e-Commerce, e-Credit & e-Law: An Update

Our daily jobs as credit professionals are ever changing.

During the past two years, I have been privileged to visit a number of cities within "American The Beautiful" to speak to professional groups on the changes thrust upon the credit profession by e-Commerce and the Internet. Also, several of my articles on the subject were published by Business Credit magazine, CRF and on several corporate and NACM-Affiliate web pages.

During the past six to eight months, we have witnessed the sometimes spectacular descent and demise of several high-profile start-ups including: eToys, WebVan, Covad Communications, Napster and Excite@Home Fueled by venture capital that was readily available 2-3 years ago, these internet-based firms soared to zeniths never before imagined in business. Annual growth rates of 300% and more came to be "old news" within the e-commerce community. Many people were caught up in the euphoria of "internet fever." The cry became, "there's gold in Silicon Valley!" The "gold-rush" of Silicon Valley has been likened to early California's gold rush which ran for five years from 1848 through 1852. Like the first gold rush, the modern-day gold rush also spawned numerous millionaires and a few billionaires. Unfortunately, many of the Nuevo-riche were only "paper millionaires" who watched their "fortunes" evaporate during the past year.

Selling product and services via the internet was seen as the "new business revolution." E-Commerce or dot-com business as it quickly became known was "the" place to be, to work, to find adventure, to seek fortunes, and to build something from a simple idea - often written on a bar napkin and to learn. The dot-com companies and their "new pioneer" employees were easily identified. The employees, from founders to shipping clerks were mostly 20 to 30 'somethings.' Maturity and experience were something to be looked down on by this group. The "pioneers" made it up as they went along and expressed disdain for the "old economy" models (aka: brick and mortar) that had driven businesses for generations before them. The "new economy" models were created to fit dot-com business demands. Consumers who used the "Net" in its fledgling days became spoiled and jaded. They quickly became too accustomed to finding products or services "online" that could be purchased with a few clicks on their keyboards or by pointing the cursor at products to fill their "shopping carts." Within a day or two, the purchased products arrived on their doorsteps. Gone were the days of driving to the mall and walking through stores to look at merchandise. It could almost all be done electronically and consumers loved it! So much in fact, they began to search for the same "quickness" in making business purchases. So enamored with the new found freedom of buying, they willingly overlooked some of the early logistical problems of delivering their purchased goods. Consumers loved the idea of being able to buy things on a 24/7 basis.

Traditional brick and mortar businesses who sought to capitalize on the new revolution, learned quickly that their long-used business methods were not easily transferable to doing e-commerce business. They also learned that some products are not easily sold via the Net. Many start-ups learned that one product did not make a market and that revenues did not necessarily equate to profits. Others learned that products and customers still mattered and that It wasn't just about keeping Wall Street happy. I think everyone will agree that E-Commerce changed the business world. Just not how we had imagined that it would.

Credit professionals around the world felt the initial impact of dot-com business when confronted with demands for product and services with little or no basis for credit approval. Clearly, the tried and true credit decision making processes credit professionals were so accustomed to using didn't meet the demands of e-commerce. In an effort to meet these demands, credit professionals began looking for software solutions. Results appear to be mixed. Early B-2-B credit decision and risk analysis software was adapted from consumer credit software solutions originally designed for credit card, mortgage, auto lending companies and for determining credit bureau ratings. However, there are a limited number of software solutions on the market that seem to meet the full needs of commercial credit professionals. Due to the limited available solutions, many credit professionals are taking a closer look at their existing ERP systems to determine how the systems can be better utilized. It is an unfortunate, but sad truth that many firms expend large amounts of resources to purchase and install ERP systems and end up using only a fraction of its capabilities. A leading SAP consultant stated that in his opinion, "companies use only an about 25% of the capabilities their ERP systems." This same consultant indicated that there are various reasons for this under use: lack of knowledge of the financial module by installation consultants and lack of training after installation or upgrade are two of the most common. Many credit professionals have found User's Groups for their ERP system to be invaluable in learning how to better utilize their systems credit modules.

In addition to the challenge of keeping pace with growing demands for shortening the credit decision making process down to mere seconds (remember the "good ole days" when a credit decision took upwards of 5 - 10 working days?), credit professionals have been coping with digital signatures, "e-bankruptcies" and electronic document imaging and management.

California's Electronic Uniform Transaction Act went into effect in January, 2000. Many states followed with their own versions. The Electronic Signatures in Global and National Commerce Act became U.S. law in October, 2000. Simply stated, these laws have made it possible for businesses engaged in interstate or foreign commerce to recognize and/or enforce contracts created and signed electronically. As you might expect, a growing number of firms have provided online services for registration, authentication of "electronic signatures" and website security. While Verisign is recognized as the pioneer in this field, other firms such as Truste, Entrust, Netegrity, iisProtect, Saflink and Valicert were soon providing a wide range of services to B-2-B customers.

The bankruptcies of numerous dot.com firms during the past two years has presented new and interesting challenges to creditors and bankruptcy courts. Many of the dot.com firms filing for protection under the U.S. Bankruptcy Act had little in the way of assets. While this was not particularly surprising, what was a surprise to many creditors was the value debtors placed on their "customer lists." One such case that captured the attention of the media and credit professionals was Toysmart. Toysmart began operation in January, 1999, advertising, promoting and selling toys online. When the company filed Chapter 11 on May 20, 2000, it stated trade debt of $12 million. Shortly after the Chapter 11 filing, Toysmart announced plans to sell off its assets, including customer data and advertised in the Wall Street Journal. The company believed that the customer information, which included names, billing information, addresses, order history, family profiles and credit card numbers, was worth millions. However, on its web page, Toysmart had "guaranteed" customer privacy. The FTC sued Toysmart for what it called deceptive trade practice, charging that the dot.com misrepresented to its customers that it would never share information with third parties. The FTC action was quickly followed by objections filed by 39 state Attorneys Generals. In Janaury, 2001, Buena Venture Internet Group, a Disney subsidiary and 60% majority Toysmart shareholder, paid $50,000 to the bankruptcy estate to have the customer list destroyed. Judge Carol Kenner who approved the transaction imposed the restriction that the customer list could not be physically transferred to Buena Venture Internet Group, rather was to be retained by Toysmart for later destruction. It remains to be seen if the FTC will become involved in future dot.com bankruptcies if the sale of "confidential" data is again attempted.

Electronic Bill Presentment and Payment (EBPP) has been a highly touted tool for the credit professional. Early adopters of this new technology were telecom and utility companies. These companies envisioned huge savings in print and mail costs by providing customers a means of receiving and paying their bills online. However, the early projections for growth of this e-commerce industry niche haven't been achieved. While many commercial organizations see the benefit of online billing and settlement, they have not been able to justify the associated costs of acquiring software platform solutions or outsourcing the services. Some lower cost alternatives include emailing or faxing invoices directly to customers directly from your business system. These solutions may not be as glamorous as those online or web-based, but are still better than snail mail.

Our daily jobs as credit professionals are ever changing. In the '70's, we were challenged to utilize mainframe computers and to understand the output of over night "batch-balance" processing. During the '80's, PC's appeared on our desks and a few "portable" computers were being used. Does anyone remember 286 MHz speed;" floppy disks? Perhaps the use of the new-fangled "portable" computer was limited by an average weight of 20-25 lbs and a size comparable to a weekend suitcase. We also struggled to learn the limited capability of word processing and spreadsheet programs. Does anyone remember DOS commands? The '90's brought us faster desktop PC's, networking, easy to use software for word processing and spreadsheets, light-weight laptops, email and finally the Internet and a myriad of web-based platform solutions.