Traditionally, the role of businesses and that of their suppliers and consumers has been relatively clear-cut. Goods or services are transformed along a linear supply chain, beginning with raw materials and culminating in a product. However, given the emergence of platform businesses, the traditional roles of business, supplier and consumer are becoming blurred. As the platform corporations that facilitate these connections and their business models evolve, and the range of activities in which they are engaged expands, their cash management needs are also becoming increasingly distinctive.
The evolution of the platform economy
Platform businesses have existed for the past 20 years or so, but how products and services are produced, distributed and consumed have radically changed in this time. The first decade, around the mid-1990s, was dominated by eCommerce companies, such as Amazon, where physical goods were offered via a portal. eCommerce then developed further into e-marketplaces e.g. eBay, which enabled the exchange of goods and services between individuals. The second decade, from the mid-2000s, saw the blossoming of the sharing/rent economy, with rapid growth in the number of platforms such as Airbnb for sharing or renting of homes. Most recently, the gig economy has developed, with platforms such as TaskRabbit and Uber matching individual short term labour supply with tasks or trips. These businesses do not carry inventory, but their value is to create the market-place or the network which connects supply and demand. Consequently, the bigger the network, the greater the value derived by participants.
Drivers of cash management innovation
This distinctive business models lead to unique cash management requirements. With payments, traditional businesses tend to aggregate supplier and employee payments into scheduled payment runs. Salaries, for example, are paid on a fixed weekly or monthly schedule with a reasonably steady value. Platform businesses with “fluid” buyers and suppliers, become more fragmented and “just-in-time”, with many ad hoc transactions of varying, often low value. Collections also differ considerably, with the need to process high volumes of electronic incoming payments quickly, often from different countries and of different types.
The proliferation of platform businesses has been mirrored by similar growth of non-bank, at times closed loop, e-payment service providers. Alipay, the payments arm of Chinese eCommerce giant Alibaba, has fast become the preferred payment method for most Chinese consumers compared with cash and cards. However, banks that develop a deep understanding of the cash management requirements of these businesses, and who have the geographic footprint, commitment and capacity for innovation, have a major role in facilitating current and future generations of platform businesses. For example, a large eCommerce corporation operating in, or seeking to expand into multiple jurisdictions needs to engage with multiple merchant acquirers or payment service providers, and comply with different regulations in each location. This is a particular challenge for those seeking to expand across regions with significant regulatory, market and cultural diversity, such as ASEAN or South Asia.
In this situation, the use of a single portal across every country that facilitates payment or collections across many methods becomes a valuable way of addressing these challenges, whilst offering platform participants a cohesive and convenient experience. Meanwhile, an individual in the gig economy or a lessor in the rent economy may need to request a payment linked to a transaction easily and quickly via mobile or other channels without compromising on security. Open application programming interfaces (APIs) have a major role to play in addressing the diverse cash management needs of platform businesses, and those of platform users, to play in banking, allowing seamless, machine-to-machine payments by connecting the bank and the corporation in a way that is highly specific to each company’s specific business model and technology infrastructure.
Partner banking for the platform economy
Some banks have been quick to respond to the opportunities that open API banking offers to address customer needs and create additional value. While non-bank payment service providers continue to play a role in facilitating the platform-based business models, banks offer particular expertise in market and regulatory practises across their footprint, expertise in security and trusted relationships across a range of activities in addition to cash management. Banks are also best-equipped to help corporations in all industries to anticipate and respond to market and regulatory change, and manage the impact on their business.
The development of instant or faster payments, such as FAST in Singapore or UPI in India create new opportunities and expectations amongst platform users, but they also impact on technology and business processes as these payment networks allow API integration for seamless commerce. Beyond offering 24x7 real-time access to money, they offer convenient identifiers like mobile numbers, eMail addresses or/and national IDs instead of complex account numbers, bank sort codes etc; driving mass-adoption.
Similarly, emerging technologies such as distributed ledger technology (DLT or blockchain) and smart contracts will play an increasingly important role in creating trust and efficiency in the decentralised, open, platform economy, prompting further innovation in business models, platform user engagement and the banking solutions that will facilitate them.
Standard Chartered is a leading bank in facilitating and inspiring the platform economies of today and tomorrow. Click here for our recent white paper on Cash management solutions for the platform-based economy.