Banks explore B2B payment options

In the U.S. and Europe, banks are struggling to find the right approach to processing business-to-business payments on the Web and putting appropriate security checks in place as traditional banking networks, such as the Automated Checking House network, bring new payment methods via the Web.

Using ACH processing directly via the Internet instead of paying by paper check promises to speed online payments between businesses in much the way electronic catalogs have made ordering goods easy.

Online payments seem to be catching on more quickly in Europe, according to banks there. In the U.S., banks are trying to stake out a position in Internet-based ACH processing, but admit there's little momentum yet.

FleetBoston, for instance, six months ago partnered with start-up Equidity to provide a hosted Web service that online marketplaces can use to process ACH buyer payments. ACH payments include direct debit and credit of accounts, and the National Automated Clearing House Association (NACHA), the banking group that sets rules for ACH payments, now lets them be done on the Web as long as security procedures, such as using 128-bit encryption.

According to FleetBoston senior vice president Timothy Burt, Equidity's payment-processing hosted service has found takers with a few online marketplaces, such as BuildNet. But he says there's little momentum around the service, even though it only costs a few dollars per transaction.

"We're still in the infancy stage with it all," Burt says. Equidity competes against a handful of other Web-based ACH payment processors, such as Clareon; the VeriSign payment service; and Avcient.

The cheaper option

ACH payments are far less expensive than credit card processing, which carries percentage-based fees for the sellers. For that reason, ACH -- which includes direct deposit and check clearing -- is one of the most commonly used business-to-business payments, according to Gartner.

At the recent NACHA Payments 2001 conference, Lewis Fuertes, managing director with Chase Treasury Solutions at J.P. Morgan Chase & Co., said he has spent considerable time analyzing online marketplaces and the more private business-to-business Web sites run by one buyer or seller, to determine their online payment requirements.

"A lot of the business-to-business transactions are being settled by check today," Fuertes said. "The biggest challenge in e-commerce is not technology. It's getting [businesses] motivated to change their behavior."

Security is always of paramount concern in payments processing. Two European banks, Holland's Rabobank and Sweden's ABN-AMRO, are engaged in consumer and business banking via the Internet. Both banks give each customer palm-sizzed Digipass hardware tokens for generating one-time passwords or even electronically signing payment requests every time they wanted to initiative payments via the bank Web sites.

"We almost don't have [paper] checks in the Netherlands," says Bert Willems, Rabobank's director of telebanking operations. He said 320,000 customers now use the Internet for banking. "But if there's no strong security, there'll be no virtual banking."

Rabobank gives customers Vasco Digipass 800 tokens and smart card readers for two-factor challenge and response authentication to prove their identity online, Willems says. The Digipass 800 becomes activated when the user plugs in his smart-card based banking card, which is widely used in Europe.

Rabobank isn't involved with business-to-business marketplaces because there aren't many of them in Holland, Willems says. However, ABN-AMRO's LaSalle Bank subsidiary has set up a payments-processing Web site it calls CashPro that's available to process ACH and procurement card payments at the Ariba marketplace, among others.

"When the customer wants to make a transaction via ACH at the Ariba marketplace, we bring you the screen that allows you to do that," says Milton Santiago, first vice president and director of electronic banking at ABN-AMRO Services.

Santiago says passwords and IDs are considered acceptable in the U.S. for authentication, but in Europe there's more inclination to depend on stronger two-factor authentication.

To that end, ABN-AMRO makes available the Digipass 300 so customers can input a dynamic password for access to ABN-AMRO's banking Web site for making business-to-business payments.