The Transformational Role of eCommerce
by Indrajeet Maitra, Head of International Cash Management, Asia Pacific, BNP Paribas
eCommerce has become a frequently used term to refer to a wide range of technology-driven opportunities, from online retail purchases to mobile banking. Although it implies a diversity of solutions, eCommerce has the potential to transform the way that individuals, small businesses, corporations and banks communicate and transact. This is particularly the case in emerging regions such as Asia with its vast geographic reach, regulatory and cultural diversity and nascent physical infrastructure in many countries, where a ‘bricks and mortar’ approach to delivering services is impractical.
In many parts of Asia, and indeed in other emerging regions, the cost and inconvenience of participating in the traditional banking sector is often high, particularly for individuals and small businesses, so cash typically remains the most common means of payment. Cash payment brings a variety of challenges, and is inconsistent with corporate demands for an efficient, secure and auditable means of payment and collection. eCommerce is pivotal to addressing this challenge, both for connecting counterparties and transacting business, and driving innovative new supply chain models.
The enormous advances that have taken place in recent years in both telecommunications and financial technology mean that it is less important to invest in the ‘bricks and mortar’ infrastructure that exists in more economically mature companies. eCommerce involves a package of three elements: technology, mobile banking and third party providers. Combining the three is a catalyst for a myriad opportunities for connecting financial participants and transacting business. For example, a large multinational food and beverage company that distributes products to retailers will typically seek payment on delivery. Cash is not acceptable to the company, while bank costs would be expensive for small retailers, a bank branch may not be easily accessible, and these amounts may be difficult to reconcile. To address this dilemma, mobile payments allow immediate settlement and notification of payment at a fraction of the cost using readily available technology.
The ability to leverage new types of banking services brings clear advantages to both buyer and seller, irrespective of the size of organisation, and creates an equal playing field for all financial participants. eCommerce has the potential to enhance the competitiveness of smaller companies in other ways too. A family-owned freight forwarder may lack the scale to negotiate competitive pricing with large customers, not least due to high banking costs. By forming a loose alliance of other small freight forwarders, leveraging an eCommerce model to keep their costs down, these companies can obtain banking services more readily, price their services more competitively and increase their orders. While this deployment of eCommerce is still at a nascent stage, it reflects the potential to create a new competitive landscape in emerging economies that does not simply replicate trading models in other parts of the world.
Online selling, one of the more well-known forms of eCommerce, is also impacting on traditional trading and distribution models. While in the past, large companies worked with distributors and agents as opposed to setting up direct sales channels, online retail now offers the opportunity to sell direct to both consumers and businesses without the overheads of establishing local premises. This in turn is necessitating a new generation of banking services to support online payments, particularly bearing in mind the large unbanked population.
As a global bank supporting large corporate customers in 12 countries across Asia Pacific, eCommerce is pivotal to our business, both to enable us to deliver services to our customers, and to facilitate their supply chains. Just as corporations of all sizes are leveraging new supply, sales and distribution models, no longer is a bank’s ability to support its customer base effectively determined by the number of branches. For example, we are working with the telecom sector in countries such as India to streamline electricity payments. Mobile masts are owned by one company which needs to make payments to electricity companies in every state in India. This is an extremely complex and costly undertaking, so we have implemented an ePayments platform. The company uploads a payments file, with payments automatically distributed to the relevant electricity company, with automatic notification of successful payment.
Once again, eCommerce is playing a transformational role, replacing the traditional model whereby payments needed to be made directly to local banks, often through a variety of different methods and to geographically disparate locations with an efficient, automated and cost-effective solution that offers benefits to every party in the transaction.