With digitisation and ecommerce having a major impact on companies’ supply chains and relationships – especially in Asia Pacific – businesses are increasingly stepping out of their comfort zones and embracing new business models. Which challenges lie ahead, and what should treasurers be doing to build a roadmap through this changing landscape?

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Digitisation and ecommerce are having a far-reaching impact on companies’ sales models, supply chains and customer relationships around the world. This is particularly the case in Asia Pacific, which accounts for around half of the total estimated ecommerce value globally. According to the Ecommerce Foundation’s Global Ecommerce Report 2017, China has the world’s largest B2C ecommerce market with over US$681bn in turnover, compared to US$438bn in the US.

Ernesto Pittaluga, Asia Pacific Sales Head, Treasury and Trade Solutions, Citi, notes that Asia is home to some of the world’s most important disruptors, such as Alibaba and Tencent. “The proliferation of mobile and social media in the region are also key drivers,” he says. “In China, we now refer to mcommerce more often than ecommerce, because of the significant preponderance of online purchases made using mobile devices. And mcommerce is poised to burst into the mainstream, thanks to a host of technological advances that are making it easier for people to shop on their phones.” At the same time, consumers are increasingly interacting with sellers using a variety of online and offline channels.

Many different factors are contributing to the growth of ecommerce and digitisation within the region. For one thing, the development of new payment infrastructures and the rise of faster payments is key to the appeal of ecommerce. “The emergence of digital wallets which are tied to credit cards in China for example, or the developing QR code solutions in India, will be supporting increasingly frictionless interactions between Buyers and Sellers, in a real-time settlement fashion,” says Pittaluga. “These are major breakthroughs – and we are expecting every market in Asia to be in a similar kind of operational environment by 2020.”

Regulation is another notable catalyst, and many recent developments resonate with high-level regulatory objectives in the region. With some countries having increased numbers of unbanked individuals, and levels of credit card penetration being generally low, the emergence of technology such as digital wallets can play an important role in enabling people to access (and transact in) online channels, thus providing for financial inclusion. Indeed, the move towards a cashless society is a critical regulatory objective, because physical cash creates friction, cost and inefficiencies. In several markets in Asia, for example, consumers already are, or soon will be, able to live much of their lives without the need for physical cash in their wallets – and regulators are actively encouraging this.

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Evolving business models

Companies across many different industries can expect to face disruption in the coming years. And with growing competitive pressure from innovative new entrants, it is important for more traditional businesses to be able to adapt and prosper in this environment.

Often that will mean stepping outside of established legacy business practices. “Five years ago, a leading European retailer was adamant that they would not pursue online sales as their business was built around a brick-and-mortar retail model,” recalls Pittaluga. “Today, that retailer has completely transformed its business and is now using a variety of online channels in China and other countries in the region.”

Likewise, Pittaluga cites the example of a large and successful processed food company which had previously decided against pursuing ecommerce channels, preferring to rely on its tried and tested relationships with distributors and wholesalers. Today, this business is taking part in an ecommerce payment channels aggregation pilot in China – and remarkably, this change in strategy has come about in the space of only a few months. “A number of our clients which have a traditional business will gradually experience a migration of sales that were traditionally B2B to B2C,” comments Pittaluga. “This is increasingly evident in the branded consumer sector, and others will follow.”

He adds, “What is also interesting is that many of these changes are consumer-driven. It is not a supply-side phenomenon, but rather a journey that to a large extent is being pushed by consumers looking for a frictionless experience – so it’s essential for businesses to understand how their customers are changing and adapt accordingly, as it may not be a question of choice.”

Digital on the inside

While the customer-facing digital experience is a major part of this evolution – a trend that Pittaluga refers to as being “digital on the outside” – it is far from the only challenge that companies face. While every company will have its own operational and technical infrastructure, Pittaluga says that one common issue is the question of how companies manage becoming digital on the outside versus being digital on the inside. In other words, it’s one thing to provide online sales for customers via a digital front end – but in order to make the most of technological developments and become future ready, companies also need to pay the same attention to the systems that they use to process and authorise payment instructions, and the extent to which these systems are integrated.

In practice, this may not be straightforward. Very large multinationals that have grown both organically and by acquisition often have many different IT systems that may not be interconnected. When it comes to being future ready and taking advantage of new developments in technology, it is therefore important to integrate the different systems in place to facilitate interconnectedness to the outside. Indeed, IT systems integration is one of the key challenges cited by global treasurers when seeking to capitalise on the potential benefits that emerging technologies could bring to treasury management.

