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Driving e-commerce across industries

Munir Nanji, Citi

Global e-commerce continues to grow, revealing new opportunities for businesses and their treasury departments across the world. Asia Pacific is now the largest e-commerce market globally, offering a diverse mix of economies each with an enormous amount of e-commerce potential. In this article, Citi’s Treasury and Trade Solutions team in the region discuss the growth opportunities for companies within the expanding e-commerce space and how they are helping clients to leverage the reach of the internet and build more modern and efficient treasury operations.

Munir Nanji

Asia Pacific Sales Head, Treasury and Trade Solutions

Citi Treasury and Trade Solutions (TTS), provides integrated cash management and trade finance services to multinational corporations, financial institutions and public sector organizations across the globe. With a full range of digital and mobile enabled platforms, tools and analytics, TTS continues to lead the way in delivering innovative and tailored solutions to its clients. It offers the industry’s most comprehensive suite of treasury and trade solutions including cash management, payments, receivables, liquidity management and investment services, working capital solutions, commercial and prepaid card programs, trade finance and services.

There has never been a better or more necessary time for treasurers in Asia Pacific to start thinking about e-commerce. The region is already the largest e-commerce marketplace in the world and according to Munir Nanji, Asia Pacific Sales Head, Treasury and Trade Solutions at Citi, it could in many markets be described as the next frontier.

Today the fastest rates of digital adoption are seen in Asia’s emerging markets, where the falling cost of internet access and mobile devices are now driving exponential growth in all forms of e-commerce. Just over 20 years after US internet giant Amazon delivered its very first parcel, the world’s largest e-commerce business is no longer headquartered in Silicon Valley, but is another company based in Hangzhou, China.

“In China the biggest company in this space is Alibaba – and that business alone is bigger than the entire value of US e-commerce,” says Nanji. “India has also just surpassed the US for the number of people with internet access. So I think you have got to be in Asia if you are in e-commerce – otherwise you are not on the map at all.”

Yet, Nanji believes that despite the advanced state of e-commerce penetration in the region, there is still plenty of room for growth in emerging markets and even in Asia’s more affluent economies. “E-commerce in India has an incredible amount of potential, but also faces a lot of challenges.” In other parts of Asia meanwhile, e-commerce is hampered not by infrastructure but by the continued prevalence of cash as a payment method. However, one by one these barriers are beginning to break down across the region.

“E-commerce in India has an incredible amount of potential, but also faces a lot of challenges.”

“In India we see a lot of issues around regulation,” Nanji says “and there is a lack of fibre optic connectivity in some places too; while logistics can be a nightmare. But the way we pay is also an area of evolution here. In the US and Europe the use of credit and debit cards is widespread, but in Asia this is still growing in acceptance.”

“But internet access and mobile technology are big drivers of e-commerce, and it is forecast that there will be 117 smartphones per 100 people in Asia by 2017. That is going to drive online purchasing; it is going to drive greater use of e-wallets and the use of other mobile payment methods by consumers.”

The growth of e-commerce and the digitisation of business processes to support it present a myriad of opportunities for corporate treasurers. At a high level, digitisation offers a means to improve the way payments are made, received and reconciled by the treasury department, driving better management of working capital and liquidity. With more commercial activities shifting into digital channels, treasurers also have the chance to begin leveraging analytical tools such as big data.

However, Nanji emphasises, the opportunities – and challenges – that e-commerce presents to treasurers in Asia Pacific will not be the same at every company. The e-commerce trading model can be subdivided into a number of spheres, he points out. There are companies creating digital marketplaces, payment tools, online games; companies providing telecom and web hosting services; and companies investing in fintech. Across these spheres, the bank often sees quite different demands from its clients.

“Payment reconciliation and foreign exchange are key for online travel companies like Ctrip or Traveloka for example, and so we see a lot of demand for things like virtual card solutions from companies in this space. But then you also have retailers in China, meanwhile, who are seeing increased demand from consumers to be able to pay using mobile messaging apps like WeChat, and so they often require back-end solutions so that they can support these new consumer payment methods.”

