When Will Banks & Financial Institutions Get P2P Right? Has Ariba Discover[ed] the Trick?

The history of banks and related financial institutions (e.g., American Express) getting into anything having to do with purchase-to-pay (P2P) is a road paved with the best of intentions -- and absolutely abysmal execution. Jimmy Carter arguably had far greater success controlling inflation, driving the economy forward, getting gas prices in line and making Americans feel good about themselves than either Chase or AMEX have had with their various efforts (Xign, MarketMile, etc.) serving the procurement and AP communities as trusted, consistent partners, aside from offering standard treasury, checking/lock-box, FOREX, and typical banking services.

But unlike Jimmy, it’s hard for these giant institutions to quietly go back to being peanut farmers after coming in and making a big stink that quickly dissipated. There are some great ironies to this, of course. For one, a number of banks have highly sophisticated procurement operations, especially in certain areas (e.g., Bank of America for supplier diversity). Others do a great job of managing contingent staffing not only for worker classification compliance, but also other controls and compliance (e.g., proper credentialing/access to information, insurance certifications). Sure there are a few laggards (OK, more than a few), but at least there are some financial services success stories in the internal procurement area.

I was recently reminded about how poor these organizations are at even marketing what they are doing to serve external procurement organizations when recently, a large card provider had their PR firm reach out to us about some “groundbreaking” new initiative to serve procurement and AP they were bringing to market. Of course after digging, it turned out that they could not provide a single reference user of the solution. We buried that one in the stack of “no coverage” rather quickly.

But perhaps Ariba/SAP has found a new way to take advantage of the prowess and capability of banks and financial institutions for the benefit of procurement, AP, and suppliers with its newly announced Discover relationship that will drive AribaPay. Despite Discover’s focus in the market historically, this is not a “card” solution. As Ariba cites in its FAQ, “AribaPay is not a commercial card, p-card, buyer-initiated card or any other version of card product. No card agreement is required to accept AribaPay payments. Discover’s part of this arrangement is delivering a secure and trusted payments infrastructure to facilitate transactions.”

In other words, Discover will probably be the first bank or financial institution to wire what it does best into a B2B network (provided they get it right). The solution reminds us of what Mark Hoffman and Oxygen Finance are up to at the moment, albeit they’re delivering a similar closed-loop payment and network plumbing infrastructure in a private-label manner to banks and primarily end-user organizations (in the private and public sector).

If you’re curious to learn more about it (we certainly are), here’s a snippet from the FAQ that describes some of the differences of what this Discover/Ariba solution will do compared with ACH and traditional bank/external payment infrastructure:

AribaPay provides superior benefits over ACH alone. The biggest advantage is in how AribaPay integrates the pre-existing ‘Procure to Pay’ cycle to tie in critical remittance information into a streamlined payment event. Unlike traditional ACH remittance information such as CTX or CCD, the ‘rich’ remittance data available for Suppliers will include header level and line item level visibility to previously mediated Ariba Network invoices and even purchase orders.

There are other aspects of AribaPay that make it better than ACH alone. AribaPay eliminates the need for buyers and sellers to send, maintain or update bank account information with multiple trading partners. This results in less time inputting, managing or updating bank account information–and less opportunity for error or fraud.

At full deployment, AribaPay will allow on-demand payment “track and trace” capability – permitting for the first time a bird’s eye view on where payments are at any time in the settlement process – something that ACH cannot provide today.

Of course, like nearly everything else with Ariba, suppliers will end up paying something for the service. But the benefits this service may provide over the standard network costs are significant, including faster visibility (and more accurate visibility) into payment status, enhanced (and faster) exception management for invoice and payment errors and quicker dispute resolution.

Add it up and AribaPay and Discover together are likely to not just be a “devil in the details” – i.e., this is not superficial plumbing – success story for SAP, but perhaps a new chapter for banks and financial institutions that have so far delivered a failing grade in delivering procurement, finance, and supplier value. Now, if only Ariba, SAP and Discover can begin to qualify for the discount reclassification scheme (shifting a discount classification from rebate/savings to revenue) that the closed loop Oxygen system has qualified for, well, then, we might see CPOs, CFOs and bankers collectively jump for joy as we create a whole new asset class and bubble as companies begin to securitize their future payables en masse.

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