These days, it’s just about impossible to find a product that isn’t sold over the Internet. A random search by CFO magazine recently uncovered E-tail sites hawking pipe cleaners, arugula seeds, and aglets (those little plastic things on the ends of shoelaces). If you have a PC, a Web browser, and a mouse, you can purchase just about anything on the Internet.
That is, unless you happen to be a chief financial officer. Finance portals — sites that actually help CFOs do their jobs by providing them with analytical tools and allowing them to conduct a variety of financial transactions — are relatively scarce. In fact, despite plenty of hype from vendors, Web-surfing CFOs and treasurers are likely to find more financial sites that are under construction than under way. Take CFOWeb.com, perhaps the most talked about finance portal in cyberspace (see, among others, “Internet Explorers,” eCFO, April). The site, which has received mountains of press, was “launched” in September 1999. But while the site has been up since September, CFOWeb.com’s virtual derivatives and foreign exchange marketplace was still being beta tested as of press time. Similarly, TreasuryPoint.com, a site currently offering an online financial analytical tool, won’t unveil its long-anticipated money market trading platform until the third quarter of the year. EBondTrade.com Inc., which has sold municipal bonds to more than 700 firms since January, has yet to come to market with its newest product, which enables municipalities to buy treasuries and agency bonds online.
And there’s TreasuryConnect. com. In a May interview with CFO, a TreasuryConnect executive variously asserted the auction site for interest-rate and currency swaps was “starting pilot trades tomorrow,” “doing live trades as early as next week — certainly within the next few weeks,” and “live [now], but waiting for client usage.” As of press time, one transaction had been conducted — an interest-rate swap done by Xerox.
Hanging on the Telephone
All this raises the question: What gives? Finance portals would seem to offer huge benefits for CFOs. The most significant, of course, is price. These portal intermediaries can aggregate supply and demand for financial instruments into marketplaces, introduce price transparency, and put the squeeze on spreads traditionally offered by banks — not only efficient from a market perspective, but also convenient. Telephone buyers are limited by the number of phones they can juggle, but a computer screen can display dozens of quotes simultaneously. And quotes that are clicked are far less likely to contain errors than quotes jotted down with a pencil. So if these sites are the answer to a CFO’s Web dreams, why are they all talk and no action?
Mostly, vendors want to be positive they’ve ironed out any glitches before going live. “We are talking about sophisticated technology. This isn’t buying a book online,” explains Bryan C. Keane, senior E-finance analyst at Prudential Securities’s Prudential Volpe Technology Group, in San Francisco. “If you screw something up, you’re finished. A CFO isn’t going to give you a second chance.”
But developer caution isn’t the only reason CFOs don’t have the office equivalent of E-Trade. Analysts and vendors also point out that the initial rush to provide Web-based financial services generally bypassed the finance and treasury departments. Says Bruce Usher, CEO and co-founder of TreasuryConnect: “Almost all electronic systems out there are targeted at institutional investors.” Which makes sense. More revenue is generated from the brokerage industry buy-side than from the corporate treasury side. “It’s the lower-hanging fruit,” says Usher.
In addition, online exchanges tend to make commodities of complicated financial instruments. As a result, intermediaries lose their clout. Such a prospect doesn’t exactly have dealers climbing over themselves to sign up with builders of finance portals. “The main reason [for the dearth of CFO sites] is that incumbent dealers don’t want to lose existing relationships with customers,” says Dan Latimore, director of E-strategy at Mainspring Communications Inc., a Cambridge, Massachusetts-based consulting firm. “So there’s not much incentive for [dealers] — particularly those with market power — to join CFOWeb.com or sites like it.”
That’s a serious obstacle. At Lucent Technologies Inc., for example, the treasury department typically requests quotes from two or three banks before closing a foreign exchange transaction. Gourang Shah, treasury manager at the Murray Hill, New Jerseybased maker of telecommunications equipment, says representatives of CFOWeb.com have pitched Lucent. But currently, Shah says, CFOWeb’s stable doesn’t include the banks Lucent employs in its foreign exchange transactions. “Until they get some of those banks, we won’t use their system,” he says flatly.
