Consumer Brands, Retail and Healthcare:
Payment Infrastructure and Collections
by Hans van den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management at HSBC
Companies in the consumer brands, retail and healthcare (CBRH) sector face a broad range of collections and accounts receivables (AR) challenges. In many cases these arise from the diverse geographies they cover, coupled with a customer base that can range from retail to large multinational corporates and anything in between. Nevertheless, as Hans van den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management at HSBC explains, changes underway in payment infrastructures could help these CBRH companies enhance the efficiency of their collections and accounts receivables processes.
Data quality, costs and speed are probably three of the principal areas where many CBRH treasurers would like to see innovation that could enhance their collections and AR processes. The capacity to improve the quality and preservation of data could add value in multiple areas. In the retail space, being able to collect and attribute additional data to specific customer transactions would aid the development of deeper and mutually beneficial relationships with customers (e.g. better targeting of special offers and loyalty programs). In the SME space, similar functionality opportunities could arise, especially where customers currently pay with an anonymous medium such as cash. In the case of larger customers, better functionality in areas such preservation of remittance information could improve automated reconciliation rates.
Anything that can reduce the costs associated with collections and AR would be similarly welcome. In the retail space, card payments have (in many countries) largely replaced cheque and cash payments, but the costs associated with some types of card can still be significant. SME customers in some countries still make extensive use of cash payments, with obvious cost and security implications, while with larger customers much of the cost burden is associated with manual reconciliation of invoices and remittances that do not obviously match.
The speed challenge also takes on various guises. In some cases, the time that payments take to clear can add several days to corporate days sales outstanding (DSO). In others, delays in clearing and/or reconciliation can result in additional client business being blocked unnecessarily due to credit limit capacity being exhausted.
A growing number of countries around the globe have been introducing new immediate payment systems, with others in the pipeline. Although some media focus has been on the word 'immediate', from a CBRH treasury's perspective the key points of interest are not so much the speed of the payment, but more the additional amount of data that these new clearing systems might carry.
Historically, payments infrastructures have delivered payments very efficiently, but in a one dimensional manner. By contrast, some newer clearing infrastructures deliver much more than just payments, to the extent that the payment almost becomes a secondary consideration. A very simple and traditional example is the ability to transmit a greater amount of remittance information in a standardised and structured format (e.g. ISO 20022 XML). This helps address the historical issue of remittance information becoming truncated or lost (due to the limited amount of additional character information some clearing systems could carry) and AR resources being wasted in trying to recover that information to reconcile payments.
However, while resolving an important historic issue, this merely scratches the surface of what may be possible in terms of the type of data that could flow across these infrastructures and also their directionality. For example, rather than just payments and limited information flowing from A to B, B could also send data to A before a payment is sent, such as a request for payment. Taken to its logical conclusion, multiple bilateral data transactions could flow along this clearing channel, opening the door to an extremely high degree of process automation, all the way from purchase order to payment reconciliation.
In the light of the potential opportunities that the new wave of payment infrastructures offer, CBRH treasury's expectations are also changing rapidly. Major expectations are centred on connectivity and convenience, while more generally corporate clients are looking to their banks to support them in ways they haven't in the past.
For instance, convenience of payments in the context of changing payment mechanisms is an important consideration here. Cards have increasingly supplanted cheques and cash, but they in turn may be supplanted by new payment mechanisms, such as wallets and mobiles. How will banks support that transition, while still delivering a homogenous data experience? Can they do that consistently on a global basis across multiple markets where end customers choice of payment mechanism may vary radically? How effectively will they be able to deliver that in an environment where multiple other technologies such as cloud computing and blockchain may also be connected to the new payment infrastructure?