Looking for profits from domestic and cross-border B2B payments, American Express has brought two of its commercial payment services north of the border to Canada. Robin Arnfield reports
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Amexs Buyer Initiated Payments (BIP) service addresses businesses needs for working capital management, while its Foreign Exchange International Payments (FXIP) offering targets SMEs seeking convenient ways to send and receive foreign currency payments.
In Canada, American Express operates as Amex Bank of Canada and Amex Canada. Both are subsidiaries of New York-based American Express Travel Related Services Company, the largest operating unit of American Express Company.
According to Rob McClean, Amex Bank of Canadas vice president and general manager, Global Commercial Card, Amex sees commercial payments as an important part of its business and is aggressively expanding from its base of travel and entertainment spending to other corporate spending categories.
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By GlobalDataInternational payments
Canadas strong import/export market prompted Amex to bring FXIP to Canada in February 2011. The service is also available in the US, UK, Australia, New Zealand and Singapore.
FXIP uses Amexs global payments and counterparty network to provide bank account-to-bank account money transfer services to SMEs. Amex says FXIP offers outgoing and incoming wire transfers in 110 currencies. Where wire transfers are not an option, Amex can send Amex-guaranteed foreign currency cheques direct to the payee. In addition, incoming foreign currency cheques from overseas clients can be converted to Canadian dollars, with immediate settlement for many currencies.
When an FXIP client makes a foreign payment, the funds are automatically transferred by Amex from the clients bank account.
Weve made it as easy as possible for our clients to use FXIP to send payments, Brett Weinhouse, Amex North Americas vice president and general manager of business development, says.
Competitive rates, a good online experience, a high level of customer care and Amex reward points all help to give FXIP a head start.
Canadian Amex cardmembers receive points on FXIP transactions at a rate of one point for every C$30.00 (US$30.22) transacted.
The FXIP site provides transaction data as well as a record of beneficiary details, payment histories, currency rates and dates of transactions. Subscribers can elect to receive e-mail or SMS notifications when a specific rate for a chosen currency becomes available.
In addition to online orders on the FXIP site, customers can also place their orders by phone and talk to specialists for help with hedging currency positions. We take away the requirement for corporations to create foreign currency accounts, Weinhouse says. Our customers dont need to hold funds in foreign currencies, and they dont have to manage currency risk.
FXIP is used for all sizes of transactions, from a few hundred dollars to payments worth many thousands of dollars, Weinhouse adds.
The main competitors to FXIP are not necessarily banks, but other specialist foreign currency providers, says Nancy Atkinson, senior analyst at US-based consultancy Aite Group.
Banks havent done a great job of providing foreign currency payments for small businesses, she says. Often, they dont have a small business web platform, and their branch-based service is not great either. Theres more and more demand by small businesses to get the same (foreign exchange) services as large businesses, and a number of specialist firms are providing such services including online access, hedging tools and the help of an advisor.
Among these providers, Atkinson includes Visas CyberSource subsidiary, Earthport, GlobalCollect, the MasterCard Payment Gateway, Western Union Business Solutions (formerly called Custom House), PayPal, Travelex GlobalPay and Alibabas Alipay.
FXIPs competitive strength lies in the range of currencies that it offers and its reward points, plus Amexs existing merchant relationships, Atkinson adds.
Buyer Initiated Payments
Buyer Initiated Payments (BIP) is an automated web-based electronic payments service that is intended to eliminate cheques, manage the payment process and improve cash flow for buyers and suppliers. It allows buyers to make earlier payments to their suppliers and get discounts for early invoice payment, while extending the date that funds actually leave the buyers bank account. This means that buyers are able to increase their days payable outstanding (DPO).
Having first launched BIP for domestic payments in the US, Amex introduced the service in April 2011 in Canada through Amex Bank of Canada.
BIPs launch in Canada has been very successful, says Robert Bast, Amexs director of B2B sales support for Canada and Latin America. Weve seen a lot of interest across all industries, both from our existing customer base and from new clients.
To originate a payment, buyers send a payment file from their ERP (enterprise resource planning) system to Amex. BIP transactions are approved prior to payment, allowing buyers to apply all internal purchasing policies and approval rules.
Buyers can use an American Express virtual payment account, which is similar to using a purchasing card (P-card), except without card numbers, Bast says. At the end of a billing cycle that they negotiate with American Express, buyers reimburse Amex, just as they would pay a P-card bill.
Once it receives the payments instruction from the buyer, Amex then makes payments directly into the suppliers bank account, and sends a confirmation to the buyer and remittance information to the supplier.
Vendors select their payment terms and receive deposits from Amex electronically into their bank account. Suppliers receive payments according to their terms in exchange for a discount fee, Bast says. For example, a vendor might require Amex to make payments within 30 days in return for a 5 percent discount.
The service is free to buyers, Bast says. The benefit to suppliers is efficient electronic payments, improved cash flow and fewer days sales outstanding (DSO).
Jacqueline Chilton, partner at US-based Glenbrook Partners Payment Strategy Consulting, says BIPs main benefit to buyers is that they get another method for moving suppliers to electronic payments. While BIP will not replace EFT (electronic fund transfers), wire transfers or P-cards, it will move some suppliers from cheques to electronic payments, she says. Also, the payment method is easy to implement, and there are no set-up costs.
According to Amex, the average BIP implementation time is 10 weeks, and there is no investment in hardware or software.
Chilton thinks BIP payments will be most cost-effective in the transaction value range between smaller P-card payments and higher-value EFT payments. As Amex signs up suppliers in Canada, BIP will gain momentum, and the more suppliers that are already linked up to the system, the more buyers are going to be interested in using BIP, she says.
John Mavriyannakis, senior manager, consulting with Deloitte Canada, says Amex is providing a service that isnt available from anyone else. What differentiates BIP from other systems is that Amex has both the issuing and merchant relationships, he says.
Mavriyannakis says BIP is based on spread-lending or cash arbitrage. Amex sets up and facilitates a one-to-one contract between the buyer and the vendor on bespoke terms, he says. In exchange for a fee, the risk passes to Amex and the vendor receives guaranteed payments, while the payer receives extended payment terms.
Mavriyannakis believes BIP will be as successful in Canada as it has been in the US, where it was introduced several years ago and has seen a lot of growth. In an environment of increased volatility, guaranteed access to capital becomes very important, he says.
However, Atkinson is less bullish. BIP is one solution amongst many, she says. There are a number of services that help corporations manage working capital in an economic downturn, including AvantGard PayNet Exchange from SunGard, Visas Syncada Global Payment Network and Bottomline Technologies Paymode-X.
Atkinson agrees with Mavriyannakis that what differentiates BIP is its network of buyers and sellers. But what works against BIP is that it is not as widely accepted as MasterCard and Visa payments and also its high interchange fees, she argues.
Case study: Kaleida Health
Buffalo, New York-based Kaleida Health, the largest healthcare provider in Western New York State, first deployed BIP in November 2007, having previously paid its suppliers by cheque. Since 2007, Kaleida has enrolled 320 suppliers in BIP and used the electronic platform to pay 130,000 invoices, with its volume in 2010 approaching US$120 million, according to a case study on Amexs website. Between 2007 and 2010, Kaleida paid over US$260 million via BIP.
Kaleida chose to use an Amex virtual payment account as its primary settlement vehicle. Without cheques or the exchange of card numbers, there is little need for concern about fraud or theft, the case study quotes Patricia Boardway, Kaleida Healths accounts payable manager, as saying. Reconciliation is simple, as the amount paid to vendors always matches the payment file sent through the BIP system.