This is where Citi’s expertise becomes a useful resource for many of the bank’s corporate clients. As e-commerce evolves into all-commerce – or all areas of commerce, at least – companies need partners that are able to understand, not only the digitisation and e-commerce opportunities within each country or market, but also within their particular business sector.

Across key sectors like industrials, healthcare and consumer goods, non-bank financial institutions (NBFI), technology, media and telecommunications, and consumer and healthcare, Citi can offer specialist advice and tailored solutions to clients. These are services that might make all the difference for those looking to leverage the financial and operational efficiencies afforded by e-commerce.

A new frontier

Portrait of Deborah Mur

Deborah Mur

Asia Pacific Industrials, Energy, Power and Chemicals Sector Head, Treasury and Trade Solutions, Citi

One example of the transformative impact e-commerce is having on Asia Pacific businesses and the treasuries that support them can be found in the industrials sector. The companies operating in this space are a diverse bunch. Some, like the airlines and hospitality and services companies, are not new to e-commerce, having conducted a majority of sales made through electronic channels for many years now. But for many other business types – shipping companies, aviation suppliers – buying and selling online is something that is only just now beginning to take off.

“It is relatively new, but e-commerce is a growing channel for these companies,” says Deborah Mur, Asia Pacific Industrials, Energy, Power and Chemicals Sector Head, Treasury and Trade Solutions at Citi. “We are seeing emerging B2B online purchasing by companies; we are seeing companies setting up procurement websites with their suppliers and, in some instances, third parties – and we are being asked for solutions.”

More and more of these companies are finding that e-commerce can be just as much of an enabler for business-to-business (B2B) transactions as it is in the business-to-consumer (B2C) world. Utilising web channels for procurement, for instance, promises similar operational efficiencies B2C enjoy: the ability to reach more customers faster and at a lower cost.

Greater operational efficiency is also being seen in the financial operations of these industrial e-pioneers, notes Mur. The industrial aviation supplier selling goods to suppliers online, for example, often boasts a faster payments cycle, better days sales outstanding (DSO) metrics, and higher rates of automation in the processing and reconciliation of payment transactions. Treasurers at these types of companies have an important role to play in assisting the procurement department. For example, they will want to ensure, first and foremost, that the payment methods being offered through e-commerce channels are the most appropriate methods for customers and the business. And how that is perceived still tends to vary market-by-market and company-by-company, Mur says.

“In some cases, companies will have an online B2B marketplace, but are settling transactions offline using traditional payment methods,” she says. “Is that the most efficient way for these companies to operate? We think we can help our clients do better.”

The next one billion

Portrait of Rohit Jamwal

Rohit Jamwal

Asia Pacific Consumer and Healthcare Sector Head, Treasury and Trade Solutions, Citi

In the consumer goods sector, e-commerce has been a disruptive force for some time and across Asia it is becoming a ubiquitous feature of the landscape. Indeed, for many of Citi’s clients this sector is now the primary focus of their growth plans. “E-commerce is centre of our clients’ Asia expansion strategy and, as a channel, it has experienced the highest growth in the last five years,” explains Rohit Jamwal, Asia Pacific Consumer and Healthcare Sector Head, Treasury and Trade Solutions at Citi.

“E-commerce is centre of our clients’ Asia expansion strategy and, as a channel, it has experienced the highest growth in the last five years.”

The segment that has seen the highest adoption of e-commerce is the fast-moving consumer goods (FMCG) sector, in particular the food and fashion industries. Increasingly e-commerce is taking a greater share of the overall market. In the largest markets in Asia FMCG online retail now accounts for between 7-10% of overall sales, and is growing between 25-40% year on year.

