Bank Interview: Munir Nanji, Citi

Published: Sep 2015
Munir Nanji

Channels of opportunity

The Asia Pacific (APAC) market has transformed exponentially in recent years given the rise of e-commerce and digitisation more broadly. As a result of this, corporate treasurers have looked to take advantage of the new opportunities offered to them by using digital tools to drive business intelligence and help the business reach its full potential. In this article, Munir Nanji, Asia Pacific Sales Head, Treasury and Trade Solutions, at Citi outlines how e-commerce and digitisation have impacted markets in Asia and how Citi is well placed to help corporates take advantage of the new digital environment.

Munir Nanji

Asia Pacific Sales Head, Treasury and Trade Solutions

How has the rise of technology, and in particular e-commerce, transformed the Asian market, not only with regards to business-to-consumer (B2C), but also business-to-business (B2B)?

The evolution of technology has had an extraordinary effect on how business is conducted globally. For instance, in the B2C world a large proportion of transactions are now completed online – worth up to $4trn a year.

This is a huge number that has been growing exponentially year-on-year and we expect it to continue increasing for the foreseeable future. In APAC in particular, there is lots of room for growth in this space. Today, the region accounts for roughly 30% of these flows, but 60% of the world’s population resides in the region, as do 55% of the world’s mobile devices. Moreover, 50% of the world’s internet users are based in Asia – creating a colossal market for corporates to tap into. (Continues after video.)

The escalation of digital channels has fostered the rise of some of Asia’s biggest companies and also led other companies in the region to alter their business models.

There have also been changes in the B2B space. For example, a farmer in China would traditionally look to sell their produce to a co-operative, which would then sell this on at a profit by leveraging economies of scale. Today, however, the rise of digitisation and e-commerce has allowed farmers to use an online portal to immediately connect to a buyer, disintermediating the co-operative and giving the farmer the opportunity to negotiate the price they want directly with the buyer.

More broadly, the escalation of digital channels has fostered the rise of some of Asia’s biggest companies and also led other companies in the region to alter their business models. Digital marketplaces are perhaps the prime example of this and also most synonymous today with the term e-commerce. These companies act as a conduit between the buyer and merchant, allowing a wide variety of goods to be sold to a local or global consumer base. Some companies, especially in the technology space, as well as selling their merchandise on these global marketplaces have also established their own proprietary stores that allow the user to customise the products – frequently these online stores are replacing bricks and mortar shops, especially for Western brand names operating in Asia.

Moving away from B2C, we have recently seen the growth of a number of digital aggregators, offering a wide variety of cloud based solutions including: websites, software and data storage. These companies have become very popular because their solutions are flexible and allow businesses to scale up (or down) their operations, making it easier for companies to grow and expand.

The growth of e-commerce and digitisation have also given rise to a new breed of payment service providers (PSPs), for example Alipay. These provide online merchants and consumers with a variety of digital financial services including; e-wallets, collection services, merchant acquiring and money transfers to name a few. Companies such as these are becoming increasingly popular and are constantly innovating, looking to provide easier and more efficient ways to pay and collect. Given the wide reach of mobiles in Asia, telecommunications companies have also begun to move into this space providing services such as direct carrier billing.

What new opportunities has this created for corporate treasurers?

The internal and external impacts of e-commerce and digitisation have had a profound impact on corporate treasury. Typically, the treasuries of companies in the region go through a natural progression. Firstly, they begin by simply responding to the demands of the company during its early stages and ensuring that the business can function financially.

Once the business has established itself, the second stage commences. This is when treasurers begin to act proactively and look for efficiencies in their processes. At this stage, improvements will be made to fundamental areas of the operation such as making sure payments are made efficiently, ensuring that the right information is collected for reconciliation, and better management of working capital and liquidity. Once the treasury completes this, it can begin to better respond to the needs of the business and become a more active business partner.

Stage three is where e-commerce and digitisation come to the fore. As the company shifts more-and-more of its business onto digital channels, the treasurer is able to begin thinking strategically by utilising tools such as big data. This is something that we have seen occur in the treasury departments of many of our North American and European clients, and we are now beginning to see this happen in Asia as well.

In leveraging these new tools the treasury is able to analyse information around consumer behaviour, how the supply chain is evolving, the direction of trade flows and the various payment solutions customers utilise. By having this information, the treasury can go above and beyond and channel this into insights for the C-suite, transforming the department into a strategic business partner and helping the business maximise its opportunities.

Given these developments what are the key requirements that corporates are now seeking from banks?

By their very nature, e-commerce and digitisation are global. For instance, a company can be created, build an online marketplace using a cloud-based web service provider and then sell globally in a matter of weeks. In reaction to this, corporates of all shapes and sizes are requiring a core banking partner with a global network.

I believe this is where Citi positions itself well, particularly in Asia, as we have a wide and deep presence across the region. Furthermore, with direct memberships to 232 cash clearing systems across the globe, we are well placed to represent client interests in various country organisations and committees. As a result of our embedded presence, Citi has a fantastic track record of helping companies overcome regulatory challenges when expanding into new, and often complex markets. Successes include regulatory approvals for clients to participate in pilot programmes and implementing innovative, first-to-market solutions in countries such as India and China.

