, local electronic presence has a leg up on the initiatives that are purely global in nature." She compares it to shopping malls. Every city has the same malls with the same set of stores and you can't even tell what city you're in. But on Main Street, U.S.A., local businesses are more prevalent, and "small businesses will shop more locally; eScout offers a range of necessary goods and services that a business requires."

As for banks, Landry points out that community banks can't compete with the Citibanks of the world. With eScout, banks can share risk and reward with a larger number of participants, she says, adding that the number of smaller banks in the U.S. is increasing, not diminishing.

Mika Yamamoto Krammer, senior analyst of small and medium-size enterprise e-business transformations for Gartner, had not been aware of eScout before a reporter inquired about the company. After viewing the Web site, her initial reaction was mixed. On the one hand, she says, eScout's services "don't seem different from what other small-business portals are offering, although in the insight and solutions area, it seems a little lighter."

Tapping Relationships

On the other hand, says Krammer, eScout has an advantage over other small-business portals. "There are eight million small businesses in the United States and they are very dispersed and fragmented. Eighty percent of business is done within 20 miles." She recommends that eScout "use the leverage and trusting relationships of the community banks, and personalize the marketing. That's the channel the other players don't have."

She points to recent ecommerce initiatives from Microsoft and the National Broadcasting Corp., observing that while those companies have deep pockets with which to fund such efforts, they "don't have the existing relationships like banks."

And that, of course, is just what Sandy Kemper is emphasizing. "Although banks are not historically considered cutting-edge technology innovators, there is a real advantage to their tradition of (being) relationship-builders," he says. Other companies are "using their technology as a lever to separate banks from their customers, attempting to build trust upon a foundation of technology." Kemper thinks that's the wrong approach.

"Banks do not have proprietary products. What we have is the aggregate success or failure of our customer base. Our mission as bankers is to help create financial success for our customers."

Kemper hopes to do that with eScout.

Jan Jaben-Eilon is a freelance writer in Beachwood, OH.

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