How organisations are doing business is changing and this is having a sizeable impact on corporate cash management.
Across the world, a business revolution is well under way, a revolution that is seeing ‘traditional’ businesses being disrupted by the rise of ‘platform businesses’ who use technology to connect corporates, individuals and resources for the exchange of physical goods, services or information.
Not only is this disruption changing how organisations operate internally, its impact flows through the entire supply chain, blurring the lines between producers and consumers.
And for the corporate treasury professional there are some new challenges that must be considered around how to manage cash and payments, and the tools required to do this.
Online social network Facebook is perhaps one of the most striking examples of a platform business. On Facebook, an individual can be simultaneously a producer or consumer, depending on whether the user is posting or reading content from others, resulting in two-way interactions between participants.
Shirish Wadivkar, Managing Director, Global Head Payables & Receivables, Transaction Banking at Standard Chartered comments on how initially most platform businesses started out as e-commerce companies, where physical goods were offered via a portal such as Amazon. “This eventually evolved into e-marketplaces, allowing for the exchange of goods and services between individuals, eBay, for instance,” he says.
The sharing economy has also blossomed in parallel, whereby platforms for sharing or renting of assets from other individuals, such as Uber or Airbnb, have grown in number and size exponentially in the past decade. “Today, we regularly hear or read about the rise of the gig economy, and platforms such as TaskRabbit, which matches individual short-term labour supply with tasks,” says Wadivkar.
Behavioural changes
Clearly, when compared to traditional businesses which are generally organised as “pipes”, where goods or services are transformed along a linear supply chain process, platform businesses have different buying behaviours and payment characteristics.
Most notably, platform businesses usually need to process low value, high volume payments and invoicing and payment are typically electronic.
“In a pipe model, payments tend to be aggregated for execution in fixed time periods and generally are preceded by a legal contractual arrangement. On the other hand, the payments for a platform-based model are generally fragmented and have to behave as ‘always on’,” explains Wadivkar.
To provide an example, in traditional businesses, salaries are normally paid on a fixed schedule and are constant in value. Compensation in the platform economy is ad-hoc with a varying value for each ‘gig’.
Cash management evolution
To meet the demands of the platform economy, the payment world is changing. “Non-bank e-payment service providers have likewise grown to meet the demands of such businesses,” says Wadivkar. “For example, Alipay, the payments arm of Chinese e-commerce giant Alibaba, has grown to become the preferred payment method for most Chinese consumers, much more than either cash or cards.”
But banks are looking to do their part as well. “Banks need to have an in-depth understanding of corporates’ and consumers’ requirements to stay competitive,” he says. “For a large multinational corporate conducting e-commerce business in multiple regions, this may mean requiring a portal which allows customers to pay in any payment method, without having to deal with the complexity of managing multiple merchant acquirers or payment service providers. Such conditions are ripe for API banking, leading to standardised, seamless machine-to-machine payments, which execute “on-demand”. Banks have to rise to the challenge of API banking – which would be crucial in delivering for platform-based open-model businesses.”
Indeed, Wadivkar believes that solutions such as this will be increasingly important for corporates seeking to grow their e-commerce business in regions with highly fragmented regulatory landscapes, such as ASEAN.
For an individual in the gig economy or a leasor in the rent economy, this may translate into a need for a low-cost seamless “pull” payment capability, allowing them to request for a payment via mobile or other channels in a seamless authentication process without compromising on security.
Unsurprisingly, cutting-edge technology like blockchain is also seen to have the potential to transform this space. “These technologies will also play an important role in creating trust and efficiency in the decentralised and multilateral platform economy,” concludes Wadivkar.
