MasterCard International Inc. said that in taking an equity stake in Xign Corp., which helps businesses purchase goods electronically, it is expressing its confidence in the growth of online business-to-business payments.
Corporate purchasing systems have been notoriously wedded to paper. Though there are many systems available to replace procurement programs that rely on checks and paper invoices, banks say the effort to migrate corporate clients to these systems is slow.
The investment - which an Xign executive said was in the "seven-figure range" - was announced Monday.
MasterCard said the investment built on a business relationship that began in autumn 2002, when it introduced an electronic payment and information management service based on a Xign service and integrated it into MasterCard's corporate purchasing card program.
The MasterCard e-P3 card program enables buyers to link electronic purchase orders, invoices, receipts, and other transaction documents with corporate purchasing card transactions. Using this system, brought to market in spring 2003, can help companies save money and enhance their accounting controls, MasterCard says.
The companies said the cash injection will be used to expand Xign's sales, operations, and research and development activities, and to enhance initiatives involving MasterCard e-P3.
Stephen W. Orfei, the senior vice president of e-commerce and eB2B at MasterCard International, will join the board at Xign, of Pleasanton, Calif.
Philip Philliou, MasterCard's vice president of e-business and emerging technologies, said in an interview that it considers its business-to-business payments programs - especially its purchasing cards - as key ways to gain market share in the corporate sector.
Most companies today use paper checks to pay the great majority of their suppliers, but there is "an unstoppable wave" of corporations converting their accounts payable systems to incorporate electronic payments, he said.
James A. Lucier, Xign's vice president of corporate alliances, said the investment from MasterCard is "a demonstration of both parties' commitment to give customers choices beyond paper checks." One of the ways Xign will use the money will be to "more closely integrate e-P3" into its core e-payment products, he said.
Xign is one of three vendors that have partnered with MasterCard to offer electronic billing software to companies that want to use MasterCard's purchasing cards. The other two are Harbor Payments Inc. of Atlanta and the U.K. vendor Burns e-Commerce Solutions Ltd.
Xign's electronic payment service, introduced in July 2001, uses the automated clearing house system to send payments and to transmit payment information to the paying company. In the last two years, Mr. Lucier said, Xign has broadened its service to encompass more of the "order to pay" cycle, from the creation of a purchase order to the settlement of a payment.
Mr. Philliou said that MasterCard sees electronic payments as the next great transition in the corporate market and that the changeover would give it an opportunity to bring in business as corporations shift from paper to electronic payment systems.
A survey released last week showed that the current corporate electronic payment systems are largely underused, he said. According to the survey, two-thirds of corporations have some kind of electronic payment system, using electronic data interchange or other technology. Also, 83% of the corporations surveyed have purchasing card programs.
However, the survey, sponsored by MasterCard and Ariba Inc., a Sunnyvale, Calif., provider of procurement-management software and services, also found that these card programs are being used for only a small portion of the businesses' invoicing, he said.
"Even the best purchasing card program is only capturing 5% to 10% of the spend that it could," Mr. Philliou said.
The survey was conducted by an independent research group among 153 corporate executives at an Ariba user conference in May.
Among the companies that either receive or send invoices electronically, electronic data interchange is the most popular system. EDI is an older format that involves direct connections between a corporation's computer system and those of its suppliers. Many industry observers say Internet-based systems are more flexible, because they do not demand hard-wired connections, though EDI systems remain popular with the companies that have spent the time and money to put them in place.
The survey found that 69% of the companies that do not use an electronic payment system plan to put one in place within two years.
"We're not talking about anything futuristic - this is happening today," Mr. Philliou said.
He asserted that banks have an opportunity to grab that business now. "Once you're in, you're in. You become very difficult to dislodge," he said. "If the bank doesn't do it, somebody else will."
Jeanne Capachin, the research director of corporate banking at Financial Insights Inc., a research unit of the Boston technology publisher International Data Group Inc., warned that corporations are likely to remain cautious about the new technology. "I think there is opportunity, but I think" adoption "still is going to be really slow," Ms. Capachin said.
Check payments are universally accepted, and a company opting for e-commerce must choose a vendor and decide how to enroll suppliers, how to train staff members to use the technology, and many other issues, she said.
"It becomes much more complex to pay electronically than to cut checks," Ms. Capachin said. "We're still very much in the beginning stages with businesses, while consumers have really jumped on the electronic payment bandwagon."
