Treasury and Trade Solutions · Consumer (In-store) Consumer (Online/App) Consumer (Online/App) •...

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Treasury and Trade Solutions Why treasury must play a strategic role Managing Risk and Supporting Growth in the E-commerce Era

Transcript of Treasury and Trade Solutions · Consumer (In-store) Consumer (Online/App) Consumer (Online/App) •...

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Treasury and Trade Solutions

Why treasury must play a strategic role

Managing Risk and Supporting Growth in the E-commerce Era

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At a Glance• As e-commerce growth becomes core to an increasing number of companies,

treasury has a vital role to play in supporting these new business models.

• Treasury has considerable experience relevant to the launch of e-commerce sales channels. However, treasury is often involved late in the process, leaving it to retroactively understand and optimise arrangements put in place by the business.

• Treasury should proactively engage with the business on its e-commerce strategy — treasury can act as a key advisor to business partners to help build the financial structures that will facilitate long term growth right from the start and to manage financial risks that may impede growth.

• Ensuring an understanding of treasury’s perspective within the business is critical — and vice versa. Treasury organisations should appoint digital leads to work closely with the business to execute their e-commerce strategy.

• For companies with historically B2B distribution models, a shift to Direct to Consumer (D2C) e-commerce results in a significant change in the collection profile – such as the need to cater to consumer payment preferences and a miniaturisation of payments to high volumes of low value transactions.

• Treasury must set up appropriate cash management structures to accommodate new D2C collection profiles, including appropriate settlement, reconciliation and working capital models.

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Profound changes in the business environment, rapid adoption of new technologies and evolving customer preferences mean that e-commerce growth is becoming a strategic objective at board level for companies across many sectors.

By 2023 global e-commerce sales to consumers is expected to reach $6.5trillion and account for 22% of global retail sales.1 While it is true that e-commerce accounts for less than a tenth of sales in most traditional sectors today, it is growing much more rapidly than other sales channels: many businesses’ future will be driven by e-commerce.

IntroductionWithin many multinational companies, treasury finds it challenging to fully appreciate the materiality of e-commerce because of insufficient interaction and connectivity with relevant parts of the business. While treasury at many companies plays an increasingly strategic role in advising the business, this is seldom the case in relation to e-commerce, despite its fast growth. Consequently, treasury’s vital perspective is missing as companies pivot to an online world.

This paper examines the rise of new e-commerce business models, explores the treasury implications of these new models, explains why it is essential that treasury collaborates more effectively with the business on e-commerce initiatives, and outlines strategies to achieve such an outcome.

Lola Adebanji Director, e-commerce solutions lead for EMEA, Treasury and Trade Solutions, Citi

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Digital commerce is becoming core to the growth strategy of organisations across many industries, from services to asset-heavy sectors. Industry research estimates that by 2025, about one-third of global economic activity could resolve into digital platforms that cater to consumers and businesses.2

This changing paradigm is causing many companies with primarily business-to-business distribution models to deploy e-commerce strategies so they can begin to reap the many benefits offered by digital commerce. In the consumer packaged goods (CPG) sector for example, brick-and-mortar sales have been challenging — averaging 1% growth between 2013 and 2018 — but online sales grew at an average of 19% annually over the same period.3

E-commerce routes to marketCompanies adopt a variety of e-commerce models as part of their growth strategy. The most common models are outlined below.

Distribution via third party marketplacesOne quick route to market for companies moving into online sales is through third party online marketplaces that provide a ‘one-stop shop’ for consumers to purchase different products.

Online marketplaces with a compelling local presence can facilitate swift growth given their existing user base. However, the trade-off for companies using this model is the potential weakening of brand identity, reduced pricing power and limited opportunities to build deep relationships with the end buyer.

Direct-to-consumer modelsAn alternative route to market for companies moving to online sales is Direct-to-Consumer (D2C) — either by launching proprietary web stores and apps, by acquiring successful digital brands, or a combination of both.

While D2C is a longer route to market compared to sales via marketplaces, there are many benefits to this approach. Proprietary web stores and apps allow the company to own the user experience and to harness the power of data to create personalised experiences for its consumers. Furthermore, some companies are starting to extend their D2C strategy beyond proprietary webstores to launch online marketplaces that offer third party branded products or services in addition to the company’s own.

