Spend Matters has learned that JPMorgan Chase will be shutting down its Xign business unit. Chase acquired Xign in 2007 but struggled to add new customers to the early payment discounting service. Part of the vision in acquiring Xign at that time centered not just on facilitating early payment discounting capability through a software platform, but also aligning this solution with settlement, payment, and a broad network of suppliers – offering Chase a wide set of capabilities to up-sell and cross-sell across the range of treasury and related corporate banking services.
According to our sources, given Chase’s plan to discontinue hosting and support at a future date, the approximately 40 Xign customers who currently use the software will need to identify other solutions or shut down their early payment discounting programs that rely on the Xign application. JPMorgan Chase could not be reached for official commentary for this story.
A potential key element in this decision is the compliance issues banks are facing. The regulatory environment is moving too fast. From a large bank’s perspective, owning an invoice processing company presents regulatory risk that is just too big in today’s world. “Arm’s length” partnerships aren’t necessarily the right answer either -- if JPM resell Taulia, Tradeshift, OB10, or Ariba, they can’t pass risk anymore to the outsourcing/software provider. With the culture in banking changing rapidly to becoming the “compliance cops” for the U.S. government, this decision is not surprising.
And with corporate clients (procurement, A/P treasury, etc.) looking for global invoicing and discounting solutions supported through banks, this presents challenges. Think about what resides in an e-invoice solution: supplier data, pricing information, etc. If that solution gets compromised or if there is money-laundering issues that need to be checked for, the bank is on the hook (at least in the US). Even something as simple as having an invoice with a person on the restricted party list must be checked for. We cannot emphasize this enough.
Outside of regulatory challenges and increasing requirement, the dissolution of Xign provides further proof that it is difficult for banks to sell services that rely on deep process re-engineering, which remains unfamiliar ground for financial services firms from a client facing perspective. Banks are far more comfortable living in the world of credit. When you start thinking about supplier on-boarding, vendor master data management, core-AP processing requirements, and the like, it gets further away from what banks are comfortable with and the level of engagement required to implement solutions successfully.
Simply put, supply chain finance appears simple, but it is in fact extremely complicated given all the moving parts. Taken on the surface, for banks, SCF is almost too good a service to be true. But the SCF execution devil, as Chase and others have learned, is in the details.
This is the second Global Treasury/Trade software vendor that JPM has bought and then either sold or retired. Vastera, a global freight and custom compliance software company, was acquired by JPMorgan Chase under the agreement that Vastera survive the merger as an indirect wholly-owned subsidiary of JPMorgan Chase. It proved to be difficult to integrate into the banks treasury and trade business. In April 2012, Livingston International acquired the operations and technology of what was formerly Vastera from JPMorgan Chase.
In addition, despite newfound interest in e-invoicing, supplier networks, and receivables financing (e.g., Ariba/Discover, Mastercard/Basware, OB10/Tungsten, Tradeshift/CapitalAid, etc.), banks and financial institutions continue to struggle to gain traction with programs that cross the financing, payments and software lines. Just recently, Visa exited its relationship with Syncada.
Even though we could go down the entire host of challenges that Xign faced as a pioneer in the discounting sector (e.g., not targeting the long-tail of suppliers, limited broad e-invoicing capability/integration, legacy technology architecture, etc.), we think the most important lesson in JPM washing its hands of Xign is that the broader U.S. banking and regulatory climate may not be as warm to embracing P2P technology to get at receivables financing opportunities as the headlines might suggest. And we should all remember that this is not just Chase – it’s all U.S. banks.
Also see related research and coverage:
Visa Exits Syncada Relationship (free access)