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Slow Connection

A sobering glimpse into the future: Traditional financial institutions are upstaged by online entrepreneurs.

Corporations and individuals wanting to finance their purchase of Gateway computers once faced an obstacle course of credit applications and credit checks. The five-hour process, though brief by some standards, nevertheless kept San Diego-­based Gateway Inc. from sending phone orders instantly to the factory floor so that assembly could begin immediately, and customers’ products could be shipped in their familiar cowhide-patterned boxes.

As cumbersome back-office processes go, few are better candidates for automation than sales finance. In Gateway’s case, for example, the company wants to make financing an easy alternative to credit-card purchases, and with good reason. Besides surrendering a slice of its thin profit margins to the credit-card company up front with every purchase, Gateway also relinquishes the chance to make money in the financing arrangements. And for Gateway, there was also a problem with high credit-rejection rates because the old system relied on a single lender to manually review applicants. A perfect place, one might think, for a friendly banker to step in.

But it wasn’t Gateway’s banks that solved the problem. Instead, it was Dedham, Massachusetts-based eCredit.com that helped Gateway slash the length of a credit decision to a mere 15 seconds last year and sharply increase the percentage of approvals. “If you are Gateway, selling more than $9 billion of computers, and there are a large number of credit applications being rejected, you’re sitting there with a fairly big challenge,” says eCredit CEO Venkat Srinivasan. “We said, ‘Why not add more lenders to the network?’” While that might seem a simple fix, it actually hinged on the use of an intricate credit- scoring system that automated the sales financing. By turning the loans into commodities in that way, Gateway could create a pool of three financial institutions to compete for the business, and to take on more credit risks than a single lender would.

“It has become a big part of our sales process,” says Gateway CFO John Todd, who is thrilled with how fast orders are now being turned into shipments–and with the decline in customer use of credit cards. Indeed, since 1997, Gateway has increased its financed sales fivefold, to more than $2 billion. “Having this financing capability makes it much easier for customers,” Todd says. “And it has significantly improved our bottom line.”

Gateway’s success with eCredit offers corporate bankers a sobering glimpse into the future–one in which traditional financial institutions are often upstaged by online entrepreneurs boasting technologies that streamline a range of banking services. Take the case of managing bill-payments, long a bread-and-butter function of the corporate bank. Certain upstarts, such as Bottomline Technologies, of Portsmouth, New Hampshire, are launching E-billing systems that may one day bypass the banks. Or consider what the banks’ customers are doing with online supply chains, through programs that are usually facilitated by high-tech aggregators. There, banks are having to learn to dance to a new tune, participating as finance partners for such marketplaces–if they are involved at all.

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