30 July 2002 Electronic Data Interchange (EDI) service providers – often viewed as ailing suppliers of legacy services – are planning a wave of investments in an attempt to capture what they believe to be an emerging market for electronic payments services.
This month, Ohio-based Sterling Commerce, launched its first EDI e-payments system called ePayment Gateway, which it says will give it an edge over Internet based service providers.
Now, Global Exchange Services (GXS), formerly a business unit of General Electric (GE), says it plans to make a major acquisition in this area within the next 12 months. “Electronic payments will be the next big thing for electronic data interchange (EDI) networks”, said Harvey Seegers, CEO of GXS.
Currently, business-to-business (B2B) payments are only conducted electronically between the various businesses banks. But companies that transact electronically still use paper cheques to notify their partners of payment, says Seegers. EDI vendors now believe that there is market opportunity for EDI vendors to provide electronic payment notifications and remittance using their B2B EDI networks.
E-payments is expected to be one of the major battlegrounds between the surviving giants in the EDI sector – a battle that has been made more intense following the venture capital funded buy-out of GXS in June. Francisco Partners, a technology buyout specialist, bought 90% of the company in a deal valued at $800 million (€799.5m). GE will retain 10%.
Free of the GE bureaucracy and with access to $5 billion of Francisco’s spending money, analysts expect GXS to be much more aggressive. Its role as a minor division within the GE conglomerate stifled the company’s ability to advance its technology, according to Giga Information Group analyst Ken Vollmer.
Seeger’s plan of action is to acquire an e-payments company as well as another EDI company in 2002 to build up GXS’s core EDI business. The next step will be to acquire an application integration vendor so as to improve the company’s integration capability, says Seeger.
Giga’s Vollmer – who says that GXS is the only major EDI services provider without a comprehensive application integration tool – suggests that Tibco, WebMethods, Vitria, SeeBeyond and Mercator are all potential targets.
Seegers says he will also consider acquiring one or more small web services technology companies. However this last phase will not begin for another four to five years, he says. Francisco is planning to float GXS on the stock market by 2005.