Consumer Brands, Retail and Healthcare:
Global e-commerce Cash and FX Management
by Hans Van Den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare, Global Liquidity and Cash Management and Gregory Edwards, Global Head, Transactional FX, HSBC
CBRH treasuries have already made considerable progress in streamlining their payment processes through initiatives such as payment factories. Now many are turning their attention to an altogether tougher challenge in the form of collections, and more specifically global e-commerce collections. Hans Van Den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare, Global Liquidity and Cash Management and Gregory Edwards, Global Head, Transactional FX at HSBC examine some of the possible challenges and solutions when dealing with diverse payment and clearing systems and multiple currencies.
One of the obvious differences between payments and collections is that in most cases commercial leverage enables treasury to be more prescriptive when it comes to choosing and implementing new processes. By contrast, irrespective of whether CBRH treasuries are dealing with B2C or B2B relationships, collection methods tend to depend more on the customer’s preferences.
This is challenging enough when dealing in just a few countries, but in the context of e-commerce, the difficulties multiply. This is especially important now, because in addition to established specialist e-commerce retailers, two other categories of entity are increasing their online activity. Bricks and mortar retailers have appreciated that they need an e-commerce presence, while consumer brand companies have started to open their own direct to consumer online sales channels alongside sales via multi-line retailer relationships. A further complication is that the challenges associated with B2C and B2B transactions are not identical across the CBRH sector. For instance, electronification of collections in the B2B healthcare sector is impeded by the established preference of many customers for paying by cheque.
Payment infrastructure: diversity and change
From a global perspective, cards still dominate for online customer remittances. However, payment wallets are starting to have an impact, even though some of these still rely on cards as the underlying settlement method. A fairly recent innovation, which could fulfil this role instead, as well as supporting completely new online payment methods, is the real-time settlement system. As the name implies, these settle payments on a real time rather than batch basis, but many of them also have far larger free form information fields than legacy systems. This feature opens the door to the efficient large scale capture of information in addition to payment data, such as the items a customer purchased. Coupling this functionality with the opportunity to reduce costs in comparison with cards, makes for a potentially compelling proposition, especially as a growing number of countries around the globe are implementing real-time settlement systems.
This is particularly significant today, as the traditional roadmap for corporate development has been replaced. Historically, a business would grow in its immediate location, then elsewhere in its country and then finally start a gradual expansion into other countries – a process that could take years if not decades. In an e-commerce environment, a common expectation is to go from zero to global coverage in perhaps less than a year, which is an unprecedented pace in terms of both geographical reach and FX needs. Historically, many banks have struggled to support clients wishing to achieve this with their collections, especially if those collections were low value and high volume. While it might be technically possible to accomplish this with a card-based approach, the costs could be prohibitive.
Under these circumstances, partnering with a transaction bank that has the largest possible physical network makes considerable sense.
It is also important to be clear that while cards, wallets and real-time payments may compete and substitute each other, they can still co-exist perfectly well in a fully evolved e-commerce society. In fact, a key task for treasury is managing that co-existence as efficiently as possible, especially as the interaction among these methods may change over time. For instance, cards may be used to fund wallets today, but wallet providers are also looking at alternative sources of funding, such as real-time direct debits or on-demand top-ups.
The role of fintechs
While a bank such as this can offer the necessary underlying infrastructure to support economically priced transaction settlement, CBRH treasuries need to be able to provide as many e-commerce payment options as customers require. That will be as many options as needed to remove any customer-perceived barriers to buying from the company online.
This is an area where financial technology companies (fintechs) have a role to play, as third party providers of new payment service types. Nevertheless, some banks regard fintechs as business threats to be resisted, rather than as potential partners. By contrast, HSBC’s approach here is very much collaborative, as the combination of our global network infrastructure and best of breed e-commerce payment solutions is clearly in clients’ best interests.
This approach also makes a great deal of sense from a fintech’s perspective. The sheer diversity and separate evolution of country payment systems would present them with a major obstacle when trying to create completely new end to end e-commerce payment solutions. By contrast, when partnering with a global bank, in addition to substantial intellectual property, they also obtain a shortcut to a huge amount of information regarding individual country payment systems and regulation. Plus of course they have a far more compelling proposition for the corporate client in terms of both functionality and risk. 
By partnering with the right bank, fintechs (and by implication also CBRH companies) benefit in a variety of other ways, such as immediate access to knowledge of local business practices in multiple markets, plus the ability to link multiple payment types. In this context it is important to appreciate that collections are predominantly dictated by how the domestic market works. For example, in Asia, cash on delivery is still an important part of e-commerce business. Therefore, any banking partner needs to be able to bridge the various collection modes: not just electronic, but also non-electronic, such as cheques and cash. This also connects with the crucial need to remove all possible barriers to potential customers doing business with CBRH companies online.
 In that the retailer’s credit risk will be with the bank, not the fintech.