All these options represent a huge change in business models for companies that have historically reached consumers via brick-and-mortar distributors.

The changing ecosystemThe changing payments landscapePayments are critical to e-commerce success because they directly impact the customer’s checkout experience. Companies that adopt a D2C e-commerce model must design and implement a payment strategy, which often can be challenging as it requires local market knowledge of the payments landscape.

This challenge is compounded by the fast pace of change in the payments landscape — notable developments include:

a. Proliferation of new payment methods: consumer payment methods for e-commerce are moving beyond card payments into a variety of alternatives. An estimated 55% of all online transactions globally are now completed using non-card payment methods.4

b. Non-bank institutions are becoming dominant players in payments. Both Fintech and Big Tech companies are building digital ecosystems and embedding payments and other financial services directly into these ecosystems. Companies such as Google, Amazon and Alibaba have established payments and financial intermediation as a core business line.

c. Real-time payment systems: Every major country is building real-time systems for payments and collections. In particular, Request to Pay (RTP) schemes, which facilitate instant collections from bank accounts, are emerging to offer alternative payment options for online and mobile commerce. India’s Unified Payment Interface (UPI) scheme is a standout example of this — UPI facilitates e-commerce and physical point-of-sale payments instantly, direct from consumers’ bank accounts. The UPI model is being considered by several other countries as a best practice model to replicate, including in Europe where the European Banking Association (EBA) is planning to deploy a pan-European RTP platform.5 These modern RTP connections will lead to a new cost of payments model for merchants.

d. Open banking: Regulators are driving open banking models that compel banks to deploy APIs for both retail and wholesale banking services. Europe is leading open banking developments with the revised EU Payment Services Directive (PSD2) and the UK’s Open Banking initiative.

To enhance its credibility with the business, it is essential that treasury closely follows developments in the payments landscape to interpret market and regulatory changes and distil relevance for the business. Given the fast pace of change, this is challenging. Treasury should leverage its network of relationships with banks and other payment providers so that it has access to the support and insights it needs to fulfil its role as a strategic advisor to the business.

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Evolving to Digital Sales Channel — direct to consumer via own branded webstore

Evolving to Digital Sales Channel — via online marketplaces

Offline Sales and Distribution Channel

Producer

Producer

Producer

Brick-and-Mortar Distributor

Own Brand e-Store

E-Marketplace

Consumer (In-store)

Consumer (Online/App)

Consumer (Online/App)

• Goods flow from producer to distributor/retailer, for in-store sale to consumers.

• Payment flow from retailer to producer — high value, low volume payments.

• Consumer’s basket data available to the retailer (e.g. via retailer’s points reward scheme) but not to producer.

• Goods flow from producer to e-marketplace, for sale to consumers online.

• Payment flow from e-marketplace to producer.

• Consumer’s basket data available to the e-marketplace.

• Goods flow from producer direct to the consumer, bypassing traditional distribution points.

• Payment flow from consumer direct to producer — high volume of low value payments, producer needs to cater to consumer payment preferences.

• Consumer’s basket data available to the producer.

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For many business teams that are implementing e-commerce strategies, their goal is to build brand loyalty, drive customer retention and grow sales. Too often companies fail to consider the implications of this approach from a treasury perspective.

If companies are to achieve their e-commerce growth objectives efficiently, treasury must be plugged into the change process rather than reacting to decisions made by the business.

When setting up e-commerce models, there are many requirements, including bank accounts, establishing relationships with card acquirers and payment providers, managing financial settlements and foreign exchange exposure. All of these activities create risks that treasury is best positioned to manage.

Why treasury matters

New financial counterpartiesPayment strategy as a lever for growth

and better customer experiences

Changing profile of collections and payments

Minimising friction for customers and partners in the e-commerce ecosystem

FX risk management for cross-border sales

FX as a strategic lever for cross-border e-commerce sales

Regulatory developments impacting payments

Interpreting opportunities arising from market and regulatory developments

Downstream impact on cash management structures

Disseminating best practices to replicate across the company

Despite the clear relevance of treasury capabilities when launching e-commerce channels, some companies involve treasury late in the process, leaving treasury to retroactively understand and optimise arrangements put in place by the business.

To address the challenge of late engagement in e-commerce initiatives, treasury organisations are starting to evolve to include digital leads within treasury that work closely with the business to execute its e-commerce strategy.

