Business-to-Business Payment Systems: Does Reality Byte?

Whatever happened to the rosy picture of paperless payment systems that large corporations and financial institutions began to paint with the advent of financial electronic data interchange, automated clearing houses (ACH), and wire transfers?

In a new report,“Business-to-Business Payment Systems: Does Reality Byte?”Alenka Grealish, analyst at Celent Communications, examines the status and future of electronic payments in business-to-business transactions, on- and off-line.

Despite the success of paperless payments in Europe, the check continues
to be the payment vehicle of choice in the U.S. Of the nine billion of B2B payments made in 2001,82% were made by check, while of the US$31
trillion in B2B payments, 65% was accounted for by checks. ACH payments
were a distant second with 13% and 34%, respectively.

“The greatest impediment to the adoption of electronic payment vehicles is not the settlement system (e.g., ACH) but lies further upstream. For any electronic
payment solution to succeed, it must be integrated into the broader
financial supply chain,” comments Grealish. Consequently, solutions involve
not only banks but also software vendors, which are automating the financial
supply chain. Ultimately, the future of electronic payments resides with the
businesses themselves and depends upon their willingness to restructure the
payment processes and systems around an electronic solution.

"The migration of B2B payments to electronic channels in the U.S. will be
an evolutionary process," says Grealish. "There are no revolutions in the
wings. Gradually propelledby both bank and non-bank initiatives to automate the financial supply chain, electronic payments will overtake the check in terms
of total value of transactions by 2008. In terms of volume, the check will
continue to reign through the end of this decade.”

Amongst the electronic payment catalysts covered by Grealish are: enhanced purchasing cards (e.g., MasterCard SmartLink), the coupling of ACH payments
with rich remittance information (e.g., Clareon and Xign), “electronic” bank
addresses (New York Clearing House Association’s UPIC), the opportunity to
outsource payment processing (e.g., SurePay), and the enabling of straight-through processing (e.g., Identrus’ Project Eleanor and Clarus Settlement).