Our reach also enables us to solve challenges corporates face around payments, collections and in particular foreign exchange (FX). When selling, online companies often like to price in domestic currency and then convert this back into their functional currency. However, in e-commerce there are frequent refunds that often need to be made for various reasons, requiring the merchant to convert their cash back into the local currency. Consequently, there is an increased FX risk for the merchant. We have therefore worked closely with both merchants and payment providers to build structures for corporates that not only mitigate this risk, but also ensure that the refund occurs seamlessly, with minimal human intervention and also quickly – speed is imperative in the digital space.

When a corporate expands into new markets with its e-commerce platform, they like to offer the local payment instruments that are most used in the country. These could be cash, cards or even specialist domestic instruments. When offering this service it is important to partner with a bank that can support treasury across multiple collection streams. Citi’s network again gives us the advantage in this space as we are able to collect, move and manage cash for our clients, allowing them to focus on the core business of selling their products.

Looking to the future, how do you expect the Asian market to further develop, will e-commerce become the main method of conducting business? What does this mean for corporate treasurers and what can their banks do to support them?

As I mentioned earlier, APAC is a market made for e-commerce and digitisation in both B2C and B2B. Great strides have been taken towards digital by many different players in the ecosystem and a large number of our corporate clients are already at the cutting-edge.

There is still more to do, however. The regulatory environment and bureaucracy that exist in some Asian markets, for example, have made it difficult for certain companies to move at such speed. But, I do expect this to change, because for these countries to remain competitive they will need to facilitate more digital innovation and accept e-commerce as the new norm.

For banks, the drive to digital means that we will need to strive to develop more solutions that continue to support our clients as their needs evolve. These will need to be scalable and agile providing treasurers with the ability to drive efficiencies at every turn. It is also imperative that we continue to offer new and innovative ways to serve up data to our clients, leveraging new and highly visual technology, further facilitating the growth of the treasury into a strategic business partner.

Chen Zhiyu, Head of Product, Alipay

Chen Zhiyu

Head of Product

Established in 2004, Alipay is the world’s largest third-party payment provider, offering both online and mobile payment services. The company has more than 300 million users worldwide and handles over 80 million transactions daily totalling RMB 2bn.

In 2014, the value of e-commerce in China grew by 31.4% from the previous year totalling over RMB 13.4trn. The figures highlight the proliferation of e-commerce in the country, a space that has grown exponentially over the past decade. At the heart of this growth has been the Alibaba Group and its various online services, such as its online marketplaces. But, behind every online transaction there is a payment and third-party payment processor. Alipay has played a vital role in facilitating the growth of Alibaba, and e-commerce more broadly, by providing secure, trustworthy and convenient online and mobile payment solutions.

In its formative years, Alipay was primarily focused on serving the domestic Chinese market. Yet, recently its operations are becoming global as the company expands into new overseas markets such as the US, UK and Australia. To support these new business flows, the company has bolstered its international teams to serve: Chinese exporters with their cross-border collection and working capital management; importers who are trying to tap into the Chinese market; and Alipay account holders outside of China.

Whilst expanding into overseas markets, the company was presented with a number of challenges – most notably understanding how these markets operate. As Chen Zhiyu, Head of Product at Alipay explains: “Given our historical focus on the Chinese market most of our staff have been based domestically. We therefore have an intimate understanding of the market and our customer base. This is not always the case however when we move into new markets.”

Our methodology is conflicting to this approach and we require a particular set of attributes from our financial partners – primarily dedication and flexibility in order to adapt to the pace of change we have at Alipay.

Given the pace of Alipay’s global expansion the businesses needed to plug this knowledge gap quickly. To do this, the company has hired local experts in these markets, as well as relocating some of its Chinese staff overseas. In doing so, the company has been able to obtain domestic expertise while also ensuring that the company’s culture is sustained in these overseas outposts.

Aside from hiring local staff, Alipay has also leaned on its partners to assist in filling the knowledge gap. “Citi is a financial partner with an extensive global network and deep presence in many markets and has provided us with detailed information and advice on a number of areas including; market practice, commonly used instruments and regulation to name but a few,” says Chen Zhiyu. “To gain this information without their help would have been a time-consuming and resource-intensive process, something we cannot afford given the pace that is needed in the e-commerce space.”

Speed is also imperative for Alipay when it comes to implementing new solutions. As a result of this, the company acts differently to most corporates, adopting a trial and error methodology. As Chen Zhiyu explains: “We begin a number of projects simultaneously, evaluate their effectiveness within a short space of time (typically three to six months) and then cut those that are not successful and continue with those that are.” In doing so the company is able to match the expanding needs of its customers, minimise the impact of mistakes and also foster internal focus and competition that ensure the ongoing success of the company.

This approach does however create some unique challenges for Alipay’s financial partners. “Banks typically work on one or two solutions at a time for a corporate client and these are usually long-term projects that will be seen through to their conclusion,” says Chen Zhiyu. “Our methodology is conflicting to this approach and we require a particular set of attributes from our financial partners – primarily dedication and flexibility in order to adapt to the pace of change we have at Alipay. Consequently, especially given the increasingly conservative nature of banks in the post-crisis era, our financial partners are limited and selected carefully.”

Just as Alipay is crucial in facilitating the growth of e-commerce both domestically, and increasingly overseas, Citi has been a vital partner to Alipay since 2010 – providing knowledge, advice, solutions and support to facilitate the rapid growth of the company. “We have built a strong relationship with Citi that is based on mutual understanding and trust,” adds Chen Zhiyu. “They have the attributes that we require from a financial partner allowing us to develop and expand our business at the pace we require.”

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