Digital treasury leads are keeping abreast of payment landscape and regulatory developments to bring insights back to the business — both in terms of emerging risks and opportunities.

Managing Financial Risks Supporting Growth

$

Treasury’s role in enabling e-commerce models

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Danone: Developing a Treasury framework for e-commerce initiativesDanone is a leading global food and beverage company built around three businesses: essential dairy and plant-based products, waters, and specialised nutrition (including early life and medical nutrition). Its e-commerce strategy varies by sector with local initiatives and decision making, reflecting the decentralised nature of Danone’s business. To date, e-commerce is primarily focused on sales via online distributors (B2B model) although Danone is starting to explore Direct to Consumer (D2C) e-commerce initiatives as well.

“With our B2B e-commerce sales, Danone is mainly dealing with a distributor to manage the route to market to our end users,” explains Stephane Chambon, international treasurer at Danone. Billing and other financial flows are also managed by the distributor with collections settled to Danone once a month.

While a large scale of Danone’s business continues to be via traditional channels (including online D2B), the company recognises that e-commerce is evolving and it is looking to implement D2C models in some markets.

“The intention is that we will have a direct route to market, with products going straight from us to the consumer” says Chambon. “We will collect cash through an acquirer or payment service provider depending on the market.”

With its current B2B strategy, the impact of e-commerce sales on treasury is limited — essentially treasury (at a local level) just has to ensure that cash is transferred to Danone’s bank account at the appropriate time. However, as Danone implements D2C models within the group, these initiatives would have significant implications for treasury. To that end, treasury is currently analysing the live e-commerce initiatives within the group to better understand how these online businesses work and the financial risks in the current models. “We aim to define rules to guide the business and protect Danone’s online businesses” says Chambon.

Chambon’s background — he became international treasurer in July 2018 after many years in business control and a few in audit at Danone — has been a major driver for treasury’s decision to investigate the broader implications of e-commerce.

“When I took over this position, I realised that while treasury is centralised with clear rules for the business, there was nothing comparable for online activity.”

Chambon expects the new guidelines to be complete for the first quarter of 2020. “Beyond this first step, rules will continue to evolve to be well connected with the business

evolution. The main objective is to have a common framework that will enable us to work in full compliance with our internal rules and allow efficiency. One important issue is that consumer payments are changing — it’s no longer just about bank providers but also involves payment service providers and collections companies. We are looking at both bank and non-bank models.”

Treasury is working closely with Danone’s online sales director to design the new e-commerce rules. “One ongoing challenge is to ensure that we are able to embrace all different models, taking into account local specifics. This means that we need to connect across all the businesses if we want to successfully and effectively protect Danone. It also increases the importance of a rules framework so that treasury people locally can apply consistent policies and bring added value to the business in those locations.”

One example of how treasury is seeking to protect new D2C businesses is in the area of financial risk management. “At the moment our distributors are responsible for risk management. In an online D2C model, managing the risk associated with consumers is definitely much more challenging. We need to protect Danone against fraud. For example, being able to clearly identify the origin of the fund is a must (ie: IP address, email tracking). Companies transitioning to D2C e-commerce need to have firm rules in place that address contracts with acquirers and other partners. Responsibilities must be clearly defined.”

Another example is in the area of FX risk management. “D2C e-commerce can result in FX management – some online businesses may have purchases in different currencies. Hence the cash flows must be hedged appropriately. It’s essential for treasury to understand the FX flows between Danone and its acquirers, to ensure FX risk is effectively managed and that treasury has visibility and control. This, and related issues such as settlement times, are not necessarily always top of mind for the business: Treasury therefore needs to be involved in the planning stages and be engaged in decisions concerning e-commerce.”

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By creating a playbook collaboratively with the business, treasury can help e-commerce teams to build the right financial structures that will facilitate long-term growth.

Treasury considerations for a direct-to-consumer modelBelow are five areas to consider when deploying a D2C e-commerce model to ensure appropriate payment and financial structures are put in place.