Jamwal says that there is a lot of talk in the sector today about the ‘Next One Billion’, a metaphor for the future of the internet – both the exponential growth in connectivity in emerging markets and the growth of next-level technology in mature markets. This trend raises a number of issues for businesses, says Jamwal. “For example, how to approach online content versus distribution in rural areas, the need to invest in partnerships with distributors to provide “last mile connectivity” and support the business – in respect to stretched DSO and days inventory outstanding (DIO) – by providing digital methods of collections.”

India, for instance, still sees 75% of e-commerce payments conducted through “cash on delivery”, something that presents significant logistical problems for businesses, not to mention collection inefficiencies. Many companies in this sector are therefore looking to the growing uptake of digital wallets in these markets as an opportunity to eliminate such inefficiencies and provide impetus to growth of e-commerce in India.

Citi is partner to corporate treasury for a “go to market” strategy, says Jamwal. “We advise clients on best in class solutions in the consumer sector,” he says. “We show them what works and what does not, what are challenges and risks embedded in each e-commerce model, what is possible in each regulatory environment. Citi leads in offering advice for best in class solutions as well as helping our clients managing risks around their online channels, cyber security in tandem with the business’ growth.”

This includes providing treasurers with solutions for handling collections online and in-store, legal entity and account structuring, reconciliation using Citi’s Working Capital Analytics and FX and Risk advisory solutions.

Disruption and growth opportunities

Portrait of Nick Howden

Nick Howden

Asia Pacific Technology, Media and Telecoms Sector Head, Treasury and Trade Solutions, Citi

In contrast to the nascent trends seen in the industrial sectors, e-commerce has long been a disrupter for Asia’s technology, media and telecommunications businesses. “The change e-commerce is driving across businesses in these industries shows no sign of abating soon,” says Nick Howden, Asia Pacific Technology, Media and Telecoms Sector Head, Treasury and Trade Solutions at Citi.

“It is forecasted that the gross merchandise value (GMV) of goods and services purchased online will increase five-fold over the next ten years,” he says. “Technology, media and telecom businesses will be major driving forces underpinning this growth story. We see digital services including content streaming, cloud and data as being pivot growth areas. Not only is the overall value of e-commerce growing significantly, but high growth disrupters demonstrate the proportion of sales made online is gaining pace faster than offline channels.”

In Asia, companies have been driven to diversify models in established markets to capture more sales and continue to be relevant to customers, whilst emerging markets are a key focus for expansion and as testing grounds to try new products. Many are interested in the possibilities of stored value solutions including e-wallets which can have a range of potential applications and a number are branching out into point of sale (POS) and fintech payment solutions as well.

Howden says that enabling a smooth checkout process for a mobile application is one of the hottest growth areas to increase sales for his clients. In China, he points out, m-commerce is growing at an astonishing rate of 70% year-on-year. Much of this growth across Asia is driven by generational “leap frogging” as people move onto the internet for the first time through their mobile phone, as opposed to a desktop, due to the falling cost of smartphones, lower cost of data, and growing connectivity of such devices.

Cash application, reconciliation and using standardised technology interfaces with bank partners are probably the most important areas for treasurers respond to business growth opportunities quickly. A primary challenge for treasurers, he says, is access to and analytics of data. “For example knowing a customer’s payment preference in a particular country can help the business grow but the payment data generated will influence cash application, credit control and reconciliation processes. Companies are asking for standardised data in order to automate order fulfillment processes in as close to real-time as possible.”

There have been some significant developments in this area in recent years. One example is faster payment schemes, such as Singapore’s Immediate Payments G3 scheme, which was launched in 2014 and supports credit transfers and direct debits with a mainly C2C retail application at the moment. Similar payment infrastructure initiatives have also been seen in Australia and India.

On top of upgrades to ageing payment infrastructures, treasurers in this sector have also been driving standardisation. Lean treasury teams in the tech sector are always facing pressures to centralise, consolidate and standardise systems and processes.

However, geographic expansion can sometimes result in a high degree of inefficiency as banking relationships and the different processes associated with each relationship threaten to multiply.

