Australian banks plot B2B payment dominance

Australia''s five largest banks are looking to develop B2B payment capabilities over the internet, but are they just staking out their territory?

A consortium of Australia's largest banks is planning to develop a system for business to business (B2B) payment and information transfer over the internet. The five banks are National Australia Bank, Australia and New Zealand Banking Group (ANZ), Westpac, Commonwealth Bank of Australia and St George.

Mike Irvine, head of business e-commerce at ANZ, says that a working group is now addressing issues such as digital certificate deployment, validation services and the possible use of payment warranties to guarantee the banks' payment instructions.

Irvine says that the proposed system will initiate payment in the B2B market but leverage off existing domestic payments infrastructure. "Merchants will be able to create the obligation to pay over the internet," he says, "but the transfer of value will still be done via the existing systems used by the Australian banks, such as BPAY [the equivalent of an automated clearing house], RTGS [real time gross settlement] systems, and EFTPOS [electronic funds transfer at point of sale]. Essentially, we are using the old and adding the new."

The working group plans to use Identrus - the 'internetwork' of international banks - as a provider of identity trust in B2B transactions. ANZ recently became the only bank in the consortium to join Identrus (it is also an equity holder). But Irvine envisages that all members of the consortium will eventually subscribe to its digital certificate infrastructure. He believes an alliance with Identrus would enable the consortium to leverage off the knowledge and experience of the founding members.

The group has yet to decide how much capital each bank in the consortium will pump into the project. "We are still working on a business case," says Irvine. "But we envisage that it will be profitable."

Payment domination?

Analysts say that the five banks dominate the business to consumer (B2C) market in Australia, and are now keen to stake out their territory in the B2B market. The banks already control more than 85% of the corporate and retail markets, and by banding together they would leave little scope for smaller banks and financial institutions to enter the B2B market. And what a lucrative market it is likely to be. Gartner Group, a research company, predicts that by 2004, worldwide revenues from the B2B market will amount to $7.3 trillion dollars.

However, Irvine insists that the consortium will not exercise a monopoly. "The aim is to have an open system," he says. "The eligibility criteria will be participation in the clearing system that exits in Australia already [BPAY]. And there are a large number of institutions in that system."

Analysts are sceptical. An 'open system' would entail smaller slices of the pie for the consortium. It would also pave the way for telecommunications companies, which already have the necessary infrastructure in place, to offer competitive alternatives by allying with foreign banks. However, the likelihood of this is questioned by one banker, who points out that while the telecoms have the infrastructure, the five banks have the bank accounts รป and, importantly, the trust of corporate clients.