The venture, dubbed Banc of America Purchase Street, is one of the first Web-based financial services focused on integrating the government sector's shopping and payment responsibilities.
Bank of America is teaming with NIC Commerce, an e-commerce company that helps government agencies streamline their procurement systems. NIC Commerce, formerly known as eFed, is based in Reston, Va.
The new company plans to help state and local governments place orders online with their suppliers, process transactions and make payments.
The move comes at a time when the business-to-government sector is picking up steam. According to a report from research company Gartner, federal, state and local governments will increase their e-commerce spending from $1.5 billion in 2000 to more than $6.2 billion by 2005.
Several e-tailers, including Beyond.com, have already switched gears from their business-to-consumer roots to tap the potentially huge business-to-government market.
Bringing online financial and payment services to the government sector rather than focusing on consumer banking may be a necessary move, given the slow adoption of Net banking by many consumers.
The role may also come naturally to Charlotte, N.C.-based Bank of America, which is already the largest issuer of state government purchase cards, representing more than 25 percent of U.S. states.
Although Internet commerce has been exploding as business marketplaces sprout daily, the financial side of the transactions is still mostly tethered to traditional and inefficient offline payment methods.
Banc of America Purchase Street is likely to face stiff competition from a growing number of credit card giants, such as American Express, Visa and MasterCard, and a slew of nascent specialty payment firms that are jockeying to provide online payment systems for e-commerce transactions.