Seamless B-To-B Online Payment Systems Readied

It's taking a village of contributors to raise an online payment system for global businesses. Months of discussions among IT vendors and financial institutions finally have laid the foundations for software systems that by next year promise to let trading partners receive bills, authorize payments, match payments to purchase orders, and download the data into enterprise resource planning and accounting systems-all in a paperless process that's cheaper and faster than credit cards, electronic data interchange, or checks.

Only 17% of all business-to-business payments are handled electronically, according to IT advisory firm Gartner. Of those, 39% are paid through wire transfers, 33% go through automated clearinghouses, and only 14% use EDI. Credit cards and other methods make up the balance.

Such figures indicate much room for growth, and several companies want a piece of the B-to-B payment action. Likely to lead the pack are systems from alliances of financial institutions, such as Identrus LLC's Project Eleanor, which last month began pilots at eight global banks.

Also promising is a system from VeriSign Inc. and eOne Global, a subsidiary of First Data Corp., the nation's largest payment processor. Xign Corp. is partnering with banks to deliver a system that's been in use by the federal government-the nation's biggest buyer-for the past four years. And General Electric Co. by the end of this year will use its mammoth buying clout to push a solution of its own to the 17,000 suppliers and 100,000 trading partners in its GE Exchange.

"There are a number of potential options, and there isn't likely to be a single ultimate victor," says David Jackson, E-commerce payment product manager for IBM. Still, he's betting that the systems that survive will combine the resources of leading banks and technology providers. "No matter how the payment gets created and the information gets exchanged, at the end of the day the banking industry settles the transaction," he says. "The banking industry has to be sure to offer services that are easy to use, and the software providers need to work within that structure."

Identrus hopes to fill the bill with Project Eleanor. Eight banks, including ABN Amro, Bank of America, Chase, and Citibank, launched Identrus in 1999 to develop authentication services that guarantee trading partners are who they say they are and that banks stand behind their credit worthiness. Already, companies such as Compaq, IBM, and Sun Microsystems accept Identrus certificates. And Microsoft plans to integrate Identrus trust certificates into Windows 2000 and .Net enterprise servers.

Project Eleanor will go a step farther, offering a payment-initiation standard that will make it possible for trading partners to not only conduct commerce online but to then order their banks to transmit payment to one another electronically.

The point is not to develop a proprietary system but rather an open standard that will facilitate online commerce. Any vendor can develop a system that complies with Identrus' specifications and interoperates with the network, says Kristin Kupres, Identrus' chief operating officer.

Merchants who sell to consumers rarely let go of their goods without getting paid, but the business world turns almost exclusively on credit, with customers making payments in 30, 60, or 90 days. The first phase of Eleanor will let trading partners initiate a payment request where they can define the terms and conditions of the payment. Detailed payment information will go directly from buyer to seller; when the two parties agree on when the recipient will pay for various parts of the shipment, Identrus will send a payment authorization to the bank.

"Customers are looking for a solution that's easy to deploy and to integrate into their own billing cycles," Kupres says, "and global financial companies are positioned to deliver that." Eight of the 45 banks that participate in the Identrus authentication network started testing it in July; a dozen should be online by the end of the year, Kupres says. If all goes well, the system will begin general rollout-likely under a different name than the working moniker, Eleanor-by the second quarter of 2002.

Beyond the technology, Kupres says, the real achievement of Eleanor is the collaboration involved in defining a common language and format for making, fulfilling, and transmitting payment requests among the global financial institutions that move the money.

Wells Fargo & Co. is testing Project Eleanor. The browser-based system is easy to implement relative to EDI, says Jane Hennessy, senior VP and manager of Wells Fargo's international group. "EDI may have gotten a bad rap and isn't as difficult to implement as many people think," Hennessy says. "But Eleanor is still easier to understand and implement and offers many benefits in one package."

Wells Fargo will use integration services from iPlanet E-Commerce Solutions. Business customers will need browser plug-ins to access the system and smart cards and readers to identify their personnel and credit limits. Pricing isn't set, but Identrus says it should be cheaper than EDI and doesn't require hardware at customer sites.

Within the financial community, though, Eleanor is far from the only player in the settlement space. Its authentication competitor, VeriSign, has teamed with the nation's largest payment processor, First Data, and invested $20 million in SurePay, an end-to-end system that launched this summer. In addition to authentication and electronic invoicing, the system will offer reconciliation of purchase orders and payments, escrow services, delayed payments, and data integration with internal ERP and accounting systems. If Gartner's predictions are right, the service could be well-received: by next year, Gartner projects that 55% of companies with revenue in excess of $100 million a year will conduct purchases electronically; 26% will invoice electronically.

Despite the slow start of online payments in the business market, Mark McLaughlin, VeriSign's VP of corporate business development, predicts that the advent of electronic settlement will jump-start online purchasing. "No one was going to charge $4 million worth of steel on a credit card, and no one was going to make those purchases online until all the processes-the credit, the authorization, and the finance-were integrated," he says. "Now we'll see the first real B-to-B transactions for major amounts of money moving seamlessly over the Internet."

Among the smaller players in the crowded field is Xign, a startup funded in part by Charles Schwab, that went live with a payment exchange in July. Led by former PeopleSoft Inc. executive VP Tom Glassanos and a team of former S1 Corp. system engineers, it's already being used by the U.S. Defense Department and six commercial customers, including an unnamed Fortune 100 company.

The browser-based Xign system also uses digital certificates and authentication software; lets both sides track pending payments as they are invoiced, approved, and paid; and offers exception and dispute-management features that enable collaboration between the two sides in working out disputes. The system costs the payer about $1 a payment and the receiver about $1.50-or roughly half the cost of processing a paper check, Glassanos says.

Also entering online settlement is GE, which is moving its internally built, Java-based platform, including auction services, request-for-proposal postings, indirect procurement, materials management, 24-hour support, and settlement, from its private exchange to the public sphere, says Frank Campagnoni, chief technology officer and VP of marketplace solutions for GE's Global Exchange Services. Its settlement system will debut in January.

GE isn't trying to compete head-on with banks, Campagnoni says. "Banks will own the end payment piece, and even in our model we develop automated clearinghouse payments that in the end are carried out by banks," he says. "But they don't own all the processes before that, and that's where we're going to play."