B2B Payment Networks Add Speed and Greater Detail

  The rise of new, customizable business-to-business payment networks could help speed the sluggish migration of corporate payments from legacy paper-based checks and invoices to more-efficient electronic payment platforms.
  A new crop of B2B payment hubs developed by banks and credit card networks over the last year enhances corporations’ abilities to electronically route B2B payments through automated clearinghouse systems, electronic funds transfer networks, and wire or commercial card channels, particularly for procurement and supply purchases.
  These new Internet-based payment networks enable faster settlement of B2B payments compared with checks, providing opportunities to earn early-payment discounts with many suppliers. The networks also provide more-detailed invoice and remittance data.
  Banks and card networks hope to gain a greater share of the overall payments they handle through their B2B networks, say analysts.
  Another important lure of the new B2B payment networks is their usefulness to corporations making international payments, says Anand Ramakrishnan, senior vice president in the Rosemont, Ill., office of Paris-based consulting firm Capgemini.
  American Express Co. last year finalized the acquisition of Harbor Payments Inc. to expand its electronic payments services; JPMorgan Chase & Co. last May acquired the B2B network developed by Xign Corp.; and MasterCard Worldwide unveiled its MasterCard Payments Gateway hub last October.
  An indirect effect of the growth of new B2B networks likely is a reduction in check payments as more corporations shift to electronic platforms. Seventy-four percent of U.S. B2B payments were conducted by check in 2007, down from 81% that were in 2004, according to the Association for Financial Professionals.
  â€œEach (B2B network system) is a little different, but most of them are built on an electronic invoicing and presentment platform that relies on scanned images of invoices that can easily be linked to electronic payments in order to track and manage them throughout the entire order-to-payment cycle,” says David Fish, a senior analyst with Waltham, Mass.-based Mercator Advisory Group.
  Although the new B2B payment networks facilitate the use of noncard payments, Fish and other analysts maintain that commercial cards, whose share of B2B payments is growing, likely will continue to capture a substantial share of total payments (see story below).
  JPMorgan Xign Corp., a subsidiary of JPMorgan Chase, focuses its electronic settlement network on the entire order-to-payment process for its business customers in the U.S., Canada and six European countries, with plans to expand to 20 countries by 2009, says Frank Dombroski, Chase senior vice president, commercial card solutions.
  â€œThrough Xign, our customers have access to more than 30,000 suppliers, and they can decide whether they want a payment to travel by ACH, card or even check, depending on what works best for that transaction,” Dombroski says.
  Xign clients include Bristol-Myers Squibb, Honeywell and Verizon Wireless. One client, New York-based Memorial Sloan-Kettering Cancer Center, says its overall payment-cycle time dropped from an average of 80 days to 20 days after adopting the Xign platform, and the hospital achieved early-payment discounts of about 2% per transaction with 30% of its suppliers. Xign offers annual subscription or transaction-based pricing for its electronic-settlement network, according to Dombroski.
  AmEx has added several large business customers that use its Internet-based B2B payments network, Source-to-Settle, on a national basis, says Dennis Bauer, senior vice president of sales and marketing for AmEx’s business-to-business payments. AmEx bases its fees on an individual-client basis as part of an overall B2B payments package.
  Global Reach
  â€œClients are using our system for the entire procurement cycle, and we are having a lot of success in helping clients get checks out of the system,” Bauer says. He declined to name specific clients and says AmEx plans to expand the service to global clients later this year.
  MasterCard markets its Payments Gateway, which also enables a wide variety of payments from a central, Web-based hub, to banks on a wholesale-fee basis. That way, banks may sell the service to their customers on a private-label basis as an enhancement to their business-banking services.
  MasterCard’s gateway does not yet support international payments, but it will add U.S.-to-Europe payments later this year, says Shari Krikorian, vice president and senior business leader for MasterCard advanced payments. “The most-valuable feature of the system may be the detailed, electronic remittance data available for each type of payment, something check payments cannot provide,” she says.
  So far, Wells Fargo & Co. is the only bank that has signed on to offer the MasterCard Payments Gateway to its corporate customers. Krikorian says MasterCard is in talks with several other prospective banks that may adopt its hub.
  One difference between MasterCard’s offering and those of its rivals is that it does not use typical electronic invoicing presentment and payment, says Fish. “MasterCard’s solution is somewhat revolutionary in that it is using invoice data, not the scanned image of the invoice,” he says. “It is automating the payment process in another way.”
  The cost of integrating a B2B payment network into a corporation’s internal system is difficult to quantify, says Brian Shniderman, a director in the Phoenix office of New York-based Deloitte Consulting LLP.
  â€œAdopting a B2B network eventually becomes a question of value, not cost, for corporations because there are so many efficiencies and early-payment discounts to be gained.”
  With the lure of greater efficiencies and discounts, the new B2B payment networks may finally help to break the logjam of checks.
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