One thing Howden says his clients really value from their relationship with Citi, is the ability to roll-out new businesses to new markets in a relatively short space of time. Advances in bank-to-corporate communication processes, like the industry’s adoption of the ISO 20022 XML standard for payments and reporting is certainly an important facilitator of this trend. But treasurers also want to feel confident they will get a consistent user experience and data set however they choose to access services and in whatever market they operate in.

This, explains Howden, is of crucial importance for the big billers in the technology, media and telecom sector. “Very lean organisations are focused on the next thing: they don’t want to spend time and IT resources connecting with different banks using different standards,” he says. “Choosing a bank with a broad footprint, and consistent network, enables standardisation. The use of virtual accounts for cash application and reconciliation is common. Whilst for outgoing payments, if I send an XML payment file and something goes wrong e.g. the beneficiary account number was incorrectly entered during an online registration process, then I need a standardised report explaining what went wrong. E-commerce companies typically have huge volumes of payments so reject rates can be a huge operational issue. Standardisation helps to identify what went wrong faster and with less manual intervention.”

The rise of fintech

Portrait of Damian Macinante

Damian Macinante

Asia Pacific Non-Bank Financial Institutions Sector Head, Treasury and Trade Solutions, Citi

Given the speed and ease with which financial information can now be transmitted digitally it is perhaps little surprise that another of the key sectors in Asia Pacific where Citi is seeing e-commerce taking a very strong hold is financial services.

Damian Macinante, Asia Pacific Non-Bank Financial Institutions Sector Head, Treasury and Trade Solutions at Citi, says that Citi’s clients in the non-bank financial sector have adopted e-commerce business models across the board in recent years. It is a trend that has afforded many different types of financial services companies the ability to re-align processes that would otherwise be hampered by manual processes.

“It really started with the fund managers and brokers,” he says. “They were the ones who first saw how digitisation was going to change the game. They saw an opportunity to reach a far bigger market, and the readiness of their customers to move to trading or investing online rather than of picking up a telephone, for example.”

If you look at trading trends we see continued electronification of trading across all asset classes and as a result as electronic trading increases, average trade size decreases and number of trades per day increases,” he adds. This does however vary depending on the sophistication. At present, approximately 90% of global equity trades are executed electronically versus 20% of OTC derivatives. Citi expect this to increase to 75% by 2020.

For these types of companies, it also provides an avenue for reducing costs for the same service usually offered via direct contact or intermediaries. The online products of insurers, for example, can be made available at a substantially lower cost, especially when agents or brokers are disintermediated. This in turn can popularise householders’ insurance, health and accident policies etc. “If available online and at a lower cost, people may start buying cover they traditionally didn’t have or thought was unaffordable or excessive,” says Macinante.

“We support our clients in this space by doing a lot of work on analytics, helping them to get a clear view of all the transactions coming through our system.”

“Take fund managers, for instance,” he says. “They are now able to articulate immediately what their products’ performance is for their funds. That allows investors to configure their portfolios to local regulations through the platforms themselves where historically they would have had to have spoken to an advisor who is abreast of all the new regulations. Now they have the ability to do it themselves.”

Of course, in order to leverage all the increased flows and additional information obtainable today through digital channels, companies require sophisticated analytical tools without jeopardising governance and controls. To meet this need, Citi offers analytical tools that deliver enhanced visibility across banking processes, helping treasurers to achieve greater operational efficiencies through the conversion of manual processes and greater end-to-end automation.

“We support our clients in this space by doing a lot of work on analytics, helping them to get a clear view of all the transactions coming through our system. This then helps clients to operate straight through and see how they are represented in multiple countries and from a cash management perspective, for example, conduct comparisons between payment mechanisms.”

Citi also provides risk management tools. “A monetary transaction is taking place and our clients need to have control over that,” he says. “It is important then to offer clients the ability to have oversight on the transactions they are generating and enable them to use our system to automatically identify payments that are not part of their normal transaction flows. This allows them to have a second line of defense in case there are internal breaches.”

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