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Electronic Payments

Moving money over the Internet has proven more evolutionary than revolutionary, but a shift in focus may spell the end for ''the float.''
Julie Sturgeon, CFO IT
November 17, 2003

Moving money by wire must qualify as the original form of E-business: its roots can be traced back more than 100 years. But the relatively new field of E-invoicing, plagued by the clunky terms electronic bill presentation and payment (EBPP) and electronic invoice presentment and payment (EIPP), has been slow to take hold. However, it may get a boost next year, thanks to the rise of yet one more abbreviation, FSC, or financial supply chain. While FCSs can encompass many technologies, from E-procurement to enterprise spend management, the ability to send bills and make payments electronically is key.

Philip Philliou, vice president of E-business and emerging technologies at MasterCard International, says, "Financial supply-chain management keeps capital and information flowing, and given the demands of Sarbanes-Oxley and the overall state of the economy, it's critical companies make it work for them."

Some companies saw the appeal of EIPP (the term generally applied to business-to-business transactions, while EBPP is more often used to describe consumer-targeted E-billing and payments but is often used interchangeably to apply to both B2B and B2C markets) early, and a number of technology firms have sought to meet their needs. But to date, this has involved cobbling together a system of "point solutions." As Joe Squeri, CFO at Choice Hotels International, notes, "We've been working on this since 1996 and still have disparate systems that don't do everything we need as far as invoicing and billing. Everybody would like an end-to-end solution."

So watch for today's universe of point solutions to evolve into integrated suites of software that automate all things financial, similar to the past decade's embrace of supply-chain management systems. "Point solutions by themselves don't offer a compelling proposition, so they're not on CFOs' radar screens," says Raj Kushwaha, CTO and senior strategy officer at Velosant, an enterprise-payments company formed in June. Kushwaha says the very existence of newer, more-integrated systems often comes as news to CFOs.

Count on such big-name enterprise resource planning players as PeopleSoft, Oracle, and SAP to make noise about rolling out sophisticated packages that tie payments into procurement, pricing negotiation, price management, postsale evaluation, and databases. Partnerships between firms that address E-procurement on the front end and E-payments on the back end are also likely.

Automating any process is complicated, but the flow of money is particularly so because the vast network of buying and selling that constitutes business is fraught with power politics: what benefits the seller (receiving payment quickly) doesn't necessarily benefit the buyer, who would like to "play the float," hanging on to cash as long as possible.

That lack of incentive to pay up fast has plagued EIPP, but the industry has responded by switching its focus from invoicing to payments. In the new model, pushed by Xign Corp. and others, the ideal client for E-payables software or services is not the billing department of a supplier, but the accounts-payable department of a buyer. The buy side would incur the cost of the software or service and agree to pay up fast in exchange for early-payment discounts from the supplier. According to Xign CEO Thomas Glassanos, the typical discount of 2 percent for payments made within 10 days reduces a payer's cost of capital to the point where the earnings from the float become counterproductive. Add to that the reductions in manual labor, and he's optimistic that "E-payables" will succeed where EIPP has come up short.

Bill Dvorak, CFO of Cimco Communications, a telecommunications-services firm in Oakbrook Terrace, Illinois, is a believer in the efficiencies that EIPP can provide. He puts the cost of receiving, auditing, processing, and paying a paper invoice at $100 or more. As part of its services, the firm now mails clients a printed summary of charges but relies on EIPP to do most of the heavy lifting, keeping overhead low. Cimco says it also fields fewer customer-service calls about bills now that customers can get a full range of details using the Internet to look into the EIPP system.

To date, EIPP has taken hold one company at a time, but because every company that embraces it will (and, in fact, must) drive many of its business partners to sign on, Glassanos argues that a critical mass of participants (that is, potential paying clients) is upon us. Beth Robertson, a senior analyst at research and advisory firm TowerGroup, is more cautious, suggesting that market growth will be gradual. She says that the number of invoices sent electronically will double between 2002 and 2004, from 20 million to 40 million. Still needed, Robertson says, is the broad adoption of certain technical standards that facilitate the automated exchange of integrated payment and remittance. A focus on security will also continue to be important.




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