TradeCard News Article

TradeCard proves not all B2Bs are DOA
The Deal.com

September 11, 2001 - If TradeCard Inc. has anything to do with it, "Survivor II: the B2B Comeback" will soon be playing at a theater near you.

The New York provider of financial supply chain services has not only survived the sector's crash but appears to be thriving. As early as Sept. 10 it will announce a $25.5 million equity financing, its third infusion led by its majority shareholder New York private equity firm Warburg Pincus llc. The market valuation is lower than its previous round in March 2000, but company executives, who didn't seek outside financing, said Warburg's return is nothing short of a blessing. "For us to raise $25 million in this market from an organization of Warburg's size and reputation is a testament to their faith," said Kurt Cavano, TradeCard chairman and CEO.

The deal gives Warburg 74% ownership of the company, with the rest held by Japan's Mitsui Corp., Mitsubishi Corp., Softbank Corp. and TradeCard employees. This brings TradeCard's funding to $70 million total, about 80% of which has come from Warburg.

Maurice Lefkourt at New York's Willkie, Farr & Gallagher advised Warburg in the transaction, while Charles Uniman and Deirdre Pierson of Brown Raysman Millstein Felder & Steiner llp, also of New York, represented TradeCard. Unlike most other B2B plays, TradeCard has been around since 1994, originally as a stand-alone software project sponsored by the World Trade Centers Association to handle large, cross-border transactions. Warburg backed its launch in 1999 as an independent company, offering Web-based fulfillment and settlement services, such as letters of credit, for buyers and sellers.

Warburg partner Cary Davis said he doesn't view the company mainly as a B2B, e-commerce company, although TradeCard did pursue opportunities with B2B marketplaces and online exchanges in the heyday of Internet hype. "We weren't out to create a new way to sell plastics," he said. "This was a natural evolution in providing letters of credit with a more efficient means of doing international payments."

The company provides an electronic platform hosting a suite of financial settlement products that enable buyers and sellers to cope with complicated domestic and international financial transactions. The overall transactions market is huge, but in an economic downturn, there are sizable potential savings in settlement fees and costs for a corporation, Cavano said. According to Cap Gemini Ernst & Young llc of New York, which conducted an independent benchmarking study, a demonstrated product such as TradeCard's can result in savings of up to 1% of company revenue.

Even as B2B marketplaces joined the dot-com death march, TradeCard has been successful in signing up customers including International Playthings Inc., RadioShack Corp. and Wolverine World Wide Inc. and South Korean manufacturing group SK Global.

But it has a way to go. One of the biggest challenges for TradeCard is educating the marketplace, Cavano conceded. One way of doing it is by being an outsource supplier to banks that can use the product under their own label.

To that end it has partnered with a dozen banks so far, including FleetBoston Financial Corp., Dime Bancorp Inc. and Comerica Inc.

"Their biggest competitor is in fact the old way of doing transactions through LCs," said Davis, referring to letters of credit. "You get an inch-high stack of papers, and about 70% to 80% of LCs have discrepancies that are usually related to typographical errors."

TradeCard is hardly unique in targeting the financial supply chain area. One potential competitor is London-based Bolero International Ltd., which is owned by Swift, a Belgian-based industry-owned cooperative providing secure messaging services.

Banks, including Citigroup, often have their own in-house tools. In fact, Citigroup joined forces with Germany's SAP AG to develop the Orbian credit system to settle transactions online.

Large enterprise software giants, such as SAP and PeopleSoft Inc. offer their own products, while B2B software companies such as i2 Technologies Inc. of Dallas and Ariba Inc. of Mountain View, Calif., plan to do the same. Cavano, however, views the likes of SAP as potential partners whose technologies can be integrated with TradeCard's. But Cavano said TradeCard does have an edge over competitors in that its products cover the entire process from beginning to end.

"There are lots of products that offer point solutions in the financial supply chain, addressing only a part of it," said Rich de Moll, a vice president at Cap Gemini Ernst & Young. "TradeCard's approach is different. They have edge-to-edge solutions across enterprises, trading partners and transaction processes."

TradeCard's system also offers greater flexibility on the exact timing of settlements. Most other systems are time- triggered payments system based on calendar dates, Davis said. TradeCard's product can trigger payments based on events that are not time-related, such as when goods are received, inspected or 30 days after the goods are received, he said.

"That compliance engine is one of two core technologies the company has," Davis said. The other is the technology around the management of the payments process.

Cavano declined to disclose revenue figures, but to date, the company has signed up about 200 companies, mostly in toys, shoes, apparel and electronics sectors, as well as about 600 individual users. It is processing $45 million worth of purchases in the system, and "The volume has been growing 25% to 50% a month," Cavano added.

Revenue comes primarily from a flat fee of $150 for processing each transaction, a price that Cavano said is a significant discount from the typical fee of around $750 for an average international deal. In addition, it has sales from licensing software.

Is he concerned about the uphill battle B2B players face? Apparently not. In fact, he claims to be grateful for the economy's poor state.

"A year ago, I had one or two banks. Today, I'm signing up one or two customers a day," he said. "Right now, we're in a steep growth curve, and the ramp is amazing."