Adding Payment to Procurement by Renee Wijnen

Bank Technology News

June, 2000

As the use of online procurement continues to grow, several banks are beginning to stake out a place in the e-purchasing marketplace--and not just as buyers. While banks are large-scale purchasers of equipment and other supplies, a number are seeking to play a more integral role in the online procurement process.

The emerging theory is that as companies begin to move their purchasing online, they will look for a way to shift payment and financing to the Web as well. The solutions that are surfacing range from alliances between procurement networks and credit card companies to new technologies for speeding up access to lines of credit and other funding sources.

"Financing is a value-add service that marketplaces are looking to provide," says David Alschuler, vice president of e-business and enterprise applications with the Aberdeen Group, Boston.

Credit card companies have already rushed to form partnerships with online procurement companies. American Express Co., New York, has worked with a score of vendors--including Ariba Inc., Clarus Corp., Commerce One Inc., Coneur Technologies Inc., Extensity Inc., Intelisys Electronic Commerce Inc., Remedy Corp. and the Sun Microsystems-Netscape alliance--to ensure interoperability between the company's corporate purchasing card and the vendors' respective procurement systems. The integration plans are well under way or nearing completion, depending on the application.

The work toward interoperability involves making sure that online purchasing software incorporates an American Express Corporate Purchasing Card account number into an online purchase order form and recognizes the number as the form of payment on the supplier end. Similarly, the company's AccountingLink application, which many Corporate Purchasing Card customers use to help their accounting department reconcile payments, is also being integrated into the system.

"We're making sure a transaction and a purchase order number stay together within the system," says an American Express spokeswoman. "The purchase order data is not much use to the accounting department unless it is matched to the actual paid information. We are working out those points of integration system by system from our end of the process."

Similarly, Bank of America Corp., Charlotte, NC, in April announced plans to develop a "financial services engine" to integrate payment methods with online procurement platforms. This engine will enable credit card payments through online procurement this summer, followed by ACH payments in the fall. Other payment methods may be added later. The first application of the commerce engine will be on the Ariba platform, but it will be designed to work with all online procurement systems.

"Today when someone buys something over one of those marketplaces, most often they have to pay by credit card, "says Pam West, e-commerce executive for commercial/corporate banking at BofA. "There's settlement, but there's no feedback into somebody's payable and receipt system that automatically updates those systems."

While credit cards seem to be the easiest payment tool to integrate into online procurement platforms, they have their limits. A Bank of America spokesman says possibilities of tapping directly into financing at the point of sale have not yet been fully explored.

Borrowing an idea from e-auction giant eBay, online financing auctions are beginning to crop up on the Net, and some finance auction companies draw clear parallels between their business and online procurement. "Ariba is doing procurement of manufacturing needs, we are a procurement engine in the area of debt," says Thomas Markel, chairman and chief executive officer of Oinke.com, Irvine, CA.

Oinke.com works by enabling borrowers to fill out up to 15 pages of loan information, depending on the transaction although the name of the borrowing company remains confidential and is only revealed to the winning bidder. The loan application is then sent to lenders whose profile suggests they might be interested in the deal.

Online lending and borrowing analysis tools also are available on Oinke.com. These include a Moody's risk scoring engine to rate buyers ability to pay back debt; an Integra-powered engine that rates buyers buy-line items on their balance sheets with competitors in their field; and a FICO credit score as reported by Trans Union LLC. An auction specialist assigned to each deal answers, questions and facilitates contact between lenders and borrowers as bids are submitted online.

In an example of a how back-end financing might one day be bound more closely to online procurement systems, Oinke.com is seeking to partner with manufacturers that can offer the company's auction engine through their Web sites as a financing tool for customers. "The good thing about this is that we can take it and bolt it on to a company that sells high-ticket products," Markel says. "There might be situations where the company buying product wants financing, but the manufacturer doesn't want to provide financing to this particular customer. Let's say the customer is in Southern California and the company already has a lot of focus in Southern California. This product could be branded the 'Cisco auction financing center.'"

Oinke's target market includes business customers seeking equipment leasing, real estate and business loans ranging in size from $250,000 to $500 million. The company recommends setting aside 10 days for the auction process.

Executives at Capital Stream Inc., whose Web site launched on April 3, say the accelerating pace of equipment purchasing was part of the reason the company changed from a software company focusing on credit scoring applications to one focusing on automating the equipment financing process. "That's one of the major trends affecting our business," says Michael Pinkney, vice president of business development. "As more and more equipment and other financial assets are sold on the Internet, there is a need to provide financing online."

Capital Stream Inc., Seattle, is the successor to System One Software. Under its new name and with its new Web site, CapitalStream.com, the company provides an e-commerce gateway for negotiating and closing equipment financing online. A striking difference from comparable systems is that Capital Stream is not an auction--it simply serves as the technical engine that helps financial companies speed transactions with their existing partners. No one else is given the name of the customer unless the financial institutions give password-protected access to their transaction record to partners.

The new Web site's features allow financial companies to create different applications tailored to specific customers or groups of customers that can be filled out online. A rate calculator lets financial companies define and distribute rates over the Internet and also allows customers to access sample rate quotes in real time. Transaction negotiations can be conducted over the Internet and the status of deals-including whether customers have supplied documentation and whether credit has been approved-also can all be checked online. In addition, contracts, policies and other documents are stored electronically with each loan program for easy access by both the lender and the customer.

Provident Capital Group, a lender that uses the Capital Stream service, is in talks about integrating the Capital Stream into a manufacturer's Web site. The Bellevue, WA, equipment leasing company offers equipment purchasing through dealers on behalf of manufacturers. For the offline sellers that make up the company's primary customer base, Capital Stream enables dealers or their customers to send leasing applications electronically and check the status of applications at any time through the Web instead of faxing applications and phoning for status checks.

But some of the new dot-com vendors that do not use a dealer network may require different ways of handling leasing needs, says Thomas Bartlett, president of Provident Capital Group. "It's taking it from a different channel to go directly over the Web to fill out applications and send them to us. There are two ways of dong business, and the first isn't going to go away," he says, referring to online selling and the traditional dealer network. "If it's a technical product, you'll still need someone to install it. But if it's a plug-and-play or non-technical product that someone doesn't want to pay cash for, you can lease online."