The Bank of Montreal’s (BMO) launch of its Procure2Pay B2B system may shake up the Internet business payments market, says one analyst, especially as BMO tries to latch onto the growing revenue stream being generated by on-line business-to-business (B2B).
BMO ePurchasing Solutions, a division of BMO, launched Procure2Pay last month. Procure2Pay is a Web-based procurement system that allows customized on-line ordering and payments to be executed, reconciled and integrated into the buyer’s enterprise resource planning (ERP) systems.
Unlike many other systems, the payment infrastructure of BMO’s new system allows payments to be initiated by the supplier or buyer, according to the company.
“There are companies, non-banks, which are doing this – Clareon (Corp.), Clarus, BankServe, PeopleSoft (Inc.), 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 Inc. in Sterling, Va. “This is a tweak that competitors have to recognize 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 – which can develop bank neutral networks and use them – is that they don’t have a financial services arm like BMO has. They are dependent on venture capitalists that are not as willing to shell out the cash as they once did before the tech sector began to fall out of favour this year, said Marino.
“Only banks can leverage that sort of power,” he explained. “There are companies that are non-banks that are trying to get control of this transactional information and charge for it, but they can never cross that line into actually setting terms for the actual extending of the money itself.”
Randy Ford, director of business-to-business with solutions for electronic banking services at BMO, said the bank is not trying to build a marketplace all at once. Instead it is focusing on large U.S. 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 a corporate card) capability, which almost every Fortune 1000 company has, as the way to get into the door.
Marino said BMO is looking to diversify its revenue streams as it finds itself in a more competitive environment. As B2B grows, with organizations 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 per cent 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, Marino explained.
“It’s to reassert their control over the cash management services,” said Marino. “It’s just eroding. 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 will be a new financial scenario out there. The sooner they get into the game, the sooner they take a more proactive situation.”
Ford noted that the prime business BMO is in is a payments business. “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 U.S. corporations to feel comfortable dealing with a bank unbeknownst to the United States versus the “trusted aspect of some of the bigger players in the United States.” But he added, “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 Consulting Inc., Accenture Ltd. (formerly Anderson), PricewaterhouseCoopers LLP, or a Deloitte & Touche behind you, said Marino.
“Though they’re trusted as being a bank, they’re not as trusted as having the ability to handle the mission critical task that’s at hand,” Marino added.
Procure2Pay is currently being implemented as a pilot in the United States and Canada, with Deluxe Laboratories Inc., of Hollywood, Calif., and Syncrude Canada Ltd. of Fort McMurray, Alta.
