ec-Finance Signs First Bank Client For Trade Finance 09/28/2000
The New York Internet company ec-Finance has signed up the first bank customer for its trade finance network. Commercial Bank of San Francisco, a $170 million-asset institution that specializes in trade finance, is to start using the network early next month. Through partnerships with banks like Commercial, ec-Finance plans to let companies that conduct transactions on business-to-business digital marketplaces initiate letters of credit, make amendments, and keep track of the progress of transactions online. The company said it expects to announce soon a partnership with a major bank, giving further momentum to an industrywide effort to automate the paper- heavy business of initiating and executing letters of credit. "Trade finance will always be required one way or another, and the Internet is a mechanism that will bring much efficiency," said Stewart Keirle, managing director at Commercial Bank. Electronic letter of credit systems that support business-to-business digital marketplaces and issuing banks are becoming a hot ticket. Most of the world's 1,500 or so online marketplaces do not facilitate letter of credit transactions, though the demand for such a capability is increasing. Eighty percent of corporate customers surveyed by the Association for Financial Professionals (formerly Treasury Management Association) said the Internet will become a venue for letters of credit, but only 5% currently use the Internet to initiate and execute them. So far, ec-Finance has alliances with four marketplaces --MeetChina.com, Commodinet, Tradeeasy.com, and IBNet -- and it is looking to team up with more international marketplaces and regional banks. Janet Handel, president of ec-Finance.com said the company is targeting "superregional banks and below because business customers are comfortable dealing with their bank in their region." Mr. Keirle said Commercial Bank has been working with ec-Finance to fine-tune its 'know your customer' capabilities so that the latter's banking partners are assured that companies coming through its network are genuine. Competition comes from Bolero International Ltd. and TradeCard Inc., which also offer Internet methods of executing letters of credit, --normally a two- to three-week tasks in the offline world. State Street Corp. announced last week that it plans to develop a proprietary letter of credit system for large businesses and companies doing business overseas. Thirty-five banks are using Bolero, which was created by the bank-owned Society for Worldwide Interbank Financial Telecommunication, or Swift, and the Transport Club of London. Bolero creates an electronic trail of letters of credit, so merchandise can be transferred as the shipping company receives payment or the agreed upon paperwork. Regan Wong, a senior analyst at Tower Group, said Bolero helps banks to do what they already do more efficiently. TradeCard offers a patented system that lets companies and banks negotiate, process, and catalogue purchase orders and check invoices and compliance documentation against the purchase orders. When orders are shipped, TradeCard debits the buyer's account and credits the seller's account through a payment partnership with Thomas Cook Group Ltd. "TradeCard has a spot (in e-commerce) because it circumvents the traditional letter of credit process so a bank doesn't have to be heavily involved," Mr. Wong said. Rebecca Flick, director of treasury for Home Depot, said her company has not signed up yet for an Internet letter of credit system. One barrier is the possibility of having to switch banks. Avivah Litan, a senior research analyst at GartnerGroup, said ec-Finance, which ties into banks' legacy systems or offers a Web-based system, is well positioned to cater to banks that already have a profitable letter of credit system. "Those banks have no interest in replacing their system and are looking for a system that just automates what they already do," Ms. Litan said. |
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