U.S. Bank's PowerTrack Smokes EIPP Competition

With companies showing an increasing propensity for online purchases, banks are scouring the e-commerce terrain for new sources of revenue.

Online purchasing totaled $2 trillion worldwide in 2002, and is projected to rise to $3.7 trillion in 2003, according to Forrester Research. In the last quarter of 2002, the average firm purchased 10.5 percent of its indirect materials on the Internet versus 9 percent in the previous quarter. Online direct purchases totaled 9.4 percent versus 6.5 percent in the previous quarter.

Much of this growth is attributable to industry-specific B2B exchanges such as Exostar, which in its 18 months of existence has supported over 1,000 auctions with $1 billion of commodities and services for the aerospace and defense industry. Buyers and sellers benefit from reduced negotiation times, improved risk management and lower transaction costs.

E-commerce adoption is also being spurred by a proliferation of electronic invoice presentment and payment (EIPP) solutions. For example, Xign, a Pleasanton, Calif.-based e-payments company, handled $10 billion in transaction volume last year on its hosted network, which automates all the core functions of the A/P process (invoice receipt, validation, dispute management, payment and posting) and offers a choice of payment options including ACH and MasterCard purchasing cards.

But EIPP addresses only part of the e-commerce problem. The stumbling block has been achieving tighter integration between the financial and physical supply chains. The more complex the transaction, the more integration is needed.

Through trade finance vehicles such as letters of credit and documentary collections, banks have traditionally assumed all or part of the risk in commercial transactions. But with the exception of purchasing card solutions, banks have had a hard time parlaying this role of trusted intermediary into new sources of revenue in the online world.

One exception is PowerTrack, a four-year-old e-commerce solution by Minneapolis-based U.S. Bank. A high-tech e-commerce network, PowerTrack not only smoothes interactions between buyers and sellers, but helps them achieve greater internal efficiency. Last year, PowerTrack racked up 12 million transactions totaling $2 billion and spanning 48,000 trading relationships.

Originally developed for the logistics and transportation industries (the U.S. Department of Defense is still its largest customer), PowerTrack has been expanded to meet the purchasing needs of companies as large as Cargill and John Deere, plus numerous smaller ones.

In providing an integrated approach to B2B, PowerTrack goes beyond standard EIPP offerings. "A lot of EIPP products are little more than consumer bill presentment," said Rick Langer, general manager of PowerTrack. "EIPP is a subset of what we do."

PowerTrack has succeeded where broader-based industry initiatives have failed, according to Jeanne Capachin of Financial Insights. "PowerTrack provides capabilities that have been promised by initiatives such as Project Eleanor (see BS&T, July 2002, page 30), but avoids the stultifying side effects that often accompany bank-based cooperative effort." Despite substantial buy-in from banks, she added, Project Eleanor has failed to "show the promise that has already been met by U.S. Bank's more focused efforts."

But products like PowerTrack are still proprietary solutions, said Jim Parker, senior vp of Identrus, which is spearheading Project Eleanor. "Until everyone standardizes on a common XML scheme, then each time a corporate interfaces with a bank, they're faced with another proprietary integration. Eleanor provides the interface between the corporate and the bank using XML."

Still, PowerTrack has succeeded in delivering collaborative business processes to buyers and seller over the Internet. It's also bank-neutral; PowerTrack users aren't required to be U.S. Bank customers. "We don't care what your bank is," said Langer.

PowerTrack provides a single repository for trade information, such as contracts, pricing, orders, receipts and invoices. Transaction data can be submitted via standard electronic data interchange (EDI) or entered directly through an easy-to-use Web interface.

A set of user-defined prepayment audits ensures that transactions stay within established boundaries, such as price and spending limits. When an exception is detected, PowerTrack provides online collaboration tools to speed the review and resolution process. "To the extend that there's an exception, we provide real-time visibility to all the trade documents, and a place where buyers and sellers can resolve the exception," said Langer.

Once a transaction passes compliance, funds are disbursed automatically by PowerTrack on the buyer's behalf. Sellers typically receive payment within three business days instead of the usual 30 to 60. "On a monthly basis, we provide an electronic invoice back to the buyer on all payments we made on their behalf. Then they make an electronic settlement back to us," Langer said.

PowerTrack integrates with general ledger systems, allowing buyers to validate G/L information contained on orders or invoices, automatically assigning the correct accounting codes, and provides seamless links back to G/L systems when settlement has been made.