Nice story on eCommerce in the Globe.
But I ask again, what Cash Flow will come to VNE if the Citibank initiative is:
A: Unsuccessful.
B: Moderately Successful
C: Successful beyond DinO's wildest dreams.
Will that cash flow be sufficient to support a VNE share price in excess of 50¢? I think not.
Ian.
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Banks start to cash in on E-commerce
Despite predictions of phenomenal growth
in on-line business, banks have been spotty
in launching electronic-business client services.
Thursday, February 18, 1999
Dawn Walton
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S
imon Darby is confident that a foray into electronic commerce will boost his company's bottom line.
As a vice-president of Salter New Media, a unit of Salter Street Films Ltd., Mr. Darby oversees the development of bargoon.com, an on-line auction site that has connected about 1,000 buyers with sellers in Halifax since its launch last month.
Starting yesterday, the service is available for the Toronto market. It will start up in Vancouver, Montreal and Boston next, and the company expects big things from its Web site.
"Bargoon will grow into something a lot more than an auction site in the future," Mr. Darby predicts. "We will be able to build entertainment into it and other sorts of E-commerce including retail selling, travel and investment advice."
To maintain the fledging concept for now, Halifax-based Salter takes 3 per cent of the final sale price -- payable by credit card -- and Royal Bank of Canada collects 3 to 3.5 per cent of Salter's fee for processing. The bank also charges a flat-rate transaction fee.
"I'm sure the banks would hope that we do a lot of transactions in order for them to make it interesting," Mr. Darby says.
But critics say Canada's financial institutions have been slow to recognize the potentially lucrative business of helping companies, particularly small and medium-sized businesses, hawk their wares and services on-line.
Despite predictions of phenomenal growth by retail analysts and high-technology gurus, it can be a struggle for some smaller enterprises to start doing business in cyberspace.
"I'm not aware of a whole lot of good initiatives [for small businesses] in that area," says Brien Grey, senior vice-president of the Canadian Federation of Independent Business, a lobby group.
"I think a lot of people are looking at it, but I think at this point in the ball game, it's mostly large players that are able to do those transactions at an affordable cost, but it hasn't come down to the small business level yet."
To date, E-commerce initiatives by banks have been spotty. Programs have either just been launched or are in development.
For one thing, the banking community has been taking its time in adopting the Secure Electronic Transaction protocol, jointly developed by Visa International Service Association and MasterCard International Inc. to authenticate on-line credit card transactions at the customer, merchant and bank levels.
Royal Bank of Canada has got a jump on E-commerce opportunities by incorporating the SET program, says Adrian Horsfield, Royal Bank's senior manager of Internet commerce. But the bank's competitors have been distracted by the Year 2000 problem, he says.
"A lot of resources are being spent on that," Mr. Horsfield says.
There's also the privacy issue.
Many businesses and individuals are not sure about the security of buying and selling goods and services on the Internet with credit cards, says Ron Laursen, Bank of Nova Scotia's senior vice-president of small and medium-sized business.
The industry's casual recognition that E-commerce can be a money-making venture is something Citibank Canada of Toronto thinks it can capitalize on.
"It's an open market out there," says Edward Moffat, Citibank's associate vice-president of business development.
"Anybody could come in with a full service offering and just walk away with market share. It would appear that the other Canadian banks aren't as interested -- for now and I'm not sure what's going to change that."
Last fall, Citibank formed an alliance with with software company Inex Corp., technology firm Lasso Communications Inc. and marketing and technology company Valu-Net International Ltd. to help businesses set up Web sites and process transactions.
"It became pretty apparent that merchants really couldn't get on-line easily," Mr. Moffat says.
Building the site, ensuring that transactions are secure, finding a bank to process on-line transactions and then promoting the site can be time-consuming and costly.
While some merchants have a track record, Mr. Moffat says, their banks won't process on-line credit cards transaction without a hefty reserve deposit ranging from $10,000 to $300,000. They also charge businesses a processing fee of up to 9 per cent of the purchase price, he says.
Toronto-Dominion Bank, for example, requires security deposits. The amount depends on such factors as the merchant's relationship with the bank, how long the venture has been in business and the volume of orders anticipated, says Ruta Girdauskas, TD's manager of product development and marketing for merchant services.
"Typically, a small business would be required to [submit a security deposit]," she says.
At TD, processing fees -- or merchant discount rates -- vary and are negotiated case by case, she adds.
The cost of operating on-line is where Citibank hopes it has an edge over its competitors. Citibank does not usually require a security deposit, Mr. Moffat says.
"It doesn't make a lot of sense to take working capital away from a new venture -- that's a recipe for suicide."
Citibank's processing fees are 3 per cent or lower, he adds.
"The mentality seems to be that [E-commerce is] scary, it's fraud-ridden and I think to some extent [some banks] don't ever want to see their names in the newspaper when another Air Miles-type thing happens."
Last month, it was revealed that a security breach on the Air Miles Web site left confidential consumer records of up to 50,000 Canadians participate in one of the country's largest customer loyalty programs exposed.
Mr. Moffat understands the concern, but figures the profit potential outweighs the risks.
"You do what you can to cover your butt while at the same time providing a service that obviously is required out there."
Despite Citibank's product package and critique of its competitors, the institution has taken about a year to deliver merchant services and it only made the leap to Internet late last summer.
"It took us that amount of time to get our act together on other things," Mr. Moffat says simply.
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