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B-to-B Payments Still Relies Heavily on Paper

The lack of standards is slowing adoption of e-payments, but banks can help by adding value to the financial supply chain.

Though e-payments have caught on in just about every facet of consumers' lives, banks still are processing paper for their commercial clients. And while there are signs of progress, according to a report by Boston-based Celent, adoption rates of B2B e-payments aren't likely to increase any time soon.

According to Alenka Grealish, manager of the research and consulting firm's banking group and author of the report, with few exceptions, payments currently are not front-burner issues for corporations. "They focus more on their core business -- their products and services," she tells BS&T. "Finance and treasury are usually second in line."

"The challenge that banks have in this space is it's more than just the payments piece of it," says Patrick Moore, director of product management, corporate treasury services, for Cincinnatti-based Fifth Third Bank ($59 billion in assets). "We have the challenge of adding value in the overall chain of events. In order for the corporates to adopt this, we've got to look at the end-to-end impact from an integration workflow perspective."

According to Celent's Grealish, legacy systems, manual processes and proprietary formats contribute to the slow adoption of B2B e-payments among corporates. But the lack of real standards in the B2B e-payments space may be the biggest obstacle to widespread adoption, she adds. "Companies ... are wary of exactly what form those standards will take," Grealish says. "Banks have to make e-payments easy for them -- but to do that, they need standards."

Grealish points to the problems around electronic data interchange (EDI), in which business transactions, such as orders and invoices, are exchanged electronically among organizations. Currently, companies tend to rely on proprietary means to interpret the information, she says. The future, Grealish contends, lies in XML-based messaging standards to maximize interoperability. The adoption of XML-based messaging standards will be a boon to banks, as providing EDI services is costly due to the lack of standards, she adds. Unfortunately, according to the Celent report, it could be 20 years before the majority of companies replace their EDI infrastructures with XML-based platforms.

While Fifth Third's Moore agrees on the importance of standards, he characterizes Celent's time line for XML adoption as "conservative." Moore predicts that a standard will be agreed upon within three to five years and widespread adoption will occur in about five to seven years. But, "There needs to be an industry-led initiative that really looks at this and tries to get the principal parties to line up and look at common adoption [of standards]," he says. "It needs to be a cross-industry consortium."

There's No Rushing Progress?

Still, some corporates are turning their attention to the financial supply chain, according to Celent's Grealish. "They have begun to think about this area strategically," she says. However, there is little banks can do to speed adoption of e-payments, Grealish contends. "It's hard to get corporates to change the way they operate," she says, adding that she expects the scale to tip in favor of e-payments by 2012.

But Fifth Third's Moore says banks are in a position to help drive adoption of e-payments. "Financial institutions need to take a lead role, but the issue is that there are so many components," Moore says. While some banks have had success in various segments of the payments chain, tying all the pieces together is the challenge, he notes. "No one has gotten it right and the first bank that does stands to gain significant benefit." * --Maria Bruno-Britz and Nancy Feig

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