For many companies, digitising their business model involves a simple move online. For others, especially customer-centric businesses, new platforms powered by digitisation involve root and branch transformation. J.P. Morgan’s Lia Cao explains how and why treasury can lead the way.

Lia Cao

Managing Director and the Global Co-Head of Corporate and E-Commerce Sales & Solutions

Seismic changes are brewing in the car industry as digital disruption sweeps aside today’s linear model where industry giants simply manufacture and sell cars. In the future, car groups will operate on platforms with ongoing, direct engagement with end customers. As we move from car ownership to usership, customers will have individual profiles that activate in each car they use. Rather than a large, one-time purchase, payments will become subscription-based recurring transactions and a raft of suppliers will directly market value-added services via the platform from safety features to infotainment services or insurance.

Platforms enabling consumers and producers to connect to exchange goods, services and information via a single interface are already well established in marketplaces like Facebook, Uber and Alibaba. They promise to disrupt long-established industries like the auto sector, consumer and retail segment, energy and travel, and are behind the extraordinary rise of new connected commerce models. According to Lia Cao, Managing Director and the Global Co-Head of Corporate and E-Commerce Sales & Solutions, TikTok is an interesting example of these new business models where a social media platform can transform itself from an entertainment channel to a digital marketplace. Through active engagement of one billion plus monthly active users via Tik-Tok challenges, it has been able to monetise its user base and incentivise individuals to create content and ultimately go viral.

TikTok is now evolving into a marketplace with immersive shopping experiences, tailored to different regions, offering advertising, real-time streaming powered purchases and shopping in a tightly connected world of buyers and sellers interacting digitally – just as happened for centuries in the physical world. “TikTok is an example of how an online social media platform can evolve into a multi-party connected commerce ecosystem that can create multiple revenue streams for creators and brands,” says Cao.

Of course, platforms don’t suit every industry or business. But they sit at the vanguard of today’s digital transformation and their emergence signposts many of the digital challenges and opportunities ahead for corporate treasury teams. Platform companies need dynamic liquidity management to support multiple real-time pay-in and pay-out methods and changes in cash balances. Elsewhere, platform models might trigger more financing at the point of need as volumes ramp up through 24/7 marketplaces. For example, SMEs serving the platform may not have access to free cash flows to finance the procurement of goods at the scale that is needed, therefore short-term capital and supplier financing can be a critical enabler to re-calibrating working capital positions.

The platform model brings new meaning to working capital churn. Working capital levels transform off the back of consumer demand, platform throughput and reduced inventory levels, lists Cao who says signs of shortening were recently visible in J.P. Morgan’s Global Working Capital Index findings. She continues that with so many players on the platform, it’s hard to overstate the importance of optimising working capital; partnerships are reliant on a smart, steady flow of funds between parties. “For any company scaling up to a platform, treasury needs to think about these macro trends and micro-implications. It’s very different from a traditional B2B model, and we have solutions to help.”

Digital journey

Platforms may represent a distant future, but many companies (hastened by the pandemic) are in fact well on their digital journey. Cao splits that trajectory into three distinct phases: tactical, transformational and strategic. In a first, tactical phase, the pandemic necessitated quick, digital pivots to maintain business continuity such as adopting DocuSign technology or conducting cash forecasts daily or weekly rather than monthly.

In the transformational phase, treasury recognised the value of technology in delivering economies of scale across teams and regions. This could include putting servers and data in the cloud or implementing new ERPs and TMS with centralised payment processing and administration. Other transformational trends include embedding AI, machine learning and robotic process automation into data analytics models. “Many treasuries have seen the benefits and invested for the long term,” says Cao.

In the third phase, prevalent amongst today’s pace setters, digitisation has become strategic. Treasury teams are using digitisation to differentiate from the competition and gain market share through digital-first strategies. This could include the adoption of real-time payments and alternative payment methods like digital wallets, indicative of payments shifting from a commodity to a differentiator in customer experience and a revenue driver in its own right.

Strategic treasury teams are now utilising multi-entity cash pooling and virtual account structures to streamline their liquidity management structures. Elsewhere, they are establishing supplier financing platforms to unlock working capital and support e-commerce marketplaces. In turn, enabling direct-to-consumer and B2C models in a customer-centric strategy driven by technology.

L’Oréal’s SalonCentric Marketplace creates a one-stop-shop for salon owners and stylists to source boutique wares. “The pace of digitisation is different across industries and varies in line with customer demand and regulatory openness, but all businesses are becoming more digital in nature,” says Cao.

Next steps

Digitisation on this scale is only possible with data. Corporates are turning big data into smart data, helping inform market trends and signpost treasury strategies. For example, data has supported the rise of open banking, solving industry pain points such as visibility over multiple bank accounts through a single platform. “The power of data is visible in open banking,” says Cao. “Treasury no longer has to pull different data sets from multiple banks, enabling a quick and holistic understanding of their cash position.”

Elsewhere, data casts new light on the value of cash flow forecasting. Enhanced data analytics and AI give a more informed view of the future, outlining the most likely liquidity position based on past patterns. “For example, a company may realise it no longer needs a cash buffer across the globe based on sales growth in key segments,” suggests Cao who observes new tech skills emerging across treasury focused on machine learning and AI. All alongside a new ability to think holistically and grasp the consumer needs of the business at the front end and the seller needs at the back end.

The importance of cash flow visibility also comes to the fore in a card environment when pay-outs are real-time, but some collections, like credit card settlements, are not. The growth in real-time payments has led to a mismatch between what is paid in and what is paid out, and a data-driven view of cash flows can therefore help inform funding needs across different accounts in different currencies. “Treasury has access to a lot of data, but not all of it is actionable,” she explains. “It makes partnering with colleagues and departments across the business, such as procurement, sales, operations and finance critical to forming a holistic, end-to-end view of cash flow.”

Cao also reiterates how embracing technology to automate mundane tasks allows treasury to concentrate on optimising its core functions, doubling down on managing credit and working capital, and safeguarding liquidity. Although many corporates outsource repetitive functions like payment processing and reconciliations to deliver solutions at scale, she notes that these tasks tend to be assigned to internal centres of excellence such as shared service centres, rather than farmed out to external companies.

The future

Treasuries will continue their transformation into a core strategic function, closely aligned to digitisation trends around payments, working capital and liquidity. But every organisation must face the next digital revolution. Harnessing digitisation to allow a company to leverage new and alternative payments as a revenue driver; recalibrate working capital and access liquidity to grow market share will turn any treasury into an essential value centre. “These are the mega trends, but they don’t happen overnight,” concludes Cao. “Nor can it be done in silos by treasury. It requires collaboration across internal partners and partnering with banks and industry peers who share a similar vision.”