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.