Moreover, a number of those relationship banks have transaction Web sites of their own. While many treasurers concede it would be more convenient to go to a single finance portal, it remains to be seen if banks will offer better prices on a third-party Web portal than on their own sites. And some treasury managers say conducting trades the old-fashioned way — by phone — is far from a Herculean task. “We have direct lines to all the FX banks we deal with,” explains Fred Shacknies, an FX and money-market trader at Lucent. “It’s as easy as pushing a button.”
This general lack of Web enthusiasm from some treasury managers illustrates one more hurdle for finance portals. “There’s a lot of inertia out there,” says Mainspring’s Latimore, who notes that it’s difficult for CFOs to measure how much they can save by using a Web marketplace. “Without the impetus that comes from measurability, they don’t have a lot of incentive [to use the Web].”
That’s not to say finance managers aren’t interested in finance portals. Far from it. In a recent survey conducted by the Association for Financial Professionals, more than half the treasurers polled said they would be likely to use the Internet as a one-stop shop for financial services — if such sites existed. As Latimore notes, “At some point, the Internet is going to shrink margins as information becomes more widely available. That will ultimately mean a better deal for the corporate customers executing these trades.”
CFOWeb’s vice president of worldwide marketing, Bill Clark, is also quick to point out that his company’s portal offers other features, such as bulletin boards and chat rooms. “This is about building a community of users,” he says.
Of course, it’s unlikely that bulletin boards and chat rooms will turn the head of the typical corporate finance manager. Online portfolio and risk management software — which CFOWeb will offer free — just might. In fact, managers at CFOWeb.com’s owner, Integral Development Corp., developed trading and risk management software for J.P. Morgan, Merrill Lynch, Canadian Imperial Bank of Commerce, and Citibank before deciding the program would prove more lucrative as the centerpiece for CFOWeb.com. (The site will make its money from monthly charges and transaction fees levied on participating banks).
CFOWeb’s portfolio is designed to capture online trades as they occur, allowing the user to store cash management data in a single location. The setup not only enables treasury managers to assess value at risk using tools provided by CFOWeb, but should also aid finance departments in complying with FAS 133 and other accounting requirements.
An online portfolio, says Keane, drives the repeat business Web sites need. “The [portals] that will be successful will have a recurring revenue stream and offer multiple services,” he says. As of May 1, managers at CFOWeb.com claim the site has 2,300 “registered users.” But since visitors pay nothing to use the site, it’s unclear if this number has any real significance.
TreasuryConnect’s potential customer base includes only about 300 corporations, government agencies, and financial institutions that are active users of interest-rate and currency swaps, says CEO Usher. The system has been demonstrated to about 50 users, he says, but only about 10 are “ready to use it.” The site’s trading system is designed to streamline swap quoting and execution by moving it online. But Usher says TreasuryConnect is not intended to completely replace telephone communication among banks and corporations. The site also offers reports that detail trade activity — a useful negotiating tool for companies that dole out swaps to banks holding their credit lines.
At TreasuryPoint.com, the chief attraction is a cash management analytical tool called the Optimizer. Based on investment guidelines and borrowing parameters set by the user, the Optimizer analyzes a company’s opening positions and forecasts and generates a short-term investment solution that yields the best return at the lowest cost.
While sites such as TreasuryConnect, TreasuryPoint, and CFOWeb probably come closest to the idea of a CFO portal, these sites specialize in short-term financial instruments. CFOs still must seek out other online sources for obtaining lines of credit, issuing commercial paper, and buying and issuing bonds. A true CFO portal would offer all finance functions in one place.
