One of the last aspects of business-to-business e-commerce to undergo automation is online payment. While much of the ordering is done online, most of the payment still takes place offline. Complications especially arise with transactions involving significant amounts of money. In order to automate an across-the-board, comprehensive online payment system, an electronic marketplace may need to establish links with banks and financial institutions, as well as with the individual buyer's and seller's accounting systems.

Ready to accept the challenges of devising universally accepted online payment systems, several alliances have formed between banks, financial services companies and software vendors. Recent examples include the Ariba Commerce Services Network, formed by Bank of America; FinancialSettlementMatrix.com, created by Wells Fargo and Citigroup; and MarketMile, an office supply site put together by American Express and Ventro. Although these projected systems are in the planning phase, most payment systems expect to provide a combination of transaction and financial services, such as credit card purchasing, electronic fund transfers and instant financing.

Comprehensive online payment systems proposed by alliances such as the Ariba Commerce Services Network, would allow buyers and sellers to create and track electronic documents within an online marketplace. These electronic documents would have the advantage of being easily accessible for updating and would provide a central place for buyers and sellers to reconcile purchase orders with shipping information. Electronic documents would therefore be much faster than traditional mail service and also reduce the chances of late payments and lost checks.

The beginning of an expanded online payment system already exists in the form of the ACH (Automated Clearinghouse), an electronic network that transfers money between bank accounts. But, because using an ACH requires exchanging bank account numbers, companies utilizing this option have long-term business relationships where trust may be less of an issue. For the "many-to-many" business model that typifies most of the business-to-business marketplace, such a sensitive exchange would be impractical and risky.

While adapting existing electronic payment systems such as the ACH to the Internet has been seen as risky, the emergence of security technology, such as encryption and digital signatures, is giving banks greater confidence in bringing this service to the web. Although technology comes with its own set of pitfalls, many see a bigger risk in making deals outside of pre-established business relationships. To alleviate their fears, banks such as Wells Fargo have developed means of incorporating instant online approval for letters of credit within marketplace systems. This is a measure that can help assure sellers that buyers are good for the money. Also, transaction processors plan to bring some of the risk assessment up front by doing credit checks on companies as they register for services. As financial services companies, banks and software vendors work on alleviating the potential risks and difficulties presented by greatly expanded online payment systems, more businesses will truly enjoy the fruits of a fully automated electronic marketplace.

Source: Paper Chase
Sean Donahue
Business 2.0.Com, November 14, 2000
http://www.business2.com/content/channels/ebusiness/2000/10/30/21503