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American Express pushes plans for online payment

The credit card company is charging its way into the business-to-business market with new plans that could help revolutionize the way goods are ordered and bought online.

American Express is charging its way into the business-to-business market with new plans that could help revolutionize the way goods are ordered and bought online.

The largest issuer of corporate credit cards plans to team up with business software maker Ariba to develop an online payment processing system for the growing number of business exchanges on the Internet, according to sources close to the company.

While marketplaces that connect suppliers and customers have given birth to a whole new way of doing business online, the process of payment is still deeply rooted offline. Firms still have to wait while purchase orders are verified, approved and processed before a transaction is complete--slowing down the entire transaction.

American Express now plans to team with Ariba to make payment work "within the Internet marketplace environment rather than in an offline transaction that is matched on the back end," one source said.

"(American Express) is going to accelerate beyond that marketplace and start working with other marketplaces and e-purchasing systems vendors in ways that can integrate components of its payment process," said a source close to the company.

The number of online marketplaces is growing daily. Lately, giant companies such as General Motors, Ford, Toyota and Sears have jumped onto the Web to simplify procurement and corporate purchasing.

Winning just a sliver of the transaction fees involved in business-to-business transactions is likely to be a big boom for American Express. The leading research firms have the business-to-business market pegged between $2.7 trillion and $7.3 trillion by 2004 from about $131 billion in 1999.

Previously, the credit card giant teamed with Ariba, Commerce One, Clarus and other services firms in an attempt to improve communications between business-to-business marketplaces. American Express itself said last November it would develop an exchange to bring suppliers together to simplify the corporate purchasing process.

Visa, another major issuer of commercial cards, wasn't available to comment on whether it had similar plans to enter the business-to-business space. MasterCard executives couldn't immediately be reached for comment.

On Wednesday, American Express Corporate Services president Ed Gilligan hinted at the company's intentions, saying that "no purchase is truly an online transaction unless payment takes place online as well."

"Without integrated online payment solutions, the explosive growth in business-to-business e-commerce will be hampered," Gilligan added, while commenting on the newly forged alliance between Ariba, i2 Technologies and IBM.

"We are linking our global payment network with the Ariba network to facilitate payments of all kinds."

The rapid rise and popularity of the business-to-business sector has obscured some of the challenges the industry faces, however. Some businesses have voiced concerns about the potential need for government regulation over new marketplaces that concentrate tremendous purchasing clout among a handful of large companies, opening up the possibility of collusion.

Others have noted that despite the tremendous attention the sector is receiving from investors, security issues and technology standards to improve cooperation between marketplaces need to be addressed if the sector is to continue its rapid growth.