Developing an e-commerce playbook for treasury

Governance model and expertise

• Engagement framework with the business and cross-functional stakeholders

• Digital lead within treasury to drive dialogue with the business

• Building payments expertise within treasury

New financial partnerships

• Establishing guidelines with the business on payment provider partnerships for e-commerce

• Using treasury’s banking relationships for optimal bank account structures to support e-commerce flows

Payments strategy

• Considerations in accepting consumer payments and establishing treasury guidelines

• Addressing friction points in payments and financial processes of e-commerce businesses

• Assessing implications of market and regulatory changes

Cross-border sales and FX impact

• Online pricing strategy

• FX hedging strategies for settlements from payment providers

Cash management framework

• Assessing downstream impact of e-commerce models on cash management and Shared Service Centre structures, in areas such as:

– handling new collection processes at scale

– payment reconciliation and data insights to business units

– consumer refunds handling

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1. Governance model and expertiseTreasury teams should be engaged in e-commerce initiatives from the onset, however this is challenging to achieve unless treasury’s added-value is known to all relevant stakeholders.

Consequently, proactive communication and engagement is key — treasury needs to build its internal brand with e-commerce businesses and stakeholders at group and local levels. Some of the actions that treasury can take to achieve this include:

• Regular communication of treasury’s activities and achievements, and the resulting impact/value for the end customer.

• Establishing a cross-functional working group with the business and other key stakeholders to regularly review e-commerce initiatives, business needs and challenges, and any emerging risks that could impact the company’s financials.

Senior sponsorship (e.g. CFO level) is essential to the success of such a working group. Additionally, treasury needs to build payment expertise within its organisation to support the business in designing and executing its payment strategy.

2. New financial partnershipsAs businesses look to build their D2C e-commerce presence, they need to establish partnerships with payment providers to support their e-commerce platform. In many companies, treasury does not have a seat at the table when businesses are assessing potential partners for e-commerce payment services.

Treasury has a unique opportunity to position itself as an advisor to the business when evaluating new payment providers for e-commerce flows, to ensure business needs are met while potential risks are managed.

Some aspects to consider:

• Counterparty financial strength.

• Adherence to regulatory requirements that could have a spillover effect on the company e.g. General Data Protection Regulation (GDPR), local data privacy laws, etc.

• Settlement model — understanding settlement processes and timelines to minimise liquidity risk.

• Scalability — ability to support the required services consistently across multiple markets, to prevent fragmented structures that introduce complexity as the e-commerce business scales up.

• Financial risk considerations and ensuring adequate mitigants are built into Payment Service Provider (PSP) contracts e.g. security of online payments, fraud management, mitigating against collections from sanctioned countries, and FX risk management where PSP is collecting payments in multiple currencies on behalf of the company.

• Data reporting quality and analytics — quality data is critical not only to automate reconciliation, but also to support the business with actionable analytics to improve sales.

Furthermore, collaborating with treasury enables e-commerce business units to use treasury’s buying power and relationships with bank partners to make the process of establishing new account structures smoother and achieve better commercial and service terms.

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3. Payments strategyFor a D2C online business, confusing or difficult to navigate payment pages can increase abandoned cart rates and even inhibit repeat purchases. A best-in-class consumer experience provides seamless access to the payment methods relevant to the country of purchase.

How integrated is your checkout experience? Checkout journeys that redirect a user away from an e-commerce site may increase risk of cart abandonment.

Do you offer local currency pricing? This is particularly relevant when e-commerce activities expand internationally. Providing a customer with pricing in their preferred currency provides cost certainty to the buyer and decreases risk of cart abandonment.

Do you offer relevant local payment methods? It is important to conduct a detailed assessment of the consumer payments landscape in each launch market to understand consumer payment preferences, which may differ from country to country.

Treasury can call on its banking partners with local market presence and knowledge of the rapidly evolving payment landscape to gain insights to share with the business.

Do you have access to local acquiring? For e-commerce businesses that sell to consumers in multiple countries, working with a PSP that has domestic (local) acquiring licenses for card payments can be highly beneficial — card transactions can be routed to

the card networks (e.g. Visa, Mastercard) as a domestic transaction. This reduces the risk of transaction declines by the cardholder’s bank (issuing bank), achieves lower interchange costs and reduces settlement time for the merchant to receive funds.

How do you mitigate fraudulent payments? Your online payments model should build in mitigants to combat fraud and improve security of payments. In Europe, the revised Payment Services Directive (PSD2) introduced Strong Customer Authentication (SCA) requirements that merchants and payment providers must adhere to for card and non-card transactions.

It is key for merchants to work closely with their payment providers to implement a robust SCA solution that adheres to the regulatory requirements whilst minimising friction in the consumer’s checkout journey.

