Electronic payments may be the hottest topic in e-commerce circles today -at last count there were over 200 private and public companies in the U.S. market offering technologies and/or services that support e- payments over the Internet. But if recent events are any indication, trade finance may be the next area of B-to-B commerce that is pushed into the world of electronic exchanges.
Not that it will be an easy process. Experts say it could prove more difficult than the transition from checks to electronic payments. "It's an enormously complicated process," says Dave Medeiros, director of the global payments practice at TowerGroup, Needham, MA. "There are so many different agents that have to be networked."
Among the parties to an international sale of goods are: importers and exporters, banks, customs agents representing various governments, freight and forwarding agents, shippers, and others. Brokering standards and navigating the legal systems of all these parties makes it almost an agonizing process to migrate trade finance from paper to the Web, says Medeiros.
But that hasn't kept some bankers and technology providers from trying. And late last year, Bolero, a B-to-B marketplace provider that is part owned by SWIFT, the international financial messaging network, scored a coup of sorts when it secured $50 million in funding from venture capitalists. This at a time when the technology stock heavy Nasdaq was in a tailspin and dotcoms from every corner of the Web were closing down because funding was drying up. Bolero executives say the money should be enough to keep the network on course for profitability in 2002.
In January, Bolero took another big step when it hired a standards czar. Peter Guldentops, who was chief standards writer at SWIFT, is now in charge of what Bolero calls the "bolero XML standards initiative." While at SWIFT, Guldentops is credited with helping to develop over 200 message standards
XML has emerged as the standardized data language for transferring financial documents across the Internet. Bolero's XML initiative, launched last April, has generated electronic standards covering more than 65 documents commonly used in world trade already, ranging from advance shipment notices and import declarations to trade confirmations, a spokesman says. Noticeably absent from the list are standards related to payments and associated financial instruments, like letters of credit. The Bolero spokesman, however, suggests these may be addressed by a new group of standards that could be issued as early as next month.
Bolero counts as participants seven of the world's top 10 banks, five of the top 10 container shipping carriers, numerous online exchanges, and scores of major multinational corporations, including Samsung and Hitachi. In remarks to bankers last fall, during SWIFT SIBOS, participants claimed to be slashing upwards of three weeks off trade processes that normally take up to a month. But it's the connection Bolero has with SWIFT that truly establishes its credibility.
"Bolero is able to distinguish itself because it has SWIFT behind it, and it has all the robustness of SWIFT's technology and its approach to financial standardization," says Susan Skerritt, head of the global corporate practice at Treasury Strategies Inc., Chicago.
Skerritt sees efforts like Bolero, and TradeCard, which uses the corporate credit card model to support international trade, running parallel to efforts to promote Internet-based payments.
As these gain notoriety, new efforts are underway to automate some of the more arduous financial tasks in international trade, like securing letters of credit (L/Cs). "This is a hugely paper-intensive process," says Mike Moretti, co-founder of LCconnect, New York. LCconnect is an electronic marketplace that brings together corporate borrowers and banks that are willing to lend those borrowers money using anticipated trade shipments as collateral-the parties to an L/C.
Just working out the details of L/C can take days, experts note; the execution process, with about 10 different steps, can take weeks of document exchanges. LCconnect moves the initial steps to the Internet. "It can take a process that normally takes hours and complete it in minutes," Moretti claims.
Moretti identifies the market for LCconnect as banks and corporate credit officers looking for banks to finance their trade deals. Five companies, all of them Fortune 500 companies, Moretti says, and six banks (four American and two European) were expected to complete a three-month test of the concept last month. If everything goes according to plan, the L/C marketplace could be in full swing within a month or two.
Corporate treasury executives are clamoring for L/C automation tools, according the Association for Financial Professionals (AFP). A member survey released last fall by the Bethesda, MD-based group (formerly, the Treasury Management Association), found 80% would prefer to execute L/Cs online.
The AFP survey also suggests Internet access to L/C monies would make the process more competitive. Asked how many banks typically are asked to bid on L/Cs, more than half (58%) of financial officers polled by AFP said just one. Nearly 70%, however, said they'd prefer quotes from multiple banks.
The draw for banks, says Moretti, is a larger pool of potential L/C clients, and the luxury of being able to pick and choose which deals to bid on, anonymously. They can even change bids in response to pricing offered by a competitor, notes Moretti.
Banks can also improve portfolio management with a service like LCconnect, says Moretti. That's because in addition to automating the L/C bid process, the LCconnect marketplace can be used by banks to buy and sell L/Cs. "The L/C business has always been a reactive business. There's never been a proactive way for banks to get L/Cs off their balance sheets," insists Moretti. "We offer a search capability for banks so they can bid on the L/Cs that best meet their criteria."
Skerritt sees merit in automating the L/C process. But she cautions that it may never become a major push in the e-commerce arena. Data gathered by her firm suggests that letters of credit could be on the wane. In retailing, for example, Skerritt says some companies have reduced use of L/Cs by as much as 70%.
Skerritt believes the decline may have occurred in part because many of these companies have been trading partners for years, and L/Cs are most used by trading partners that are new to one and other. "Because retailers have been dealing with the same suppliers for years, it may be more a matter of trust" that's prompting this change, Skerritt says.
Skerritt also suggests trust, and the trust models that have emerged around e-commerce, could eventually obviate the need for trade finance instruments like the L/C. "Is the letter of credit going to be the method of the future, or are there other ways available for ensuring trust on the Internet?"
While Skerritt and others ponder this question, however, initiatives like Bolero, TradeCard and LCconnect will only continue to gain converts, as the push to "electronify" commerce continues.
