This issue’s question
“To what extent is treasury being changed by consumer behaviour?”
Mina Nasif, Corporate Treasury Consultant, CTP Instructor, Beacon Consulting/Mina Nasif & Associates:
Treasury and consumer behaviour are two sides of the same coin; technology is the bridge. Within a corporate finance function, I believe treasury is the most affected by technological change because as obsolescence arises through the introduction of new consumer technologies, it falls to treasurers to bring on board new solutions to meet both the consumers’ and the business’ payments and collections needs.
With digitisation becoming the strategic imperative to meet these needs, companies will focus more investment on digitising their customer interfaces. But their R&D investment in digitising their back-end systems and processes should receive no less attention. This is because the back-end can be the greatest driver of profit-margin improvements for many companies; it’s what makes consumer payments easier and it helps the business gather data, keeping clients loyal.
In fact, the evolution of big data retail analysis systems has made it possible to implement sophisticated pricing structures, right across the business. Such intelligence is critical to maintaining the balance between revenue and margin. It doesn’t mean a race to the lowest price – not everyone can be the cheapest – but it is about pricing and stocking correctly and as often as possible.
As consumer preference for digital over physical shopping rises, we see ever-larger turnovers for Amazon, AliExpress, Best Buy and others. Technology is clearly opening up new business opportunities and channels, particularly in China where e-commerce growth is driving huge changes. But it brings a new set of challenges for businesses.
When dealing with digital payments and service providers, whether the business sets up its own account with AliPay or WeChat Pay, or it uses a service provider or distributor as an intermediary, there is a cost. Where intermediaries are used for B2C businesses, there is an additional concern in some jurisdictions about the regulation of these intermediaries and how data is protected.
With 24/7 sales via these platforms, there is also a time component to consider, both from a supply chain and a cash management perspective. Finally, there is lot of data being produced, and this must be used in the right way to develop insights that help businesses drive better consumer relationships in the face of stiff competition.
I believe that e-commerce has an impact on the entire business model. Where companies previously packaged products in pallets to go to distributors, increasingly they ship directly to consumers, demanding a rethink of the packaging and delivery model. But digitisation also demands a response to the fact that it is no longer just the company that sells; influencers on social media, bloggers, celebrities are all now playing a role. If a blogger calls out a particular beauty product, there is a spike in demand. You can’t plan for a disparate host of influencers deciding to talk about your products, so it becomes very difficult to anticipate consumer behaviour and demand. Treasury needs to make sure it can support a supply chain that is becoming more difficult to predict and that means getting much closer to the business. Consumer behaviour is having a major impact on the shape of treasury!
Antti Kyyrö, Executive Director, Treasury Solutions, Europe, Standard Chartered:
Many argue that there has never been a better time to be a consumer than today. Advancements in mobile connectivity, global internet penetration and the general falling cost of technology are empowering the consumer through price and product transparency and access to marketplaces.
Disruption to businesses is set to continue, as commercial success increasingly hinges on the ability to follow rapidly shifting consumer trends. Companies need to function as cohesive teams to be able to provide seamless, personalised on-demand customer experiences available 24x7x365.
At the same time, from an external perspective, demographic shifts such as millennials’ preference of experiences over products and the rising importance of emerging markets increase business complexity through the need to localise vs the traditional lift and drop approach to global business.
What does this mean to treasury? No industry or individual business function is isolated from the impact of technology and how it reshapes the interaction with customers and the wider market.
Take the typical example of a business moving from a bricks and mortar reseller model to a direct local online sales model. Treasury will now need to insource many of the treasury tasks that were previously assumed by the reseller. Among other things this requires providing a payment gateway solution to support various local payment options from traditional cards to mobile wallets to instant payment systems possibly connected to your TMS or ERP through APIs in real time. The treasurer will also need to find ways to manage the associated FX requirements and develop a liquidity management model that will allow selling an imported product to a local end consumer without material increase in costs and complexity. The online model may need to be further enhanced with various ancillary services such as customer financing or insurance that the treasury team will need to deliver.