Key considerations in accepting consumer payments

When establishing a new D2C model, treasury should collaborate with the business and payments teams on the design of the consumer checkout and the end-to-end payment journey, to meet the dual objectives of optimising payment acceptance to grow sales while ensuring any downstream implications are properly managed.

Questions to consider when deploying a D2C e-commerce payment model

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4. Cross-border sales and FX impactCross-border e-commerce is becoming increasingly prevalent — industry analysis indicates that 57% of online shoppers worldwide are purchasing from overseas retailers.6

Consequently, as companies pivot to e-commerce growth, setting up a localised experience for international shoppers on the platform while mitigating related FX risks is important. Treasury can demonstrate its expertise and work collaboratively with the business on the optimal setup.

Multi-currency pricing for cross-border e-commerce sales

For companies selling online to international customers, a D2C e-commerce model that fails to offer multi-currency pricing, catering to the buyer’s preferences, may result in lower checkout conversion for international sales. In the absence of localised pricing, international online shoppers may abondon the purchase or leave their shopping carts to check on currency conversion rates and this removes the shoppers from the site’s sales funnel, increasing the risk of cart abandonment.

A PayPal survey indicated that 76% of online shoppers prefer to have the option of paying in their local currency and over 60% of survey respondents check currency conversion rates before paying in foreign currencies.7 It should be noted that the impact of not having multi-currency pricing on an e-commerce platform depends on the target buyer segments and the significance of cross-border sales to the platform.

Settlement model for cross-border sales

Where a company deploys a D2C model for cross-border e-commerce sales, considerations around FX risks and control of the FX workflow include:

• Settlement currencies — Where an e-commerce business elects to receive sales proceeds from its PSP in a small number of settlement currencies, usually to match the functional currencies of their business, FX-related choices are effectively being handled by the PSP. Treasury should engage closely with e-commerce teams to assess potential FX inefficiencies arising from PSP settlement workflows, which could prove to be a source of margin erosion.

Treasury should engage closely with e-commerce teams to identify FX optimisation opportunities in the collections flow for cross border e-commerce sales.

• Timeliness of settlement — For a company with cross-border e-commerce sales in multiple currencies, the settlement periods from point-of-sale to actual receipt of funds may differ vastly beween its PSPs. This presents

an opportunity to improve working capital by optimising settlement structures with its PSP partners.

5. Cash management frameworkMoving from B2B distribution models to D2C e-commerce results in the miniaturisation of a company’s collection flows into a high volume of lower value sales transactions to consumers.

This changing profile of sales and collection flows impacts downstream operational structures within treasury and Shared Service Centres (SSC) areas such as:

• Handling new collection processes at scale – for companies that are pivoting to online subscription models as part of their D2C e-commerce strategy, electronic Direct Debit collections may provide a consumer friendly, low cost alternative payment method in markets with electronic mandate management models. This shift to a high volume of payer initiated Direct Debit transactions may require re-engineering of SSC processes to accommodate these consumer flows.

• Reconciliation and cash application — D2C introduces new complexities in the collections reconciliation process, especially where a company works with multiple PSPs and therefore receives settlement data from its PSPs in multiple formats with different datasets. Such fragmented reporting structures create challenges in downstream reconciliation processes.

• Consumer refunds handling — optimising the process for consumer refunds (for card and non-card payment types) is important as this directly impacts the buyer’s experience with the e-commerce platform. Omni-channel considerations may also come into play, where companies need to support seamless customer interaction between online and offline channels, including online purchase with in-store return and refunds.

Treasury should work with the business to set up cash management structures that ensure e-commerce flows can be efficiently managed within downstream operational models. This is important, as downstream processes may ultimately affect consumers’ experiences if not managed efficiently.

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Case Study

Treasury’s journey to becoming a strategic business partnerThis digital native company operating in the travel sector has e-commerce at its core, connecting customers with partners on its online platform. Consequently, Treasury’s integration into the business and its role as a collaborator is more advanced than in some multinational companies.

“Treasury works as a partner to support the business’ focus on growth,” says the Deputy Treasurer. “That encompasses credit risk management, FX risk management, efficient use of cash and cash visibility — which are traditional core activities for Treasury.”

However, Treasury’s role extends beyond these traditional activities to continually finding new ways to add value and become a strategic business partner.

