Banks to get a slice of B2B pie?

Will banks merely be the gas stations of the e-commerce superhighway? Goldman Sachs predicts that unless banks respond to the raised bar, they are in danger of marginalization.

Banks and telecommunications companies will be key enablers of business to business (B2B) e-commerce, not key drivers. This was concluded in a report on Asian B2B e-commerce by Goldman Sachs internet analysts.

Big global banks are in a prime position to take a cut in B2B transactions, given their strong capabilities in payments, cash management, international trade, and counterparty risk-taking. Goldman believes that if these banks are able to focus on these core competencies and leverage off these traditional roles and strengths, they will be one step ahead of competition.

"Big global banks have a huge international technology infrastructure that they can leverage off for B2B," says Joseph B. Lee, internet analyst at Goldman Sachs. "But they are not drivers. The telcos will be the technology providers, whereas we see the banks as providing certain functions to help B2B." Lee also sees the opportunity for banks to capitalize on the trend for companies to outsource their treasury functions.

Regulations in Asia, Goldman believes, hamper the intrusion of non-financial institutions into the e-commerce settlement process. As a result, the investment bank predicts, "every B2B transaction will have to involve at least one bank during at least one stage of the transaction."

Other cards up the banks' sleeves

The issue, therefore, is not whether banks will be able to insert themselves into the e-commerce cycle but if they are able to value-add to the transaction. Goldman concludes that banks may be in danger of being relegated to being "gas-filling stations" on the superhighway of e-commerce. They predict that disintermediation of core functions such as payments, credit and cash management will occur. In particular, smaller, single-market banks are in danger of being marginalized and the pressure is on them to make strategic alliances, and perhaps even make in-market and cross-border mergers with other banks.

Smaller, regional players that caught the eye of Goldman are the Singaporean banks. Overseas Union Bank's (OUB) 25% stake in, a Commerce One project which has transactions totaling more than $500 million a month, has impressed analysts. As does DBS's c2pay, an online payment gateway, and OCBC's stake in a B2B company called TX123 Pte Ltd, which is an online vertical market. In the global stakes, big banks in the United States and Europe have shown the way forward for Asia. In the US, banks have been actively moving proprietary dial-up electric banking systems for corporate customers to the internet, sponsoring electronic market places and setting standards for security and digital certificates with involvement in companies like Identrus. Big banks to watch for are HSBC, Citigroup and Standard Chartered.

Despite the advantages and head start afforded to big banks, analysts do not envisage expensive transaction fees resulting from the likely large market shares to be captured by big banks that play their cards right. "There is enough competition amongst the banks," says Goldman's Lee. "Big banks like HSBC are fighting Citicorp for market share à if one bank raises prices too much then someone else will come along to undercut them. I think there is enough competition out there right now." Though, somewhat paradoxically, Lee envisages that the ideal model for the e-transaction process is one of collaboration. "They [the big banks] have to come up a global solution for that real end-to-end connectivity for B2B. There could be a consortium formed," Lee predicts.

But Goldman concedes that e-volution is still in the early days. Banks, as enablers and not drivers, have to extend, sit and wait for the e-volution to engulf the e-commerce chain before they are able take a slice. One inhibitor is the current lack of e-frastucture within Asia and the various levels of technology adopted by Asian companies.

Says Lee: "A lot of the e-frastucture has to be developed while the corporates get their strategies in place. There will be a back end surge, because right now they [companies and e-frastucture] are running in parallel paths."

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