When a large corporate embarks on a mission to enhance visibility of cash, it does so with a view to freeing working capital and allowing for better cashflow forecasting. One way to achieve better cash visibility, as well as cutting down on operational cost, is to move payments from cash and cheques to electronic means.
Regardless of location, paper-based processing of payments and receivables is more expensive than electronic alternatives and puts the corporate at greater risk of fraud. One common solution that transaction banks will propose is the implementation of internet-based portals through which suppliers and customers can, respectively, submit invoices and initiate payment (through automated clearing house transfers, for instance). Yet, technological innovation is rapidly adding alternatives to these portals.
In many Asian markets, suppliers and distributors of a large corporate may not be inclined to register and utilize these portals, due to unreliable access to broadband internet or, for some, the lack of a bank account. Providing these business partners with alternative methods of digital payments becomes critical in reducing cheque processing.
Adds Gautam Jain, global head of client access at the bank: “Insurance providers could benefit if the agents were in a position to collect premium payments through mobile devices, rather than having to wait for checks to clear and display in the insurance provider’s accounts days later. From a geographical perspective, B2B mobile money solutions make sense in countries with large upcountry check collection processes”.
As a result, Standard Chartered has launched in one of its Asian markets a collections product via mobile, which caters to large producers with wide distribution networks. “At the moment, we collect the paper check and the courier goes to the central treasury where it is presented so the goods can be released,” explains Jain. “This is a relatively easy process to which we introduce the mobile. The courier now takes the image of the check, it goes to the system and we are eliminating around eight hours of the collection cycle because the process is all image-based on mobile.”
The case study demonstrates how mobile devices aid in the digitization of receivables, thereby shortening the collection cycle and yielding benefits to both producer and distributor. “From a client perspective,” Jain elaborates, “information is received much earlier, and hence the retailer can receive the goods faster, enabling him to turn around his inventory quicker. His working capital and inventory are optimized.”
The next stage in this evolution is achieved when a corporate’s numerous distributors make payment using their mobile devices from the start, eliminating the need to capture the image-based cheque on a mobile device. In India, the Gujarat Cooperative Milk Marketing Federation – more prominently known under its trademark Amul – receives a growing share of payments from its retail distributors through mobile-initiated transactions. Amul’s distribution comprises some 5,000 dealers and one million retailers. (See April issue, p40.) In order to avoid non-payment, Amul used to rely on receiving post-dated cheques in advance of shipment and thus incurred large overhead costs of storing cheques and managing clearance information.
As one part of the solution that Amul’s banking partner BNP Paribas proposed, starting last year distributors have been able to transfer funds to Amul using their mobile phones. Targeted especially at those smaller distributors that may not be able to make payments through India’s RTGS or NEFT systems on a regular basis, the mobile channel builds on the country’s Interbank Mobile Payment Service (IMPS) and allows secure access to bank accounts to facilitate fund transfer without a computer. Amul receives and confirms payment quicker and can release goods to its retailers faster. Remitters receive a so-called MMID (mobile money ID) that is known to Amul and thus allows for quick reconciliation. Typically, funds are credited to Amul within 15 to 30 seconds.
Initially conceived for private or consumer-to-business transactions, IMPS was successfully introduced in this FMCG setting to yield benefits to both parties. Arvind Ronad, senior executive product strategy and marketing at technology vendor Fundtech, has followed the evolution of IMPS and asserts: “We see IMPS poised for growth, and it is just a matter of time before it obtains a critical mass of active users and transaction volume. Corporates and their supply chains will start exploiting it once they become more aware of the capabilities and benefits.”
With arguably more relevancy to Asia’s mature markets, credit card-based solutions are an alternative way to digitize payables. Vendor payment is a central treasury function that incurs significant operational costs, especially when this is still based on distribution of cheques. Card issuers have proposed that their networks can deliver secure payments in a B2B setting, provided that suppliers accept card payments. In this business model, payments are typically made using virtual credit cards that the treasury issues to its suppliers; each card modified with a unique card number, expiration date and the amount due. The cards are sent as an image via e-mail or even mobile devices. The supplier then processes the payment like a regular credit card, knowing that the invoice is settled immediately.
Virtual card solutions so far have seen strongest pick-up in the travel and entertainment industry, observes Vincent Patru, head of commercial products for Asia-Pacific, Middle East, and Africa (APMEA) at MasterCard Worldwide: “Web-based travel aggregators, for example, spend millions on reconciliation. Our virtual account number solutions works like a card but without the plastic. Whenever there is a trip generated on their platform, MasterCard will generate a unique 16-code number to the end provider, restricted for a certain amount, merchant and validity. One number for each transaction allows the client to link payment to one specific trip.”
In industries with such high volume of transactions, a portal solution would make limited sense. In terms of industries, the greatest opportunities lie beyond travel and entertainment corporations, believes Patru. “You can imagine this for the public sector where agencies can pay their multiple suppliers,” he maintains. “It also makes sense for insurers or hospitals. Paying their suppliers through traditional money transfers is a mess. Introducing the virtual card brings a lot of cost-saving.”
Patru is keen to point out the size of the market in general: “In Asia, B2B payments are the largest opportunity out there. Looking at Asia, the Middle East and Africa, B2B transactions account for roughly US$33 trillion and out of this the potential that could easily be handled via cards is about US$6 trillion. So far, this number stands at about US$350 billion, both plastic and virtual. It takes time to go after CFOs and treasurers to make them understand the benefits.”
Read the full story at www.smartcardfactory.com!
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