InformationWeek

That's starting to change. Eastman Chemical Co. this week will begin using services from eCredit.com Inc. to process credit authorizations in real time over the Internet for buyers it deals with via marketplaces and other E-commerce ventures. ECredit.com last week inked a deal to integrate VeriSign Inc.'s suite of authentication, payment, and validation services into its Global Financing Network, which electronically links companies to financing vendors.

In addition, iPlanet E-Commerce Solutions, a Sun-Netscape alliance company, introduced software and services designed to help automate payments for online marketplaces. A United Parcel Service of America Inc. subsidiary revealed similar plans.

The initiatives will help E-marketplaces combine procurement and financing into a single, swift transaction. "We'll be able to do more transactions that way," says Cary Weldy, director of strategy development at Commerx Inc., which runs an E-marketplace for the plastics industry called PlasticsNet.com and has signed on with eCredit.com. "The whole notion of making business easier for the client is really what's driving this," he says.

The developments come at a crucial time. Hundreds of marketplaces are in operation, and more are being launched each week. Research firm Keenan Vision predicts that online marketplaces will handle $147 billion in transactions next year, more than triple the estimate for this year.

Yet only a few provide financial services on their sites, and most of those still force buyers and sellers to handle the credit, financing, and payment process offline, analysts say. That needs to change. Without secure, automated financial services and payment systems that can quickly handle big-ticket transactions, online marketplaces can't fulfill their promise.

"Speed is one of the benefits of these environments," says David Alschuler, VP of E-business and enterprise applications at the Aberdeen Group. "If you can make a purchase in a few minutes, but it takes four days to get credit approval, the amount of time you've cut out of the entire process is a lot less."

Mark Klopp, director of digital business ventures at Eastman Chemical, in Kingsport, Tenn., says "it takes away from the value proposition" when the payment process goes offline. "And time is money," he adds.

Today, when marketplace buyers and sellers haven't done business with each other before, they often use an escrow service that holds the payment until the goods are delivered. In other cases, buyers and sellers work offline with financial institutions to obtain credit assurances. Some use purchase cards issued by companies such as Visa International Inc., which are negotiated and issued offline. The cards usually aren't used for big-ticket items, and fees can be high.

Eastman Chemical, which estimates its online revenue by year's end will represent 20% of annual sales, will use eCredit.com's Global Financing Network to provide real-time credit and financing options to buyers-whether they come in via a marketplace, Eastman's own E-commerce site, or conventional sales channels.

But moving money around isn't the only need. "Payment terms are really key," says Joshua ten Brink, VP at GoFresh Inc., which operates an online seafood exchange. "A seller's concern is, 'Am I going to get paid?' A buyer's concern is if the product is going to be good. While moving the money fast is very important, the value is mechanisms to guarantee payment and quality."

GoFresh, which is testing eCredit .com's Global Financing Network, has seen online deals fail because of financing mishaps. Earlier this year, a Vietnamese seller of tuna found a buyer in Canada via the GoFresh site and sent the prospect about $1,500 worth of samples. But the deal died because "they couldn't agree on a payment mechanism,'' ten Brink says.

Commerx has signed with eCredit .com and plans to phase in its services. Until then, credit and financing is done offline. Weldy says eCredit.com services will help customers "get the best deals in town."

There are also benefits to lenders. "We'll be able to provide better credit information to lenders because we'll know how well marketplace participants pay their bills," Weldy says. And Commerx could provide reports-for a fee-that help lenders understand why they lost financing deals.

ECredit.com's VeriSign deal adds an extra layer of assurance to real-time credit authorizations, analysts say. It will let eCredit .com authenticate businesses that need loans, leases, and other financial services, providing trust in identity between online buyers and suppliers.

"By bundling eCredit and VeriSign, buyers that don't have enough money can get an instant line of credit," says Avivah Litan, an analyst at Gartner Group. "The marketplaces can manage directories that not only know who's who, but can also authenticate that this person really is who he says he is."

UPS Capital Corp., the financial-services arm of UPS, is looking to automate one aspect of its business-the practice of factoring-so it can streamline payment between buyers and suppliers on E-marketplaces. UPS Capital will assume the payment risk from the time goods are delivered until the buyer pays the bill. For a fee, UPS Capital will pay the seller the price of the goods, then collect payment from the buyer within about 30 days.

To facilitate its service, UPS Capital is partnering with Bottomline Technologies and Princeton eCom, two electronic bill-payment and presentation technology providers, to automate the process of paying and collecting bills online as soon as a buyer receives its goods. Following the delivery, an online bill is sent over the Internet to the buyer's system for final approval.

"What happens then is somebody is going to hit the 'I want to pay this bill' button on the computer screen. That's going to create an electronic payment through the service, and that's going to credit the biller's account," says Richard Brennan, senior VP of technology for UPS Capital in Atlanta.

Other important factors are how bills are presented and paid, and how that information is used to move goods. "If you buy a book and it's a day late, that's one thing. But if your shipment is a day late, that could shut down a facility," says Eastman Chemical's Klopp. "If the holdup is in the financial settlement or in the logistics, that can really disrupt the operations of a company."

E-marketplaces can boost business-to-business relationships by adding online billing, experts say. Companies participating in them want as much information as they can get about customer buying habits and payment patterns, and electronic billing systems that are integrated into E-marketplaces can deliver that information, says Doug Coons, global CRM managing partner for utilities at Andersen Consulting. Last week, Andersen inked a deal with electronic bill payment technology developer Edocs Inc. to resell Edocs' BillDirect software to companies building E-marketplaces.

"The number of trades on marketplaces is starting to build, and the customers are asking for this," Klopp says. "They're saying, 'I don't just want a platform to meet people and negotiate deals; I want a one-stop shop.'"

Online marketplaces such as ChemConnect Inc., which operates a chemicals and plastics exchange, and Neoforma.com Inc., a marketplace for medical equipment, plan to add payment services to their sites. "We're talking to major financial-services players, and we're looking at various services such as escrow services and consolidated billing," says B.D. Goel, VP of products and services at Neoforma.com.

The options are growing. IPlanet E-Commerce Solutions rolled out new versions of its BillerXpert and TradingXpert software. BillerXpert 4.0 lets billers present bills and collect payments electronically, and now lets application service providers and billing consolidators support several business accounts from a single server. TradingXpert now includes a Bid/Quote Extension so buyers can create and distribute requests for quotes as electronic forms to multiple suppliers.

For marketplaces, these new capabilities are coming at the right time. Online payment mechanisms could mean the difference between success and failure. "If marketplaces don't offer this, they risk losing out," says Forrester Research analyst Steven Kafka. "If I'm a buyer or seller, I'm going to go to the marketplace that offers financing."