- 5 - Payment Opportunities From B2B E-commerce McGuffog, April 2001 ©2001 Sixhills Consulting Ltd & Author directly supported by today’s e-commerce systems. Credit card payments differ fundamentally from cheque or EFT payments in that they are initiated by the seller as soon as the goods are shipped, rather than by the buyer. For large organizations or large value payments, this is a disadvantage, taking control away from the buyer. In addition there are an additional two possible “non-traditional” payments mechanisms. While not both strictly “e-commerce only” solutions – both could in principle exist regardless of the use of e-commerce systems – e-commerce has had the effect of making them practically applicable outside of niche markets. These two mechanisms are: 4. Hub generated EFT payments. Hub generated payments are effectively hybrids of the EFT payments and purchasing cards discussed above. They could function by the B2B hub generating an EFT payment (exactly the same EFT payment that the buyer generated above) as the result of an e-commerce transaction flowing across the B2B infrastructure. That B2B infrastructure could actually be either a so-called hub, or a B2B network. The distinction between B2B hubs and networks is subtle, but important; many hubs can potentially reside on a single network. For example, in the case of Ariba, one of the “big two” e-commerce system providers, there is one Ariba network, but many marketplaces or hubs can reside on it. Hub generated EFT payments have two key sets of potential advantages over the traditional payment mechanisms. Firstly, compared to credit card transactions, EFT payments are more efficient than credit card payments. The credit card networks are optimised for an environment of “any card anywhere in the world” and for use where purchases are small enough that a credit relationship per card can cover all potential purchases. This makes the credit card networks slow, and risky for very large transactions. Secondly, compared to buyer generated EFT payments, hub generated EFT payments can be made more convenient, and also can be triggered on a wider variety of potential transaction events, anywhere from the seller shipping the goods (as for credit cards) through to the buyer deciding to pay (as for buyer generated EFT payments), or an intermediate point, for example a shipper reporting that it has delivered the goods. Hubs and B2B networks attempting to move towards the hub generated payments model should however do so with care; many (but not all) potential implementations of hub generated payments bring with them significant credit and operational risk, both of which require skilled management if profit margins are to be maintained. 5. Invoice netting schemes. Finally, payment can also be achieved indirectly, by invoice netting. Invoice netting is a process by which the various invoices between a group a trading partners are added together over a period of time, and each participant then pays only the sum of
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