Although 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, $5000, or even $100,000 - items. And doing business internationally means e-tailers and business-to-business sites need another payment method besides credit cards, which are seldom used.
Enter online financing intermediary eCredit.com and its Global Financing Network.
Traditionally, the credit approval process has been a bottleneck, slowing down completion of the transaction. The Global Financing Network at eCredit.com 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 realised 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.com.
It's a model that others may soon follow, says Carol Baroudi, an analyst at the Hurwitz Group. She believes online financing will revolutionise e-commerce. "There doesn't seem to be any gate to it . . . It [online financing] will, in fact, create a new paradigm." Baroudi added that more banks will be joining e-businesses in this trend, whether by networking themselves or joining an already established network such as eCredit.com's Global Finance Network.
The company began its experiment by connecting lenders and credit sources that already offered online financing for Gateway, but through only one source.
"Gateway was looking for something really specific: they were inter-ested in increasing their transaction approval rates. They were getting pretty frustrated that they were losing hundreds of millions of dollars in revenue because they were effectively captive to the risk appetite functions of one institution," Srinivasan said.
When a potential customer did not fit its lender's risk profile - which about 65 per cent didn't - the sale was lost, Srinivasan noted. According to Srinivasan, Gateway's financing network upped its approval rate from around 35 to over 60 per cent, nearly doubling its 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 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 maximise 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 toward 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 believes that business-
to-business "exchanges need the eCredit.com service even more than even an Internet retailer", because business-to-business transactions often involve bigger-ticket items and different companies have different cash flow needs.
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 commented.
The online financing network will be used in such diverse business-to-business exchanges 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.http://www.ecredit.com