Payment Systems: The Buck Stops Here

It doesn't take a retailing genius to understand that the flurry of Internet buying--$9 billion worth in 1998, according to the U.S. Commerce Department--signals a momentous turn for e-commerce.

And the numbers are only on the way up. Forrester Research Inc. predicts that Internet buying will top $3.2 trillion by 2003. Now, Web merchants need to know that the buck stops with them to get their online payment processing systems in place.

The stakes are high. A company's future e-commerce success may rest on just how efficiently and seamlessly payment processing systems handle online sales.

Properly executed, payment processing systems can free company employees to focus on business objectives and boost the one element that's really important for any business: customer service.

At 1-800-Flowers, "the online experience has to be as good as or better than the 800 [telephone] service or at brick-and-mortar stores," says Donna Iucalano, vice president of interactive services at the privately held flower-buying service.

For novice online providers like the U.S. Postal Service, which is running a pilot test of Post Office Online, customer service also is key. "We have to make sure that once the customer has sought a service, the service is available and fulfilled," says Pete Myokhin, payment technology officer at the Postal Service.

The Post Office system is driven by a payment processing system from First Data Merchant Services Corp. and Tellan Software Inc.'s credit card authorization solution. Post Office Online is designed to compete with the likes of Federal Express.

Faster Transactions
In addition to customer service, an online company can benefit in other ways as well. Doubletake Gallery, which brokers artworks by Leroy Nieman and Norman Rockwell as well as other lesser-known artists online, reports some dramatic productivity gains from the new payment system used in its online gallery, www.doubletakeart.com. Instead of spending 25 minutes processing a customer's payment information, the whole process now takes about two minutes, says gallery president Robert Varner.

Without the system, an employee had to manually process paperwork such as filling out an advertisement form for an artist or, for customers, taking a credit card number, running the card, printing the information and sending out the bill. Now, the gallery outsources its operations to Eliance Corp., whose eSourcing suite offers customers real-time product information and automated purchasing. When an order gets typed in by a customer online, it is automatically sent to a Doubletake database and the customer's credit card is authorized instantly in a secure environment.

"It will really free up staff to work on the marketing side of the business," says Varner, who adds that he'd much rather see the staff promoting the site's quality artwork and authenticity than processing orders.

Although a number of payment processing systems have hit the market, for the most part they haven't kept pace with the needs of the thriving Internet community.

Experts say one of the main reasons payment processing systems such as ORMS from Ariba Technologies Inc. and LiveCommerce from Open Market Inc. have fallen short of expectations is that they're works in progress--kinks had to be discovered and worked out.

"It's not [good enough] to simply offer payment processing anymore," says Geoffrey Bock, an analyst with the Patricia Seybold Group. E-commerce sites require relationship management, he says. That means that payment systems must offer companies a way to manage relationships with customers as well as between buyers and sellers.

For these systems to succeed they need to integrate enterprise resource planning (ERP) applications, provide the means for real-time credit card authorization, offer customer tracking, safeguard both buyer and seller against fraud, meld various payment types and boost scalability to handle the growing number of buyers.

It's a tall order, but Bock believes payment processing is moving "toward the evolution of a digital marketplace. Vendors are implementing a variety of enhancements to payment processing systems, depending on which e-commerce model--buy side or sell side--the system accommodates.

Buy-side solutions are really procurement systems that link the supply chain between companies and their suppliers and then handle payment procedures. Vendors such as Ariba and Netscape are aggressively pursuing business-to-business customers in this market, as are Connect Inc. with its MarketStream solution and Trade'ex Electronic Commerce Systems Inc. with its Procurement for the Marketplace. Purchase Pro Inc., TPN Register LLC and Commerce One Inc. also have targeted the buy side.

Netscape is playing both sides of the fence, aiming its SellerXpert product at the sell side. So is Microsoft, which markets its Microsoft Site Server Commerce Edition as both a buy- and sell-side solution. Sell-side solutions are geared toward Web-based businesses that sell consumer items like books, CDs and flowers.

The buy side and sell side offer different features. Buy systems must support a wide variety of elements such as purchase orders, lines of credit and disparate pricing schemes for different customers, including credit cards. Sell systems must accommodate a variety of payment instruments such as credit cards and, in the future, electronic checks and cybercash.

But for a true digital marketplace to come to fruition, companies on both sides require end-to-end solutions that integrate popular ERP apps and include every part of the purchasing process--from order taking and payment processing to fulfillment confirmation.

Beyond The Storefront
"I realized that setting up an online store was only the first step," says Steve Matalon, chairman and CEO of BuyItOnline, an online commerce site that acts much like a shopping mall to unite carefully screened merchants. One key to a successful endeavor is quick and secure payment processing, he says.

