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 NEWSeCredit expedites online financing By Geneva Sapp February 16, 2000 4:08 pm PT WHILE CREDIT CARDS may be the preferred method of payment for e-commerce sites, many customers are gun-shy about whipping out their credit cards for high-price tag -- $500, $5,000, or even $100,000 -- items. And doing business internationally means e-tailers and business-to-business sites need another payment method than credit cards, which are seldom used.
Traditionally the credit approval process has been a bottleneck, slowing down completion of the transaction. eCredit's Global Financing Network exploits the Internet to connect businesses, lenders, and credit sources, allowing all the paper and time-intensive processes to be automated and expedited. Instead of taking days or weeks for loan approvals, the transaction can be done in seconds. "We realized that we could leverage the Internet directly into our business model and create a marketplace or a network that would bring together all the participants we were already serving," said Venkat Srinivasan, CEO and founder of eCredit. eCredit began its networking experiment by connecting lenders and credit sources for Gateway, who already offered online financing but only through one source. "Gateway was looking for something really specific. They were interested in increasing their transaction approval rates," Srinivasan observed. "They were getting pretty frustrated that they were losing hundred of millions of dollars in revenue because they were effectively captive to the risk-appetite functions of one institution," When a potential customer did not fit its lender's risk profile -- and about 65 percent did not -- the sale was lost, Srinivasan noted. Some companies desperate to keep these revenues will even take on the lending risks themselves. According to Srinivasan, Gateway's financing network upped its approval rate from about 35 percent to over 60 percent, nearly doubling their revenue. "Gateway now has six lenders on its private network. Their approval rates have shot through the roof, " Srinivasan said. According to Robert Spears, vice president of Gateway financial services, the financing network has streamlined its entire financing process. "It gave us faster decision making, better consumer experience and better approval rates... Instead of having one lender to lend to everybody, you have a whole portfolio to maximize the risk appetites of each lender," Spears said. Srinivasan found that some customers who use credit cards prefer online financing, if given the alternative. "We found in the Gateway experience that there's a huge trend to using alternate financing methods like leases, loans, or installment loans. And after they introduced the alternative methods, many people even stopped using credit cards," Srinivasan said. Gateway's private network was only the first step in Srinivasan's vision of a public network for online financing. "The Global Financing Network is our public rollout of the same idea," Srinivasan said. Srinivasan said that business-to-business "exchanges need the eCredit service even more than even a Internet retailer," because b-to-b [business-to-business] transactions often involve higher-ticket items and different companies have different cash flow needs. Srinivasan also sees online financing as a service that will keep companies coming back into the exchanges to do business. Nick Stojka, executive vice president and co-founder of Commerx, sees potential for online financing intermediaries to change the way the fragmented plastics industry operates. "We'd like to see real-time financing for a range of products. Traditionally, the companies [in the plastics industry] haven't done a lot of the raw materials financing," because traditional lenders only handled equipment financing, Stojka said. The online financing network will be used in diverse business-to-business exchanges such as CheMatch, a vertical marketplace for chemicals; Commerx, the owners and operators of PlasticsNet.com, a marketplace for the plastics industry; GoFresh.com, a vertical market for seafood; and MediaInternet.com, a business-to-business exchange for advertising. eCredit.com Inc., in Dedham, Mass., is at www.ecredit.com. Geneva Sapp is an InfoWorld reporter.  RELATED SUBJECTS  E-CommerceSPONSORED WHITE PAPERS 
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