GE Capital is determined to grab a big chunk of the credit market for B2B E-marketplaces, even if it has to literally beat the brushes for every last piece of business credit history.
Online credit checks for consumers are one thing: It takes little more than an instant for a bank to issue a credit card. But the world of business credit is something else entirely.
Joe Krum, president GE Capital Commercial Services, says perhaps 15 percent of the necessary business credit information is online today, and it’s way too early in the game to estimate when most of the remaining 85 percent will be converted.
What’s more, Krum’s 15 percent figure applies to the U.S. market, which arguably has the highest percentage of online data for any major economy. The picture darkens dramatically once you head overseas.
“One of the biggest untapped markets is China,” Krum notes. “But there’s no credit information there.”
At the heart of the issue is a process, credit approval, which has been central to most business transactions for decades. “The fundamentals of two companies doing business haven’t changed,” Krum says.
B2B marketplaces may have quickened purchase orders and updates to inventory control systems, and their progress has been accompanied by great strides in the technology to share the data.
Unfortunately, the information to assess a prospective borrower’s financial health is another matter. It’s been all but impossible to get the data in a timely fashion.
The progress so far has been limited at best, although the pace of development has picked up this year. For example, on Monday, Dun & Bradstreet launched a Web service for small-business owners that makes data such as past payment records, overdue accounts, and liens. Next month, the service will also be made available at Intuit’s QuickBooks.com Web site.
Still, with many small businesses, commercial lenders are resorting to credit scoring techniques from firms like Fair Isaac that have been widely adopted in consumer markets like mortgage lending and credit card issuance, notes Tanya Azarchs, an analyst with Standard & Poor’s. This approach works with small mom-and-pop shops, where personal and business finances intermingle. But it becomes less suitable as the businesses grow larger.
But even with some of the recent progress, commercial lending professionals report that it’s not unusual to find credit files that haven’t been updated in two, three, or four months. Sometimes that reflects a lack of activity in the account. But in other instances it’s a failure to transmit the new data quickly to the right database.
“The technology is ahead of the rest of the infrastructure required to do business in many of these channels,” GE’s Krum says. “The actual exchange of data is no longer the bottleneck, but the availability of the data or the regulatory compliance is more of an issue. Corporate credit data is a valued commodity, and it’s a commodity people are willing to pay for.”
Krum continues, “Many industries have very small pockets of credit expertise, people who have been supplying information for many years in an offline world. One of the challenges is looping them into the network.”
In markets as diverse as seafood, metal manufacturing and distribution, and plastics, informal consortiums of credit managers have been comparing notes on clients for years, sending computer files and keeping one another apprised on who’s a good credit risk and who’s bad, explains Krum. Gathering intra-industry records of this sort is one of the first lines of attack for GE.
“You’ll find groups of credit providers in just about any trading channel that exists,” Krum says. Unfortunately, it’s not the practice to keep records current in a real time mode.
“The most advanced we’ll see is that they will share monthly tapes,” Krum says. Getting that data, converting it into a database that can be reached via the Web, and then ensuring that the records remain current is the chore.
Mike Shumpert, a product manager with D&B’s B2B E-commerce division says that although the company offers services that can automate the credit approval process, the percentage of businesses that have actually automated their credit process is too small to quantify.
Still, it may be possible to overestimate the system’s current shortcomings. George Motley, a Sherborn, Mass. business consultant who ran small-business lending at Fleet Financial Group in Boston during the mid-1990s, says that for most small businesses, having to wait a week for a loan approval is not a serious problem. Most businesses operate in a world where that’s the norm.
“The technology and the systems are already exceeding the expectations of the borrowers,” Motley says.
Speeding up the credit process would make a difference for commercial lenders, and to some extent the suppliers, Motley explains. Both would see a lot of their paperwork headaches disappear.
What’s more, it’s more than likely that the existing systems will only get better as more business is done on line. Randi Purchia, a research director for Boston-based AMR Research, says that as more business occurs on line, credit managers will find that more data is available on line. Members of various supply chains will start to track the performance of individual businesses. But the process is going to occur slowly, and Purchia says it’s too early to say exactly when it will occur.
To the extent that credit managers are using the Web, all they’re doing is getting faster access to credit histories, D&B’s Shumpert explains. Once they get them, managers are still resorting to the same manual process they’ve used for years.
GE Capital’s Krum notes that only a relative handful of suppliers and purchasers are ready to take advantage of the speeded-up process. Krum notes, “A lot has changed in the last six months,” but it’s still proceeding slowly.
GE Commercial Services embarked on its current attempt to crack the market open 18 months ago. First Factors of High Point, N.C., was acquired by GE in 1998 and added to the Stamford, Conn. firm’s corporate empire. By the beginning of 2000, it unbundled the three product lines First Factors promoted, collateralized lending, credit insurance and credit checks, and back office processing of receivables and electronic invoices, and sold them as individual services.
Since then, Krum says, the services have been augmented in a largely evolutionary fashion.
“We went through the E-commerce hubbub last year and looked for partnerships with online providers,” Krum says. “That’s run its course because of the shakeout in the market. Now we have some partnerships with firms that are more viable.”
“What we’re talking about are financial transactions,” Krum says. “The risks inherent online are no greater than offline. I still need to be comfortable that I know the buyers and sellers in any marketplace whether it’s online or offline, and the risk can be managed effectively in that channel.”
Krum says that in most cases, GE Capital can convert a business to its system in a month. Any delays stem from the difficulty of nailing down all the offline data on a B2B’s participants.
“Part of the time lag would be the underwriting of the buyers and sellers in that marketplace,” Krum explains. “What do I know about them? What do I need to know about them? The easy part is the plugging into it. I wouldn’t have said that a year ago.”