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Starbucks operates 17 regional centres across 180 cities in China, with its local headquarters in Shanghai acting as the treasury centre responsible for processing all payments and collections for its domestic entities, including US dollar cross-border flows. Its total cross-border payment volumes in the country reached US$320m in 2020, which included the transactions of both goods, for example the imports and exports of coffee raw materials, as well as services, for example the rights to intellectual property for its merchandise.
As Starbucks continued its rapid expansion in China, it found itself facing increasing workload around its treasury processes due to China’s complex regulations covering cross-border payments. This includes preparing and delivering large volumes of documents to its banks to support the payments, long hours dealing with back-and-forth queries regarding the documents, delays in the processing of transactions due to information discrepancies, and inefficient reconciliation. The paper-intensive and manual processes, which can take up to 20 days before such a payment is reconciled, also incurred FX exposure and impacted its ability to optimise liquidity.
Starbucks desired a more efficient and digitised solution to manage its cross-border payables and receivables process, as well as improve liquidity management, to support its growth in China.
In September 2020, J.P. Morgan was appointed China’s first and only bank for the cross-border simplification programme – an initiative by the Chinese regulator State Administration of Foreign Exchange (SAFE) – that would allow select corporates the ability to make cross-border payments without the need for any supporting documents. This is a milestone programme by the government with regards to simplifying cross-border flow processing; but for corporates to be eligible, they would need to work closely with their banking partners to demonstrate they have sufficient internal controls and governance around their cross-border payments and collections processes to justify not needing to produce supporting documents.
The bank, in close consultation with the coffee house giant, developed a first-to-market, proprietary model that leverages big data technology and artificial intelligence to monitor past cross-border payment patterns with the ability to flag anomalies that would then be raised for review by the banks. The model had sufficient internal controls and governance in place providing SAFE assurance such that Starbucks became one of the first corporates approved for the programme and the first in the cross-border trade of services.
With this solution, Starbucks only needs to provide a simple digital payment instruction to the bank for any cross-border payment. Since the programme went live in December 2020, 14 Starbucks entities have processed close to 200 cross-border transactions with a total value of US$70m, completely document–free.
Best practice and innovation
In a market where all cross-border payments generally require supporting documents, Starbucks became a pioneer under the SAFE programme. Starbucks also demonstrated best practice in the use of innovation to further enhance its operational efficiencies, leveraging technologies like OCR and RPA to digitise and automate end-to-end payment processes.
Reduced average turnaround time of cross-border payments.
Freed up resources and lowered the associated costs.
Improved cash forecasting.
Enhanced relationship with partners.
“The greatest benefit of the solution has been to reduce the tremendous workload and processing time for cross-border settlements. The combination of the cross-border simplification programme and innovations like OCR and RPA has also led us to full digitalisation,” says Teresa Liu, Treasury Director.