The Speed Of Money

Computerworld - The road from paper to virtual money has been blocked at every turn by cultural and technological barriers. But a new spirit of both cooperation and competition between fast young start-ups and traditional financial institutions is beginning to push some of these barriers aside.

Within five years, the vast majority of business-to-business transactions is expected to be electronic, analysts say, leading to faster payments, lower costs and, potentially, less fraud as stringent identity authentication and credit risk-assessment procedures become easier and less expensive.

These savings, combined with faster collections, integration with back-end procurement and financial systems, and access to a larger supplier and customer base, could expand the U.S. economic boom to the rest of the world, analysts say.

"Money is always in search of the place where it gets the best return," says Thornton May, until recently a futurist at Cambridge Technology Partners Inc. in Cambridge, Mass., and an occasional Computerworld columnist.

The increased access to market information made possible by the Internet, along with the ease of making electronic payments, will make it possible for companies to change suppliers or distributors in real time on a global scale.

"You will be able to exit bad resource allocations more quickly, which is really what's driving much of the New Economy right now," he says. "It's almost real-time feedback: That didn't work; stop; try again."

Security Barriers

While virtual transactions are gaining steam, the vast majority of payments are still made with checks.

According to Stamford, Conn.-based Gartner Group Inc., 14% of business-to-business payments are made electronically. But that figure is expected to grow to 50% by 2009, says Gartner analyst Avivah Litan.

The biggest reason for the resistance to virtual payments is security, according to May. Companies, particularly those making large transactions, are concerned about the integrity of financial information that travels over the Internet, he says.

"Companies are going to spend more on digital security [than Y2k]," says May. "Probably one and a half times more."

The threat isn't only from hackers breaking into sensitive systems. Fraud is also a possibility: Persons or companies passing themselves off as someone or something else.

"There's very little done now to validate the identity of the person making an inquiry," says Elizabeth Achorn, an analyst at Newton, Mass.-based Meridien Research Inc.

But both banks and start-ups are beginning to address the problem. Digital Signature Trust Co., a subsidiary of Salt Lake City-based Zions Bancorp., serves as a digital signature clearinghouse for banks. Other companies, including start-ups like Mountain View, Calif.-based VeriSign