As an example, Treasury plays a key role in enabling the payments and collections network for the e-commerce platform, by always looking for new ways to make it easier, cheaper and quicker for customers and business partners to interact with the company and eliminate points of friction.

The team is continually assessing market and regulatory changes in the payments space, including SWIFT gpi and Open Banking developments for potential benefits.

“People in the business may be aware of some of these developments, but we can interpret them and translate them into opportunities and risks, and advise on the appropriate response,” says the Deputy Treasurer.

For instance, Treasury is engaged in SWIFT gpi initiatives to drive efficiency and a better payment experience for partners on the company’s digital platform. SWIFT gpi is an industry initiative to improve the speed, transparency and end-to-end tracking of cross-border payments across the SWIFT network.

Another example is how Treasury is bringing its FX expertise to the business to improve pricing competitiveness and consumer experience on the digital platform.

“We identified that FX fees imposed by card schemes were a challenge for customers,” explains the Deputy Treasurer. “The solution, which is still being implemented, enables customers to select their preferred currency for payments. This will improve the customer’s payment experience, increase our ability to offer local payment methods and ultimately grow business activity.”

At this company, Treasury’s role as a strategic partner to the business continues to develop and strengthen. Most recently, a new position within Treasury — Treasury Business Partner — has been created. The Treasury Business Partner, who has a broad knowledge of Treasury topics such as cash management and FX, is focused on accelerating Treasury’s connectivity with the business.

“The Treasury Business Partner is a quarterback within Treasury. They facilitate a two-way flow of information — from Treasury to the business and finance and vice versa,” says the Deputy Treasurer. “They let people in the business know what we do and how we can help but also bring information on business priorities and new digital initiatives into Treasury, so that we can proactively think about the downstream implications, which may not previously have been considered.”

Proactive and continuous communication with the business is key to build the Treasury brand internally. “Be open and honest about what you do in Treasury. We recognised that Treasury’s role was well known within certain teams but there was less awareness in others. To rectify that, we established a dashboard for the entire finance function which we publish on a quarterly basis, highlighting what we do, how we improve for our customers and how we can help.”

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Citi’s Treasury and Trade Solutions (TTS) business delivers an unrivalled global network and industry leading solutions across wholesale payments, working capital and cash management services that facilitate global and real-time commerce for our clients.

As our clients pivot to digital commerce, Citi is well positioned to deliver advisory, insights and solutions that help manage financial risks and support e-commerce growth. Our teams are actively engaging with our clients’ treasury teams to support their journey as they seek to collaborate more effectively with e-commerce business partners.

Key components of Citi’s value proposition for e-commerce models are highlighted below.

Transaction banking infrastructureCiti’s transaction banking platform gives companies the ability to execute their e-commerce strategy, leveraging Citi’s network in over 90 markets.

Our clients can expand their bank accounts and cash management structures with Citi globally to support the collections, payments and liquidity needs of their e-commerce businesses.

Digital consumer payments: Spring by CitiTo enable continued success for our clients in the digital age, Citi is extending its leadership in the treasury and B2B payment space by developing capabilities to enable e-commerce merchants to collect from consumers in a

Citi’s value proposition to support e-commerce modelsconsistent way that is seamlessly integrated with Citi’s transaction banking proposition.

The solution will provide a broad range of consumer payment options, together with local currency presentment capabilities, information reporting and auto-reconciliation capabilities, to help merchants build seamless experiences that increase sales conversion while mitigating risk.

FX risk managementCiti’s holistic FX management services can support companies’ e-commerce needs, including:

• The ability to accept payments in any currency while managing FX risk.

• Enabling better sales conversion by showing prices in a customer’s preferred currency.

• The ability to transact in complex/restricted markets.

Global pay-out solutionCiti has extensive experience supporting our clients across their cross-border, domestic and instant payment needs, to streamline payments to partners within their e-commerce supply chain, ultimately driving partner retention and growth.

Purchase and Pay in preferred currency

Settlements and

Reconciliation

Automated FX risk management

Pay-outs

Pay-outs

Pay-outs

Logistics partners

Advertising partnersAD

Cards

Alternative Payment MethodsBuyers Citi accounts

Sellers/ Partners/ Suppliers

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A multinational corporate in the beauty sectorThis company is one of the world’s largest cosmetics companies. E-commerce is a strategic priority for the company, with online sales now accounting for over 10% of the group’s consolidated sales. The company leverages both direct to consumer sales on its brands’ websites and sales via its retail partner websites.

