State Street Corp., which got its start in the 19th century as a provider of letters of credit and other trade financing between companies in the United States and China, is going online.
The Boston banking company is expected to unveil an Internet-based service designed to make transactions between exporters and importers speedier and more efficient. State Street is targeting companies with annual sales of more than $100 million and well-established connections with overseas suppliers for its new product, Open Account Trader. The announcement could be made as early as today.
Internet-based trade finance services have been sprouting up along with an increase in global trade overall, putting a strain on profits from providing letters of credit, a bread-and-butter business for many banking companies. The newer services are gaining popularity because they reduce the time needed between an order, delivery, and payment from days or weeks to a single day and eliminate tedious paperwork.
"Overall, the letter of credit business is under pressure because large exporters are looking to eliminate the need for" the cumbersome and expensive process, said Sandy Andrews, a senior vice president at State Street. "We are reengineering the whole process of cross-border trade."
Last year, two new companies, Bolero International Ltd. and TradeCard, started soliciting banking companies to sign on to their systems.
The Through Transport Club, a London-based group of insurers, freight forwarders, and import-export companies, and the Society for Worldwide Interbank Financial Telecommunication, a Brussels-based payments messaging service owned by banks, run Bolero. They have agreements with Chase Manhattan Corp., Citigroup Inc., ABN Amro Holding NV, and HSBC Holdings PLC.
New York-based TradeCard, which was founded by a consortium of investors including Marsh & McLennan Co. and E.M. Warburg, Pincus & Co., has signed up Bank of America Corp., FleetBoston Financial Corp., and Comerica Inc.
State Street said it is the first banking company to develop its own trade system, which it will initially market to existing customers. New Balance Athletic Shoe Inc., a Boston maker of athletic footwear and clothing, is the first such customer to agree to use the system. Mr. Andrews said another "three to four" companies are getting ready for it, all of them consumer product companies with factories overseas.
Eventually, Mr. Andrews said, the service will be pitched to other banking companies, for private-label use.
Mr. Andrews said that, unlike some other online services, State Street's targets larger companies that do recurrent business with the same overseas suppliers. This is more time- and cost-effective than handling one-time transactions, he said.
State Street's system uses secured encryption. The company is looking for a provider of digital certificate technology to add to the system.