Banks Jockey for Position on E-Marketplaces

Not content to wait on the sidelines, banks and other financial services firms are moving into the Web's business-to-business fray, looking to provide the underlying financial services that have until now been an afterthought for many exchanges that trade goods and services online.

In response to customers who are beginning to use exchanges, New York-based Citigroup and San Francisco-based Wells Fargo & Co. last week formed FinancialSettlement-Matrix.com, "a marketplace for financial services," said Christopher Huppert, vice president of Internet Strategies at Wells Fargo. The banks will base the exchange on the offerings of Enron Broadband Services, i2 Technologies, and S1.

That move came soon after the creation of MarketMile by New York-based American Express and Mountain View, California.-based Ventro. MarketMile is an indirect trading exchange that hopes to attract liquidity by touting American Express' payment and related services.

The uncertainties of the b-to-b e-marketplace and banking regulations aside, banks have been pushing ahead with the first wave of services -- online payment processing, credit and credit checks, and settlement -- that primarily focus on cash management issues, said Dave Potterton, an analyst at Meridian Research, in Newton, Mass.

The second wave of offerings will be much more complex and will come from "the forward-thinking" banks and firms, Potterton said. FinancialSettlementMatrix is a harbinger of the utilities that are coming, which institutions "can sell to other Net markets," he said.

These forward-thinking firms will have competition from nonbanks providing financial services, and banks will have to search for new sources of revenue such as "virtualizing" their services so that b-to-b exchanges can make use of them, said John S. DeSimone, an analyst at Boston-based Delphi Group.

These virtual utilities are sorely needed by b-to-b exchanges, said Ann Cairns, the head of global e-solutions at Citigroup, in Stamford, Conn. "You have to go offline to do payments, which involves manual processes," Cairns said. "You don't get the efficiency of the Internet." Banks and financial firms are also filling the need to provide extra layers of security required for major financial transactions, Wells Fargo's Huppert said.

Key to the second wave of services is the new "finder" role that banks and financial firms will play in b-to-b marketplaces. The U.S. Federal Reserve Board is mulling over a proposed rule change, announced July 31, that would allow banks to act as online intermediaries for financial and nonfinancial transactions.

This rule change will allow banks "the opportunity to play at the front end of the transaction" as well as the back end, Cairns said. The change will also allow banks to provide such things as escrow to support b-to-b transactions and direct or third-party lending services.

Editor at Large Bob Trott contributed to this article.

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