Treasury plays a key role in enabling e-commerce growth for the beauty brands, particularly to drive the consumer payments strategy with the business.

“Payment methods are important for the customer experience. The consumer’s checkout should be, and must be, as seamless as possible” explains the international treasurer.

Two years ago, as the number of brands setting up e-commerce platforms grew, a D2C payment committee was setup at group level, to bring together the diverse stakeholders and functions that are impacted by direct to consumer e-commerce — including treasury, finance, supply chain, digital, retail, purchasing, IT, legal and accounting functions.

The committee sets payment guidelines for the e-commerce brands, include guidelines on PSP selection, new payment methods and considerations for security, fraud and customer experience.

The committee also acts as a funnel for replicating best practices — it has a worldwide view of the payment methods offered by the various e-commerce brands, checkout

conversion rates, and looks to export best practices across different markets and regions.

Developing payment expertise within treasury has been a priority and deemed to be a key enabler in treasury becoming a strategy business partner.

“We modified the job descriptions of treasury personnel in each country to ensure they prioritise developing expertise in payment methods. We also created a new role, Head of D2C payment methods, within Group Treasury” says the international treasurer.

Buy-in and sponsorship at board level has been key to treasury’s engagement in e-commerce projects.

The international treasurer says, “The Group CFO was a key sponsor for the payment committee, as he sought to break down the silos and bring all stakeholders together to discuss e-commerce and retail. Interestingly, the stakeholders were pleased to hear that a committee was being formed to focus on their concerns and help them address challenges and pain points.”

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Becoming a strategic partner for e-commerce — Actions treasurers tell us are important

Linking treasury’s activities to customer value

Building relationships with e-commerce stakeholders

across the business

Two-way sharing of initiatives, challenges and ideas

with the business

Carving out a treasury business partner role

Having group-level oversight of payment methods and

PSPs in all countries

Replicating consumer payment best practices

across businesses

Defining an engagement framework with the business

Assessing existing e-commerce portfolio and analysing financial

risks in current models

Creating a treasury playbook to guide and support

e-commerce businesses

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The world of business is changing rapidly as a result of technological innovation and changing consumer behaviour. While e-commerce is currently a relatively small proportion of overall sales for multinational firms, it is growing rapidly compared to sluggish growth in brick-and-mortar sales.

Companies’ boards are unsurprisingly making digital commerce a key priority in order to avoid losing market share and secure the competitive advantages — and efficiency gains — that e-commerce can offer.

The temptation for corporates is to give less focus to decisions about payment providers or the financial structures that underpin e-commerce flows in order to accelerate time to market. However, hasty actions can have lasting consequences. Without careful planning, customers’ shopping and payment experience may be suboptimal, and high operating costs arising from fragmented structures may erode margins, harming the long term prospects of e-commerce initiatives.

Furthermore, insufficient consideration of FX risk or how cash generated from new markets can be managed has the potential to undermine the revenue benefits of e-commerce.

ConclusionTreasury has the expertise, the experience and the relationships to avoid the many pitfalls that lie in wait for new players in e-commerce. It can play a beneficial role in:

• evaluating payment providers for e-commerce flows

• assessing the impact of payment strategies on working capital

• assessing the implications of cross-border sales and the consequencies of managing a wider range of settlement currencies

• addressing the downstream impact of e-commerce sales on cash management and Shared Service Centre structures

In many companies, treasury already plays a strategic role in advising the business — this needs to be expanded to e-commerce. At corporates where treasury is yet to evolve to a strategic business partner, the growing importance of e-commerce should serve as both a wakeup call and a catalyst for change. High quality, risk-managed e-commerce growth requires the involvement of treasury.

As companies pursue e-commerce growth strategies, treasury must become a trusted adviser and collaborator with the business to jointly drive growth. In turn, treasury must be able to rely on dependable partners for the support and insights it needs to help the business thrive in this new e-commerce era.

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Treasury and Trade Solutions This article is for information purposes only and does not constitute legal or other advice. The information contained in this article is believed to be accurate, but Citi makes no representation or warranty with regard to the accuracy or completeness of any information contained herein. Citi is not liable for any consequences of any entity relying on this article.

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