Embracing the opportunities

In the world of treasury, the rise of faster payments is enabling a move from a batch operational environment to a real-time environment. Rather than making payments in batches, companies can make numerous low value payments individually in real-time, in a trend sometimes referred to as the ‘miniaturisation’ of payments. Likewise, treasurers can benefit from having access to fully up-to-date information on a 24/7 real-time basis. While this brings opportunities for companies to speed up the way in which they can collect cash, reconcile payments and sell to clients, it also creates the need for enhanced automation and standardisation of data to support the processing of large volumes of smaller incoming payments.

Alongside these developments, technologies including artificial intelligence (AI), machine learning (ML) and APIs can enable treasurers to operate more efficiently in the changing landscape. Pittaluga observes that a “very important technology shift” is taking place. “For example, In July 2018, Citi Treasury and Trade Solutions announced a strategic fintech partnership to launch Citi® Smart Match, which leverages AI and ML technology, together with the bank’s proprietary assets, to increase the efficiency and automation of the cash application process of matching open invoices to payments received by corporate clients,” he says. “We are also leveraging machine learning to build technology that monitors payments and lets clients know if any payments fall outside their historical norms – and that improves over time as our clients’ businesses evolve.”

What are treasurers doing?

In order to succeed in this environment, a proactive approach is needed. Understanding all the nuances of the changing landscape and formulating a digital roadmap can be daunting, but this is an area banks may be able to help with.

“We like to be very structured in supporting clients through this process,” says Pittaluga. “We’re having co-creation sessions with our clients to explore how they can give their customers a better buying experience. Faster payments, a digital front end and less friction in the payments process are all tangible benefits that improve customer experience.”

When it comes to building a structured digital roadmap, the following six building blocks can be used as a starting point:

• Policy and governance. Developments like faster payments and the miniaturisation of payments call for different/additional controls, both for banks and for corporates. Creating a digital scorecard, ensuring policies include emerging technologies provisions, setting clear guidelines around third party vendors and working on a Cybersecurity Playbook could also be key elements of this pillar.
• Liquidity and working capital management. This area is being bolstered by data and game-changing technology such as AI. Using data analytics in forecasting – and investing in AI and APIs for automatic investment decisions and to enable business growth initiatives – are also areas to explore and include in the digital roadmap.
• Accounts receivable and accounts payable. Likewise, treasurers can benefit from new technology in this area, including faster payments as well as the use of data analytics/ AI to enhance receivables reconciliation procedures and explore automation opportunities, among other opportunities.
• Risk management, accounting and reporting. The use of predictive analytics for FX and other risk factors analysis, as well as to better project how the business will evolve, could present considerable opportunities in the future. Companies should also look at leveraging existing technological developments to prevent/minimise fraud.
• Systems, technology and information services. Companies should aim to evaluate new connectivity options, understand the impact of a real-time operational environment, and embrace the opportunities that distributed ledger technology could bring for supply chains, among other things.
• Culture. Building a culture which values innovation is also important when it comes to embracing new developments and technologies.

Recruitment and skills

As topics like data analytics, blockchain and AI become increasingly mainstream, it’s essential for companies to have employees who possess the relevant skillsets. Likewise, when recruiting, it is important to be aware of how expectations are evolving. “One client told us that they have realised that younger generations that have grown up in the digital space are themselves already digital on the inside,” says Pittaluga. “So hiring young talent nowadays to support very basic administrative functions may prove to be an increasing challenge.”

Looking forward

The pace of change is showing no signs of slowing – so which developments should treasurers be monitoring? For one thing, there is a growing emphasis on the concept of ecosystems, which is defining corporate strategy for many of the most important emerging players in ecommerce, technology and other industries. “The ecosystem concept is going to be very relevant in this area, with more players, greater specialisation and a lot of technology-driven changes,” says Pittaluga. “We also expect that some of the more important disruptors will get a larger share of the economic value in the future.”

Where Citi is concerned, Pittaluga says the bank will continue to focus on helping clients navigate these challenges and capitalise on the associated opportunities. “In summary, what we expect to see in the next two years is significant technology-driven progress towards automation, greater efficiency and better client experience,” he concludes. “Enablers to this growth will include technologies such as robotics, AI and machine learning – but they will also include continuing evolution in the region’s payment infrastructure and the rise of real-time settlement. This is a unique and interesting business environment, with significant changes that offer great opportunities.”

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