Is your treasury ready for the 'New Economy'?

The term New Economy, coined in the late 1990s, reflected a view that globalisation and technology were driving fundamental shifts in the global economy, which would lead to a new economic structure. Today, more than two decades later, the way we think about the New Economy is evolving along with globalisation and advances in technology. Any company that contributes to the digital economy can be seen as part of the New Economy.

Increasingly, the New Economy is becoming a key driver of the real economy. The digital economy has outpaced the growth of the rest of the global GDP by two and a half times over the past 15 years. Countries, industries, and companies of all sizes are participating in the New Economy. More than a competitive advantage, participation in the New Economy is integral to doing business today.

New Economy business models

Many traditional businesses find that their customers are increasingly demanding a digitally enabled experience. eCommerce sales have reached unprecedented levels, amplified by the COVID-19
pandemic, to rapidly become the default option as consumers browse, discover, and purchase digitally. Digital interaction with suppliers and other players in the business ecosystem is also becoming the status quo. Furthermore, digital business models are often less capital intensive, which allows businesses to expand their global footprint at an accelerated pace.

A segment of New Economy players – including marketplaces, neo-banks, and fintechs – focuses on all participants in the digital value chain, with the digital platform as the primary mode for business interaction. Real-time communication with customers, and the integration of real-time information with end-to-end systems for transacting and reconciling, enable this business model.

Enabling borderless commerce

“Businesses recognise they need to be where their customers are – digital, and anywhere around the world,” says Philip Panaino, Global Head of Cash at Standard Chartered. “However, it is often inefficient to achieve this on their own. As the provision of goods and services becomes borderless, businesses will need to partner with platform technology providers, financial institutions, logistic fulfilment partners, and even cloud customer service solutions to scale quickly and deliver an optimal customer experience.”

Despite the evolution toward borderless businesses, customer expectations and behaviours vary by market. Countries have their own payment and collection methods, payment infrastructure and systems, and regulatory environment. From the vantage point of the treasurer, the ability to pay and collect across borders seamlessly and at scale, and to manage the related cross-currency and liquidity requirements and risks – while catering to local market needs and nuance – becomes mission-critical. This is where companies can lean on their banking partners.

Companies want to collect globally from customers and pay vendors instantly, 24/7. Global omnichannel collection platforms, such as Straight2Bank Pay, can be adapted to unique industry requirements for eCommerce and marketplace use cases. Straight2Bank Pay offers an easy and seamless way for companies to quickly offer new types of local collection methods as they expand to new markets, including instant payments.

Despite market expectations for borderless commerce, most country schemes for instant payments are domestically oriented. Beneficiary banks might not be able to apply the incoming payment to an account for various reasons, including incorrect formatting or lack of details like a payment code. This can delay and increase the cost of completing the payment. Standard Chartered’s API-based payments pre-validation service uses client-specified parameters in a payment message to reduce instances of rejected transactions, thereby increasing straight-through processing and better cost management.

Companies are also moving towards instant settlement for cross-border payments to leverage advantages such as 24/7 availability and lower fees. To meet this demand, banks like Standard Chartered are expanding their offering of cross-border instant payments solutions on networks such as IMPS in India and PromptPay in Thailand.

Navigating regulatory environments

Different regulatory requirements and industry practices add a layer of complexity for businesses as they scale beyond

borders. Understanding and complying with these requirements is vital to expanding into new markets, and success requires effective management of cash and liquidity. Amongst key areas for companies with New Economy business models to consider are the following:

• Barriers to entry differ by market, with regulated markets imposing stringent controls such as local incorporation of businesses, the requirement to operate under a resident account structure, and restricted financial activities of offshore business entities.
• Businesses must understand evolving regulatory licensing regimes and related considerations, such as anti-money laundering and capital and business conduct requirements.
• Exchange control regulations may apply where underlying commerce transactions are crosscurrency.
• There are regulatory requirements around the handling and treatment of client monies where your business provides financial intermediary and/or stored value services.

Companies can look to banks with credible institutional knowledge and local insights to help them navigate regulatory considerations when designing eCommerce or Marketplace business models.

Treasurers need regulatory-compliant solutions that support cross-currency commerce and can optimise liquidity management globally. These may combine, for example, the use of virtual accounts with global liquidity structures and automating transactional foreign exchange flows, to minimise the level of trapped cash and enable efficient management of liquidity globally and across currencies.

The New Economy imperative for treasury

More than ever, treasury teams are shifting from cost centers to strategic, enterprise-wide collaborators that contribute to value creation by enhancing the customer experience while meeting business goals. Payments, collections, and related information flows must integrate seamlessly into the customer’s chosen method of interaction – with a sense of immediacy – whether online or offline. The purchase experience must fit into the customer’s context, in the customer’s currency.

The new end-to-end in the New Economy, from the treasurer’s point of view, reaches from treasury’s systems all the way to the customer. Managing complexity while enabling simplicity is the challenge and opportunity. To achieve this, treasurers should explore deepening the collaboration with their ecosystem of banks and other service providers in new and exciting ways.

Read Part Two – “Growing beyond borders: Reimagining the role of foreign exchange”  for a deep-dive into how a strategic approach to foreign exchange can differentiate the experience you bring to customers, as your business goes borderless in the New Economy.