First Union Corp. became the latest bank to vault into business-to-business electronic commerce with an announcement Wednesday that it will create a division devoted to building an online marketplace for small and midsize companies.
The Charlotte, N.C., banking company has licensed software and services from Intelisys Electronic Commerce Inc., which sells Internet procurement systems so that buyers and sellers can establish Web marketplaces. First Union's corporate customers would use the Intelisys service - scheduled to be up and running this fall - to create electronic storefronts and catalogues.
The rush to stake a claim in the vibrant business-to-business e-commerce market is creating some eye-catching alliances, as major banks feel compelled to line up behind the large vendors that specialize in this sector.
First Union's selection of Intelisys is noteworthy because the New York-based vendor counts among its founders Chase Manhattan Corp., which owns a 33% stake in the private venture. Last September, Intelisys announced it would build a system for Chase.com that sounds analogous to the one it is working on with First Union.
Other large banks are also busy cutting deals. Citigroup Inc. said last month that it was teaming up with Commerce One Inc. of Walnut Creek, Calif., the nation's largest facilitator of Internet procurement, to build an online portal linking buyers and suppliers. Cleveland-based KeyCorp signed a similar deal with Ariba Inc., a company in Mountain View, Calif., that competes with Intelisys and Commerce One.
All the banks involved in these deals say the services they are creating will give their corporate customers access to discounts on office supplies, computers, and software. Companies would save money by eliminating much of the paper associated with the traditional procurement process.
"As you can imagine, there is a lot of faxing and paper purchase orders that go back and forth between businesses, whether they are ordering from a national supplier or a local provider," said Michael deJulien, a vice president of product development at First Union. "By streamlining that, we will enable them to have as much power in the marketplace as the large businesses do."
The value of domestic business-to-business goods sold on the Internet is expected to increase to $2.7 trillion in 2004 - or 17% of all trade - from $406 billion this year, according to Forrester Research of Cambridge Mass.
"Banks are champing at the bit for this business, because this is where the high revenues are," said Avivah Litan, research analyst at GartnerGroup, of Stamford, Conn. Moreover, by creating their own marketplaces, banks can host the transactions on Web sites that carry their brand names.
Ms. Litan said Citibank and First Union "will be on the phone calling their customers saying, 'Would you like to do business on the Internet? If so, who are your major suppliers? Who are your major buyers?' " The bank's own geographic reach would be immaterial, she said, because "they are creating their own communities based on their own customers in any area of the world they want to operate in."
Intelisys said it has 7,500 buyers and 1,000 suppliers now and expects to have four million by yearend. The other companies that own one-third stakes in the company - besides Chase - are BVR, a venture capital firm; and Forstmann Little & Co. of New York, which invested $65 million in Intelisys in October.
Observers said First Union has a good working relationship with Chase through Spectrum, an electronic bill payment and presentment venture that those banks set up with Wells Fargo & Co. last year.
Mr. deJulien of First Union said the relationship with Spectrum did not influence the decision to use Intelisys. He said the bank looked at every major a supplier.