This is not a matter of mere convenience, either. The Holy Grail of online financial services is straight-through processing, or STP. Typically, STP refers to true integration between a Web site and the computers used by the bank or service provider at the back end. Such integration is no snap — yet another reason why many CFO portals are still in the testing stages.
“[Much] E-finance is akin to a lot of people standing on boxes, flapping their arms, claiming to be flying,” says Jon Orban, president and CEO of CompanyFinance.com, which matches small to midsize firms with lenders who provide business loans of up to $100 million. Orban notes that the 133 lender-members of CompanyFinance.com’s Intelligent Lending Network went through a “substantial integration effort.” In fact, the company sends loan requests electronically only to lending institutions whose financing criteria closely match the borrower’s needs. He claims that most loan sites in the B2B space currently collect borrower data online and then “blast fax” or “spam” the data to multiple lenders.
Prudential Volpe’s Keane agrees. “It’s one thing to execute a transaction. But that trade has to go through on the back end and reconcile.” Real-time quoting will be important, Keane says, but transactional fulfillment is critical. That was a major concern for Lucent’s Shacknies when he evaluated CFOWeb.com. “Options, swaps, and money markets are easier to implement because timing is not as critical for those markets. Timing is more of the essence [in spot FX],” he says.”
So for now, finance managers have to wait for a portal of their own. When exploring the fledgling finance sites that are up and running, Keane suggests that CFOs ask prospective providers about their level of integration with suppliers. “The more research you do,” he says, “the safer and better off you’ll be.”
Tim Reason is a staff writer at CFO.
What’s Out There
The Web offers a mixed bag of financial sites. Institutional investors have the most opportunities to do business on the Net now, while few of the sites designed for CFOs can actually handle transactions yet. Here’s a sample of Web resources that are notable for the financial services they provide — or soon will.
|Web address||Provided by||Instruments traded||Other services
|Bond.hub (Accessible to customers only via the Internet sites of its six participating firms)||Securities.hub LLC||Bonds||Syndicate-
hub. com for new-issue debt instruments
|Joint venture for institutional bond buyers, linking the extranets of Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter, and SalomonSmithBarney into a virtual community. Not specifically designed for CFOs, but proves banks can deflect threats from third-party Web sites.|
|Capital Stream Inc.||Online financing approvals||Not a Web site, but an Internet service that companies can embed in their own sites to connect customers to third-party financing sources.|
|CFOWeb.com||Integral Development Corp.||Foreign exchange, interest-rate swaps, currency swaps||Community of users, online research||To date, participating banks include ABN Amro, AIG International, Bank of America, BNP Paribas, and Standard Chartered.|
|Non- consolidated loans up to $100 million||Primarily for small to midsize companies.|
|Cpmarket.com||Prescient Markets Inc.||Commercial paper||Scheduled to launch in Q2, following pilot tests.|
|FXtrades by Currenex Inc||Foreign exchange||A multiparty, blind reverse FX auction. Launched in late April.|
|Cygnifi.com||Cygnifi (J.P. Morgan & Co.)||Derivatives||Risk management and derivatives advice from application service provider||On its own soon; J.P. Morgan plans to spin off site to attract other banks.|
|Municipal bonds||Primarily for institutional trades, but will soon allow governments to buy treasuries and agency bonds online.|
|InterVest.com||InterVest Financial Services (IFS)||Bonds||Connects corporate issuers directly to investors.|
|MuniAuction||Municipal bonds||Allows municipal governments to bypass underwriters and sell directly to brokers and investors.|
|NewMarkets International||Foreign exchange||Formerly known as Sonnet Financial.|
|Detailed trading reports||Company says trading is supported now, but STP integration is under way at only 1 of 17 participating dealers.|
|SEI Investments Developments Inc.||The Optimizer, an analytical tool to help users improve cash management||Site’s backers plan to unveil a trading platform for institutional money market mutual funds in Q3.|
Sources: CFO and Prudential Volpe Technology Group