Business to Business Banks

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Business to Business Banks

• Simon Yan Gao
• Anand Kadekuzhi
• Raghu Kakumanu
• Dinesh Kini
• Jason Knight

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Industry Overview B2B Market
"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
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

• Source Keenan Vision

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Industry Overview
Number of Banks and Credit Unions Offering Online
Services
Year Number of Market
1998 1200 6
1999 8400 42
2000 12000 61.3
2001 15,845 75

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

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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

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Established Bank vs Online Bank
Personal
Small Business
Corporate Services
Limited Services
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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
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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

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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 Businesses
Established Banks High potential Very high potential
New Online Banks Potential exists Very low potential
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Value added services

• Established Banks
• Investment Banking
• Cash Management and Treasury Services
• Trust Services
• Online credit history on customers 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

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Chase Corporate Services
Value Added Services
Special Services
Partnerships
Partnerships
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Strategies for the future

• Detailed credit information on customers 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)

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Sample of an online CD (Certificate of Deposit)
auction
Online Business Marketplace
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OBI Purchasing Process

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

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Catalog Browse, Buy, Order Status Query
Selling Organization
Requisitioner

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

2
OBI Order Requests, OBI Orders
Profile Information, OBI Order Completion

• Selling Organization
• Has an electronic product and services
• catalog and some form of electronic
• ordering capability

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Payment Authorization, Clearance
Invoice Payment, Validation
Payment Authority
4

• Payment Authority
• An entity that authorizes payment transactions,
• issues invoices and receives payment

Buying Organization
Banks
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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.

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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?

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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