Online payment processing lowers the incidence of payment repudiation, lessens supplier charges, expands payment options, better resolves disputes and, of course, expedites actual payment. Yet companies who do transact business over the Internet are still going offline to finalize the deal. According to the Gartner Group, only 13% of business-to-business e-commerce transactions in 2000 were paid for online. With its obvious benefits, why aren't more businesses completing transactions online?

It seems that both buyers and sellers are waiting for answers to a number of online payment questions. One area of contention is the matter of who will benefit most from the ease and convenience of online payment processing. As with most "young" markets, online payment tends to benefit whoever initiates the transaction. This is only fair since the companies that have been pushing the process are usually also the ones who have paid for its implementation. As Aberdeen Group research director Russ Schmalz puts it, "If I'm a seller, and I deploy a solution, my buyers may do it but it isn't necessarily easy for them to integrate. They might wind up with different processes for each seller. If you're a big buyer, and you can force your suppliers to integrate with your processes, you get the benefits, they are forced into meeting the standards you imposed on them." Alongside the tug-of-war over who benefits from online payment is the question of which party should be charged for shipping. Currently, some online payment processors charge the sender while others bill the recipient.

Commercial banks, the traditional facilitators of the payment process, have thus far been keeping a conspicuously low profile in the online payment arena. Many believe this is because they are waiting to see what opportunities gel for them in the new market. According to Paul Walsh, Chairman and CEO of Clareon, "Commercial banks have looked at payments as a means to acquire customer accounts for their portfolio. It's account gathering. So they've built proprietary systems that are counter to the interoperable nature of the Internet. The banks' dilemma is, are you going to embrace the Internet and get everybody connected and lose the proprietary solution or are they going to stick to traditional methods of account gathering." Some suggest banks may wade into the waters of online payment processing by offering electronic invoicing, a move intended to strengthen corporate relationships.

While banks cautiously appraise the Internet, the bulk of large corporations with the technical prowess and revenue to finalize online payments are utilizing the Automated Clearing House (ACH) network to facilitate the process. The ACH is a body of standards set into motion by the non-profit National Automated Clearing House Association (NACHA.org) and which operates as a batch-oriented electronic funds transfer system. As a testament to its popularity, Gartner Group estimates that 87% of the firms who used online payment last year did so through the ACH. Because of its exorbitant cost, however, use of the ACH remains isolated to large enterprises and even for these companies the system is not an end-all solution to the complications of online payment. For instance, at this time ACH still doesn't provide any remittance information to explain what a payment is for. Thus companies who desire that kind of functionality are forced to use ACH in conjunction with Electronic Data Interchange (EDI), which provides the needed remitting information.

Incidentally, this use of online payment has created a resurgence in the popularity of the decades-old EDI. According to NACHA's Robert Unger, "A lot of people say EDI is dead but we're seeing some growth of EDI through the ACH B-to-B transactions. On the ACH network, EDI transactions were up by over 25% last year, consistent with previous years." This solution does not resolve the problem of interconnectivity, which many companies are still waiting for. On the bright side, the development of supply chain and private trading networks offers an enormous opportunity for vendors that can forge connections between companies and financial institutions and guarantee the security of both parties.

At this point no single, across-the-board technology for online payment has been established. Some vendors are working on solutions for the entire process from beginning to end, while others are concentrating on one aspect of payment or working on combining applications with payment templates. Still others have begun pushing an initiative known as electronic bill presentment and payment (EBPP), which purports to bring a degree of analysis to the billing process. Since businesses conducting transactions online want the ability to analyze the accuracy of their electronic invoices, which are more complex than consumer invoices, this initiative may eventually prove to be a hit. B2B experts have predicted that EBPP will find its way into e-marketplaces through the efforts of platform technology providers. According to Pricewaterhouse Coopers partner, Thom Tillis, "Last year, [e-marketplaces wanted to] do everything as fast as they can. Now they are doing things as they should have – based on return on investment."

Despite such promising developments, vendors still haven't found a means of ensuring that transactions are finalized the way user companies would like. According to Clareon's Walsh, online payment "…goes beyond providing software. The vendor is going to have to have ability to provide a gateway to a financial institution that can service the transaction." As a result of the complications that arise from having to coordinate the efforts of vendors, user companies and financial institutions, an ideal solution would be to integrate accounts receivable and accounts payable information so that both partners could view the outstanding transactions.

Source: How Do You Want to Pay for This?
Jim Ericson
Line 56, May 24, 2001
http://www.line56.com/articles/print/default.asp?NewsID=2532