The e-invoicing opportunity that the banks are ignoring revisited
Recently, we published a piece about the e-invoicing opportunity that the bank have been ignoring. You can read it here. It was met with a large and polarized response. There were those that agreed wholeheartedly that the banks appear to have ignored e-invoicing, those that believe they’ve done so with good reason and those that believe the banks have responded to the opportunity. I was especially pleased and flattered that both Jason Busch and Peter Smith – men whose opinion is always worth listening to – took the time to pen robust arguments, one in support and the other disagreeing with the views expressing in Purchasing Insight.
It is true that the banks have explored e-invoicing, JP Morgan and RBS are just two examples. But the investment is paltry compared to the investment made daily in other parts of the banking world. The opportunity that they’re missing is not the one about jumping on the increasingly attractive bandwagon of P2P – that’s the B2B and technology innovators game. The opportunity they are missing is the opportunity to destroy their transaction business – before someone else does it for them.
How e-invoicing changes the game
e-invoicing isn’t analogous to e-procurement. e-procurement was a great innovation that allowed the purchasing process to be simplified. In the early days it allowed much of the process to be delegated to end users freeing buyers’ time and it evolved into a user friendly front end to a fairly complex set of processes. It bolsters compliance and supports and embeds strategic sourcing initiatives. The world of purchasing is much better because of e-procurement – but it is only better – it’s not really that different. e-invoicing doesn’t just improve things, it changes things – fundamentally.
Consider a simple example. Take two organisations, one a supplier and the other a customer but the supplier also buys from the customer. They are both customers and suppliers to each other. They could send each other invoices and pay them individually or, if they were smart, simply calculate the net amount owed in whichever direction and pass a single payment. In the paper world, this might make some sense because it will reduce banking transaction costs but for tax purposes, the invoice process would remain the same. They would still have to pass the physical paper invoices back and forth. In an electronic world however, the invoice process could be automated very easily because we’re just dealing with data.
So far so good, but this arrangement isn’t going to achieve a great deal because there are only two parties involved. Where is gets interesting is where you have a whole industry that is buying and selling to each other. If you could automate the invoice flows and net the payment, the supplier network becomes much more than an invoice hub. It has transformed into a clearing service.
Invoices are like dollar bills. When they are approved, they are promises to pay and there is a huge opportunity in some industries to disintermediate the banks by building a clearing services that reduces bank charges and simplifies the flow of cash around an entire industry. This is the opportunity that the banks have ignored.