It seems like a new e-Marketplace is announced every day. Businesses in almost every sector of the economy are betting that electronic procurement and fulfillment systems will streamline business processes, improve production decisions and speed time to market. Leading industry analysts like Goldman Sachs are forecasting that online trading volumes will reach $1.5 trillion by 2004 - and multiples of that in the years to follow. Market caps for leading platforms have reached multi-billion levels within months of IPO in anticipation of new foundnewfound riches. But something is wrong. Online trading volumes haven't materialized as predicted.

What's wrong? In a phrase, not enough beef. Today's Web trading systems don't provide a complete solution to a business community jaded by years of broken promises from software vendors. With today's Web services, you can easily find a vendor, send out a purchase order and get an order confirmation on the Web. You can even apply for and receive credit online. But then you must go offline to complete the shipment, receive the goods, invoice your customer and collect the money. And you get to do the integration of these diverse services into your environment at the same time you install the latest fix to your Enterprise Resource Planning (ERP). And when you do it's not clear that promised lower prices, reduced purchasing costs and better visibility to supply chain conditions will result - at least not enough to offset the cost and headache of implementing the solution. Yet.

The B2B Internet game is about to change again. A variety of fulfillment and invoicing solutions are emerging to complement procurement offerings and execute fully online transactions. And major enterprises - ranging from HP and Compaq in high technology to Chevron and Shell in the energy sector - are looking to drive their immense supply networks onto the Web. The result will be a rich flow of authenticated transactions - just what financial institutions need to develop - the market for internetInternet-originated asset securitizations of all flavors and types. And at A.T. Kearney, we believe that early and attractive opportunities will be found in the asset-backed commercial paper (ABCP) space - wherein Web-originated short-term inventory and receivables financings will be funded through conduit operations rather than on-balance sheet lenders.

Time for Internet Financial Services

A complete B2B supply chain trading solution has tremendous value capture potential - from reducing fulfillment costs, to managing inventory costs across the complete supply chain, to managing financial assets and risks of all types. Indeed, this type of rich information environment has been the end-state vision for supply chain theorists and enthusiasts for decades. But it has been elusive until now because of technology limitations and business process complexity. Internet fulfillment solutions will change this situation - and provide platforms around which to build new financial services offerings.

At A.T. Kearney, we estimate that provision of financial services as an integral part of Internet transactions - including payment, financing and processing services - could increase a typical mid-cap industrial company's return on sales by 1% or more. And a complete solution could do so quickly and measurably. Indeed, it is possible that Internet financial products could provide the "suction sound" that will pull offline trading onto the Web.

While we have yet to see a complete asset capture and securitization solution of the type we envision, our analysis suggests there is an emerging Web of tools and services that are seeking to solve some of the key problems. For example, in the international arena TradeCard provides a transaction authentication/non-repudiation toolkit combined with credit guarantees to ensure performance. Domestically, BankServ and Clareon provide Automated Clearing House (ACH) and other e-payment capabilities, while BottomLine and Aceva provide e-invoicing and payment processing services. Others like e-Time capital are providing dispute resolution services on a hosted service basis. Every day we see a new company announced in these and related spaces to complete the tapestry.

While there are many interesting and relevant new solutions being developed, we believe that the problem all venture-backed Internet financial companies will face is similar to the experience of e-tailers in B2C - namely no balance sheet + no transaction volume = no continuing credibility with capital markets or prospective customers. We believe that successful venture-backed firms will address this by partnering with established companies possessing these key assets. In financial services, these relationships will form new "ecosystems" of players in the transaction capture, processing, structuring and placement industries.

Enter the Major Institutions

We believe the next step in Internet financing and securitization developments will involve active engagement by major financial institutions - banks, insurers and commercial finance companies - in the online commercial finance marketplace. Their balance sheets and sector expertise - as well as customer insight and credibility - will be key to knitting together these service components into sustainable Internet offerings. We already see evidence that many of the major commercial financial institutions are beginning to focus on this opportunity.

Through a combination of equity investments, alliances and new product offerings we see industry leaders like Citibank, Deutscheb Bank, Banc of America Securities and ABN-AMRO looking for opportunities to offer structured asset finance, leasing and short-term paper to a new set of Internet customers. While their early efforts focused on marketplace solutions for traditional financing products, more recent efforts have focused on making financial services an integral part of B2B trading. This suggests that they are beginning to get it' - and are likely willing to revisit their customer management and asset/capital structure strategies.

These institutions are keenly aware that speed will be key to their success. Players with the skills to take quick advantage - notably partnering and investing to achieve rapid and wide penetration - will likely win in what will quickly become a crowded space. And we expect new competition - both from GE Capital wannabes' and second second-tier institutions attracted to new internet Internet securitization opportunities. Accordingly, we expect winners will form processing and decision support alliances to offer the highly scalable, low-cost infrastructure needed to support Internet asset securitization platforms and not build it de novo.

The Road Ahead

This is all very exciting - and likely to be of great long term value. But we shouldn't kid ourselves about the difficulties, either. Many of the processes needed to bring Internet-originated asset securitization services together do not exist yet - or at least are not past an early release stage. For example, critical processing services are not well defined as yet - and likely major players (EDS and First Data, DC for example) have yet to define a complete offering that compares to consumer asset processing in quality and cost. Problems in integration with ERP systems, creating acceptance documents and audit trails - not to mention regulatory, statutory and rating agency agreement and compliance - all speak to the need for a complex set of new business models and considerable efforts. But we are convinced that these are solvable problems.

This will take time to sort out, and there will be multiple winners across the securitization business system. But we expect the ABCP model will come to dominate commercial finance over the next few years, and that the major institutions have a built-in advantage in pursuing this space for now. Winners will be fast to market - but they will also know their own capabilities and limitations - and will partner with complementary companies. They will think like entrepreneurs - and will approach these opportunities with an attacker's mindset. And winners will take risks. Accordingly, there will be some surprise winners, as well. And there will also be a lot of stutter-starts before Internet-originated asset securitization really takes off. And the hype engine will be loud. There is already a lot of very nice slideware out there.

But the beef is still hard to find. Let's face it. B2B trading is messy, complex and encumbers significant risks. There doesn't appear to be a silver bullet - just lots of work to do.

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