BuyItOnline created an e-commerce site that integrates Internet Commerce Services Corp.'s technology with Open Market's Transact. Internet Commerce's software lets customers build online shopping carts and Open Market's Transact executes payment processing. Customers can shop at any or all of the shops at the BuyItOnline site, filling a shopping cart with products and services then ordering them through a single secure order form.

Others agree that integrated payment processing is crucial. "Most of our business is next-day delivery. If you shop on one day and we have to get back to you that a credit card was approved and an order fulfilled, we lose the point of doing business over the Internet," says 1-800-Flowers' Iucalano. "We need the whole process, soup to nuts."

While Iucalano says that solutions like WalletTech from CyberCash Inc. or Microsoft Wallet are impressive, 1-800-Flowers uses services from Paymentech Inc. for payment processing and OrderTrust LLC for real-time credit card authorization. Part of the reason for her choice is so users don't have to download and install software then reboot their systems before shopping. The online flower shop is "taking steps toward integration" of its systems.

To meet the needs of a growing market, payment processing vendors are enhancing and upgrading their products, ensuring that they can integrate with back-office operations and process a larger number of transactions.

With the release of LiveCommerce 2.0, for instance, Open Market has moved beyond the Windows NT environment to support Solaris, a move which means the payment processing system can break the 100,000-product barrier imposed by NT and meld with a variety of commerce products available on the market today. As a result, the system--which can cost as much as $300,000 for an enterprise implementation--also can facilitate a large number of users simultaneously, a must-have for any Internet-based business.

The Postal Service's Myokhin sees a system's ability to handle more users and more applications as a big issue. "We're looking at scalability as we take Post Office Online to a national implementation," he says. The organization will ask Tellan to provide upgrades, but doesn't rule out turning to another vendor in the future to meet the service's growth.

Without the advantage of live salespeople interacting with customers or observing how they shop, Internet merchants are increasingly demanding that their payment processing systems provide some sort of user tracking as well. Open Market's LiveCommerce 2.0 can gather information on customer buying habits--from how long they stay at a site to which items they selected or rejected. Armed with this kind of tracking data, e-commerce companies can better tailor promotions, discounts and even inventory to customer needs.

Also important to the success of payment processing systems and the businesses they accommodate is full integration with ERP systems, such as those from SAP AG, Oracle and PeopleSoft Inc. That way, buyers can obtain real-time information about constantly changing elements like inventory and pricing. Nearly every major payment processing vendor is creating APIs to hook their systems into a company's ERP applications.

Of course, adding these new features has a downside. More features equals greater cost. And for the small-to-midsize business, it may be inconceivable to pay more than $100,000 for a system and up to $1 million to get a Web store up and running. "The Open Market [technology alone] costs about $125,000," Matalon says. "You could do [the project] on your own for about $750,000."

In fact, analysts and government officials expect an influx of small-to-midsize companies on the Web. As buyers become more experienced online shoppers, smaller companies have the assurance that customers are at their disposal. They also have the most to gain: With limited staff and resources, they need the reduced labor and paperwork that automated payment processing provides. Automating the process "is going to be a huge time saver and open up the bottleneck we have," Doubletake's Varner says.

And small businesses have the opportunity to excel on the Web where their larger counterparts don't. Matalon says small businesses often have a product or service that can't be found elsewhere, but they need a way to get customers beyond their front door. The Internet gives companies like Doubletake a way to expand their reach. "It's hard to find buyers in your geographic areas, so you have to expand beyond it," Varner says. "But how do you consummate a transaction from 2,000 miles away?"

Outsourcing Alternatives
For Doubletake, the answer was to follow in the footsteps of other businesses that simply don't have the budgets to bring Web commerce in-house: The gallery decided to outsource the operation.

"For us to try to tie in credit card machinery in the background would have cost tens of thousands of dollars, and what sense would it make to do that?" Varner asks. Instead, he turned to Eliance to automate Doubletake's back-office functions using Eliance's eSourcing services. An outsourcer, he says, "has already established everything that needs to be done" to start up and operate a commercial Web site.

BuyItOnline has turned that philosophy into a roaring business for other online merchants. For a fee--$79 per month and 15 percent of each transaction--BuyItOnline will host a Web store and provide all of the secure payment processing and back-end functions needed to run a site.

"The overarching idea is that we started taking the technology and providing it as a service," Matalon says. "It enables the small guy without a large database to do very secure transactions."

And, it promises the buyer that a credit card will not be charged until an order is shipped. That is more than enough reason for any company to realize that if it wants an effective e-commerce operation, the buck stops with them to offer an integrated payment processing system.

Teri Robinson is a freelance technology journalist based in New York. She can be reached at teri8994@aol.com.