For some consumers the rise in a sharing economy has taken away the need to own physical products altogether. Whilst there are various examples of this from clothes to even pets, most obvious is transportation. Ride hailing companies have shown how a seamless on-demand experience may shift consumer preference through convenience. Some even argue that the decline in young people acquiring driver’s licences in the US over the past years is due to the availability of ride hailing services.
The shift from selling a physical asset to providing a service will have fundamental implications to the corporation and their treasury department. Instead of managing large collections from a few distributors, treasury now needs to set up cash and liquidity management processes for fragmented local cash flows from single service transactions via various channels. AI applications and predictive analytics are increasingly utilised by treasurers in managing this growing complexity of creditor relationships and the associated risks. In the broader finance context, treasury may also need to seek ways to optimise capital structure through SPVs and various asset light funding models to manage balance sheet size.
The above are just a few in a sea of examples of how consumer behaviour is driving end-to-end business transformation, but what they imply is clear, great products are not enough. Treasurers’ role in providing the latest cash management technology to the business directly serve the overall customer experience and convenience.
Often these solutions, such as the ability to settle real-time in an online environment or providing automated FX hedging solutions, are critical to the overall sustained success of a new business model. In addition to understanding the local markets and their complexities, leveraging technology, such as APIs and predictive analytics, are key enablers in becoming a strategic partner to the business. Long gone are the days of deriving treasury success from a reactive ivory tower approach through rigid policies, processes and governance only.
Stefan Leijdekkers, Head of Regional Sales, Asia Pacific, Global Transaction Services, Bank of America Merrill Lynch:
Global smartphone penetration has increased steadily in the past decade. Today, according to the Forbes article published in August 2017, “How much time do you spend using apps?”, we see US consumers spending an average of five hours daily on their smartphones, carrying out most of their daily tasks.
The mass adoption of smartphones has also reinvented commerce. We’ve seen the growth of ecommerce in the past decade, giving rise to the change in consumers’ behaviour and expectations. This has facilitated the growth of mobile wallets, contactless payment modes, payments via QR codes and so on, where consumers can simply pay by waving their smartphones across point of sale (POS)/near-field communication (NFC) terminals in retail stores.
With the widespread adoption of digital technology, educated consumers are seeking enhanced convenience in payments, with the emphasis on speed and flexibility in the way they pay for their purchases. This has urged merchants to reconsider their business model and provide payment acceptance platforms that support mobile payments.
Furthermore, the increased focus on security measures for making such digital payments has also contributed to the level of comfort, facilitating such digital payments. Treasurers need to adapt to the changes and have a mobile strategy, especially (but not only) in B2C business models.
The exponential growth in the e-commerce market over the last few years, coupled with demographic shifts and the emergence of tech-savvy millennials into the workforce, have seen a change in consumer patterns. Consumers are beginning to shop more actively in real time and on the go, as compared to traditional brick and mortars.
Retail businesses now have to revamp their business models and explore an ‘omni-channel’ retail model where their customers are able to enjoy a seamless shopping experience, both online and offline in the physical stores.
With increasing consumer preference for online shopping, the ability for a merchant to facilitate seamless online payments becomes crucial. Consumers are moving away from cash payments to online payments as part of the online shopping experience. As a result, it is imperative for treasurers, also beyond the typical e-commerce players to add to e-commerce channels with payment capability linked to ERP systems via application programming interfaces (APIs).
With the migration from paper to electronic payments, a payment no longer signifies the closure of a successful business transaction. On the contrary, it opens up doors to many more business opportunities by leveraging the accompanying data from aggregated payments. A digital payment allows merchants to capture payer information or details from the underlying payment transaction as compared to a cash payment where there is no personal information required or involved in the transaction. As a result, the treasury function today is no longer viewed as a utility function, but one that is able to value-add by providing a wealth of data analysis to identify business growth opportunities and formulate business strategies going forward.
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