Banks' New Role: Wired for E-Commerce Partners

So far, much of the attention lavished on Internet businesses and strategies has focused on applications for consumers, such as purchasing flowers or managing one's finances. In the meantime, business-to-business commerce has taken a back seat. That's about to change. "Business-to-business e-commerce is where it's at," declares Bob Wilson, a Dallas-based senior vice president with Bank One, headquartered in Chicago. "E-commerce really takes EDI [electronic data interchange] to the next level. There's only so far you can penetrate into your customer base with EDI." And banks are planning to play a crucial role as manufacturers begin their foray into e-commerce. Many companies are apt to turn to their banking partners for assistance with processing transactions and extending credit, as well as structuring and hosting their Web sites. "Banks have the payment system, they have electronic-transmission capabilities, and they understand and can plan how payments will be made," says Robert Grasing, president of the Robert E. Nolan Co., a bank-management consulting firm based in Simsbury, Conn. Of course, banks' expertise in financial transactions is a large part of the reason that manufacturing execs view them as logical Web-commerce partners. However, manufacturers have several other motives for looking to their banks. First, they're viewed as trusted, nonthreatening partners. "Businesses are leery of using organizations that might steal their customers away," says Grasing. "Companies don't have that fear about banks. They see banks' interests as just the financial transactions." In addition, issues of speed-to-market are becoming so critical that it will be hard for many businesses to roll out their e-commerce efforts entirely on their own. That's one reason that Eastman Chemical Co. -- the first major chemical manufacturer to announce an e-commerce site -- would consider working with its bank as it adds payment-processing capabilities. "It's something we've thought about at length," says Fred Buehler, director of electronic business with the $4.5 billion Kingsport, Tenn., company. "We're looking for partners, because things are moving so fast." And a decision by the U.S. Office of the Comptroller of the Currency this year gave Fleet Financial Corp. the green light to work with commercial customers on Web site creation and maintenance. "Banks are not allowed to engage in just any business, so there was a question as to whether this was legitimate," says attorney Brian Smith, a partner in the Washington office of Mayer, Brown & Platt. Smith adds that the ruling was broad enough that it should apply to similar cases. Finally, banks should be able to put together a strong suite of products and services -- many of which formerly were the province of technology consulting companies -- at competitive prices. "We're not too far away from seeing Fidelity [Investments] bidding on things that TRW would do, or the day that banks will compete with Andersen Consulting," says Nathaniel Palmer, an analyst with Boston-based Delphi Group. However, despite the announcements by many of the large, money-center banks of projects designed to help manufacturers implement e-commerce, few have actual projects that have been introduced on a broad scale. One reason, says Larry Forman, assistant director of Ernst & Young's national cash-management consulting practice in New York, is the technical stumbling blocks. "Hooking up companies' legacy systems to Internet front-ends is a little more difficult than banks first imagined." Many banks are starting with large implementations -- often geared to consumers -- where it should be easier to recoup their investments in e-commerce systems. For electronic bill presentment (using the Internet to electronically deliver bills) and payment, for example, banks are looking at companies that send at least 15 million bills per month, says Robert E. Nolan's Grasing. Cable TV and utility companies, which bill consumers on a monthly basis, have business models in line with those numbers. Grasing says the floor should drop to about 1 million bills per month by the third quarter of this year. As the Fleet ruling indicates, banks are moving beyond traditional finance roles as they work on e-commerce capabilities for their clients. Chase Manhattan Bank, for instance, is a significant investor in Intelisys Electronic Commerce LLC, New York. The firm's flagship application, IEC Enterprise, is an Internet-based procurement system that large companies, such as Texas Instruments Inc., use to buy products such as office and maintenance supplies online, says Ray Fattell, head of business-to-business initiatives with Chase.com. For many manufacturers, the Intelisys system is an additional distribution channel. Often, they are brought into the system through a customer that uses the system. One example: BOC Group PLC, a $5.1 billion manufacturer of industrial gases based in Windlesham, England, and a supplier to Ford Motor Co., an Intelisys user. On its own, BOC also has been conducting business over the Internet since 1995. A key feature of the IEC system, says Fulton Wilcox, director of technical business development at BOC's U.S. headquarters in Murray Hill, N.J., is its support of OBI (Open Buying on the Internet) standards. "OBI is an e-commerce process architecture where the buyer is responsible for certain things, such as regulating the behavior of users, and the vendor is responsible for representing their product," Wilcox explains. Thus, the system lets buyers decide such things as who in their organization has authority to purchase goods and when to schedule receipt of an order, while also letting suppliers determine how best to present their product online. Given the global reach of the Internet, the ability to conduct online transactions across different currencies will be critical if e-commerce is to reach its full potential. Citibank Canada is a member of eMerge Alliance, a group of four businesses that joined forces in February of this year with the goal of enabling Internet service providers to provide e-commerce capabilities. Other members of the Alliance include NetMerchant, the e-commerce division of Lasso Communications Inc.; INEX Corp.; and Valu-net International Ltd. Citibank's role in the alliance is to develop a system that would enable transactions to be conducted across currencies, says Edward Moffet, assistant vice president for payment services with Citibank Canada, a subsidiary of Citigroup. A solution currently is in testing in Europe and should be rolled out by yearend. As the Internet opens up markets around the world, banks also will be called upon to help evaluate the credit of those new customers. That's especially true as it becomes feasible for big companies to use the Internet to sell to larger numbers of small companies -- transactions that often are cost-prohibitive in a brick-and-mortar environment. MetalSite LP -- an online marketplace for the metals industry headquartered in Pittsburgh -- handled its first transaction last December. Already $35 million to $40 million in transactions are flowing through the site each month. MetalSite is talking with several banks that would offer credit-evaluation services. "The larger sellers see tremendous market potential," observes David Bordo, chief financial officer. "But it doesn't pay for them to evaluate the credit of many small buyers." Soon the seller will be able to have the banking program verify the credit of online customers before they make a purchase. As manufacturers head to the Web, banks recognize the opportunity in helping them get there. "Banks always have tried to provide services to help companies transition to these new means of commerce," says Wilson.