Business to Business Banks

Simon Yan Gao

Anand Kadekuzhi

Raghu Kakumanu

Dinesh Kini

Jason Knight

Industry Overview – B2B Market

• Source : Keenan Vision

Year B2B Transactions Total Web Sales

1998 30 billion 50 billion

1999 60 billion 80 billion

2000 100 billion 190 billion

2001 220 billion 330 billion

2002 420 billion 590 billion

"The first thing is character ... before money or anything else. A man I do not trust could not get money from me on all the bonds in Christendom.“ - J.P. Morgan

“B2B E-commerce sales are projected to rise to $7.4 trillion by the year 2004.” - Gartner Group

Industry Overview

Year Number % of Market

1998 1200 6

1999 8400 42

2000 12000 61.3

2001 15,845 75

Number of Banks and Credit Unions Offering Online Services

• Of ~100,000 banks in the US, under 10 per cent presently provide online services

Major Players• Established Banks providing personal and

business services– Wells Fargo – Citicorp– Chase– Bank of America– Bank One

• Pure Online Banks (no physical presence)– B2Banc.com

Established Bank vs Online BankPersonal

Small Business

Corporate Services

Limited Services

Customers• Small Business Banking

– For businesses with sales up to $10 million

– Business Checking, Business Savings and CDs

– Credit Services

– Internet Services

• Commercial Banking– For businesses with sales of $10 - $50 million

– No special services offered over the Web

• Corporate Banking– For businesses with sales of $500 million or more

Source: Bank of America

Established Banks -Attracting Customers

• Small businesses– Existing relationships– Brand name– Online access to information about banking

services– Financial incentives

• Large businesses– Existing relationships and brand name

New Online Banks -Attracting Customers

• Small businesses– Television advertising

– Partnerships with portals such as Yahoo to sponsor services

– Agreements with computer manufacturers to offer direct links to bank sites

– Free internet access for becoming a bank member

• Large businesses– Difficult without established brand name and existing relationships

Small Businesses Large BusinessesEstablished Banks High potential Very high potential

New Online Banks Potential exists Very low potential

Value added services• Established Banks

– Investment Banking – Cash Management and Treasury Services– Trust Services– Online credit history on customer’s clients– Online loan advisor– Bank websites mainly offer information about services

• Hard to say if these services are offered online as customers need to login to access these services

• It appears with most banks that customers need to contact banks offline to avail the above services

• Online-only Banks– Online checking accounts, payroll service, and other

banking services– Corporate affinity programs – online services for

employees of businesses

Chase – Corporate Services

Special Services

Partnerships

Partnerships

Value Added Services

Strategies for the future• Detailed credit information on customer’s debtors

– Prior payment history

– Detailed info on each debtor

• Catering to Emerging technologies– Open Buying on the Internet (OBI)

• Online payroll payment services and tax payment systems

• Online auctions for financial items, e.g CDs• Partnerships with other B2B websites (e.g Chase

Bank with Tradeout.com for excess inventory)

Sample of an online CD (Certificate of Deposit)

auction

Online Business Marketplace

OBI Purchasing Process

Requisitioner

BuyingOrganization

SellingOrganization

PaymentAuthority

Profile Information,

OBI Order

Completion

Catalog Browse, Buy, Order Status Query

Invoice Payment, Validation

OBI Order Requests,

OBI Orders

Banks

1RequisitionerAn individual with a need for a product or service, who browses the Selling Organization catalogs, generates order requests, and queries order status

Buying OrganizationOrganizations that have infrastructure to manage the acquisition of goods and services including the creation and approval of purchase orders

2

Selling OrganizationHas an electronic product and services

catalog and some form of electronic ordering capability

3

Payment AuthorityAn entity that authorizes payment transactions, issues invoices and receives payment

4

Payment Authorization, Clearance

More Strategies for the Future• Keep things simple:

– In a recent survey, 88% of respondents stated that they aborted online banking because of the complexities involved – PSI Global

• Offer links and partnerships with other financial sites for stock quotes, etc.

• Help small and mid-sized banks open stores on the Internet at low cost– Banks have great experience with secure transactions

– Integrate bank financial systems for online payment and deposits early on.

Points to Ponder• Can a new player enter the online banking

arena as a B2B Bank without having a physical presence?

• Should the new online only banks offer services in the B2B domain?

• How can a new online player compete with existing banks for large businesses without pre-existing relationships and brand names?

Policy Concerns for the Future

• Banking in the US is highly regulated– Despite recent deregulation, banks still have difficulty

in doing business in more than one state

– Foreign banks face restrictions in entering US market

• Liability for security breakdowns is extremely high for banks– Assuming such a risk may be uneconomical

• A high degree of trust and reliability must be replicated online for a bank to succeed