The Bank of Montreal's (BMO) launch of its Procure2Pay B2B
(business to business) system may shake up the Internet business
payments market as the company tries to latch on to the growing
revenue stream being generated by online business-to-business
operations, says an analyst.
Launched last week by BMO ePurchasing Solutions, Procure2Pay is a
Web-based procurement system that allows customised online
transactions to be executed, reconciled and integrated into the
buyer's enterprise resource planning (ERP) system.
Unlike many other systems, said BMO, the infrastructure of the new
system allows payments to be initiated by the supplier or buyer.
"There are companies, non-banks, which are doing this: Clareon,
Clarus, BankServe, PeopleSoft and MarketPay, and what is
interesting here is that this is a bank developing a bank-neutral
network," said Joseph Marino, an analyst with Current Analysis.
"This is a tweak that competitors have to recognise and adjust
their strategies to."
BMO's Procure2Pay is unique, added Marino, because unlike other
financial institutions that would partner with a B2B software
vendor, BMO is developing its own in-house system.
The difficulty for software vendors such as Clareon, who can
develop bank-neutral networks, is that they don't have the
financial services arm that BMO has and are dependent on venture
capitalists that are not as willing to shell out the cash as they
once were before the tech sector began to fall out of favour this
year, said Marino.
"Only banks can leverage that sort of power," he said. "Non-banks
trying to get control of this transactional information and charge
for it can never cross that line into setting terms for the actual
extending of the money itself."
Randy Ford, BMO director of B2B with solutions for electronic
banking services, said the bank is not trying to build a
marketplace immediately but would rather take it one client at a
time, focusing on large US multinational companies that already do
business with the bank.
Ford said BMO is simply building on its purchasing card (called a
P-card, procurement card or corporate card) capability, which
almost every Fortune 1000 company has, as the way to get a foot in
the door.
"Once we win the deal we now have the opportunity and the solutions
to move them into a larger area of spend and re-engineering," Ford
said. "I think that's really critical because once we do get in we
have the opportunity to move more commodities and their spend onto
this platform. They get the re-engineering benefits and of course
we win as well."
Marino claimed BMO hopes to diversify its revenue streams as it
finds itself in a more competitive environment. As B2B grows, with
organisations and their suppliers exchanging goods and services
through Internet transactions, the banks will not be handling as
many of these transactions as they once did. However, this area of
cash management services can account for up to 40% of a bank's
revenue. This has led some banks, such as BMO, to develop a more
aggressive approach to move themselves into e-commerce and
e-business, said Marino.
"It's to reassert their control over the cash management services,"
said Marino. "There are various lines of bank business that are
being eroded by open systems technologies and you know if they go
to sleep like Rip Van Winkle there'll be a new financial scenario
out there," he said. "The sooner they get into the game, the sooner
they take a more proactive situation."
"If you think about this, logically, the business that we're in as
a prime business is a payments business," said BMO's Ford.
"Developing all the technology around that is delivering value to
the client to be able to retain that opportunity to continue to do
those payments. I mean certainly nobody wants to [lose] core
businesses that they've been very strong in," he said.
The major obstacle facing BMO in this market is its size, said
Marino. He pointed out that BMO "isn't a top ten bank it's a top 50
bank."
"The gap between the top ten and the 50th [bank] is huge, but still
[BMO] is a significant bank and certainly within the markets in
which its wants to be formidable this is a very distinctive
manoeuvre," Marino said referring to the introduction of
Procure2Pay.
Ford admitted that the biggest hurdle is the ability for US
corporations to feel comfortable dealing with a bank unknown in
America versus the "trusted aspect of some of the bigger players in
the United States". However, he said: "I'm really comfortable with
the fact that we have got the product suites to be able to deliver
to that market and I'm very comfortable with the execution
capabilities that we have."
To get huge accounts, you really do need the reputation of one of
the big integrators, such as KPMG, Accenture (formerly Anderson),
PricewaterhourseCoopers, or Deloitte behind you, said Marino.
Procure2Pay is currently being implemented as a pilot in the United
States and Canada, with Deluxe Laboratories and Syncrude Canada.