Citi Perspectives Fall 2019

Citi Perspectives  | 15 14 | Treasury and Trade Solutions Elaborating on this shift, he says that person-to-person flows — using mobile money — started in East Africa but new channels and ways of paying are emerging across the continent. This has seen local clearing systems and domestic payment methods upgraded. Faster payment and faster settlement platforms are being rolled out in SSA, changing the way corporates manage working capital, notes Gursel. “This reduces the reliance on float and changes working capital strategies. Immediate debit and immediate credit are becoming a reality.” “We’re watching this trend closely; however, we are not too involved with disruptive payment processes,” says Ngoshi. Cummins sells large machinery and has established large customers, like OEMs, on standard settlement terms. “But on the receipts side, there are some challenging countries, like Ghana for example, where we do see quite a lot of cash from smaller customers and we are considering setting up a mobile collections process.” At the moment, face-to- face delivery of invoices to Cummins’ customers is not unheard of in certain countries because “the infrastructure is not there” to ensure receipt and thus payment. In addition, Cummins’ decentralized cash management approach in locations such as Nigeria means using smaller banks, so the company needs to channel cash quickly to its main relationship bank. Here, Ngoshi says the firm has been exploring ways in which it can help its finance team with reconciliations — perhaps via virtual accounts. Booking.com also previously struggled with collections and reconciliations, says Howe, but it now uses virtual accounts across Africa, which has significantly eased the pain points. Kenya is another success story for the firm; due to an innovative approach to changing payment methods, the company collects almost 70% of its Kenyan transactions via mobile. Howe believes that it’s the innovative payment methods that really unlock a country — and in many ways hold the key to making a success of operations in Africa. “The more diverse and innovative payment and collection methods are, the more relevant we are in a local market,” he adds. A new partnership ecosystem It comes as no surprise, then, to learn that Booking.com is actively working with a number of fintechs. “We find in Africa that the fintechs are first rate, especially in the payments space,” comments Howe. Nevertheless, she expresses some concern about the longevity of these providers and believes that bank support during the early stage of fintech startups is incredibly important. To this, Ayo-Olaiya says: “We’re working closely with the fintech community to better understand their business models and where we see potential benefits for our customers in establishing some kind of partnership, we may step in and take on some of the risk, or have our experts offer guidance. This offers a more comfortable fintech experience for our corporate clients.” She believes that it is incumbent upon global banks to closely review their fintech relationships. Ngoshi agrees, “If a fintech partners with a bank, it makes it easier for us to adopt their solutions.” As a case in point, he highlights a product used in South Africa enabling clients to pay using an automated data-filling process. This, he says “mitigates a number of risks that we’re seeing at the moment” and yet clients are not aware that it is a fintech-delivered service made possible only through the participation of Cummins’ bank. Ngoshi adds, “This is precisely the kind of bank/fintech partnership that we want to see more of going forward.” Gursel believes that the future heralds many more such fintech collaborations. With respect to Africa, he feels there are “partnerships that are yet to be fully leveraged” between banking and fintech communities — in particular, between acquirers and payment intermediaries. “The continent is experiencing unprecedented technological change and the fintech community is quickly becoming a key piece of the banking puzzle. No bank can cover the entire continent — as yet — but Citi will be working closely with fintechs and payment intermediaries to form strategic partnerships that broaden our reach and scope across Africa.” Not all innovation is coming from the fintech sector, though. Tried and tested industry solutions are also being upgraded and rolled out across Africa, with SWIFT global payments innovation (gpi) being a case in point. “The real-time payment tracking functionality that forms part of SWIFT gpi will change the way corporate treasurers look at transactional visibility. Interestingly, it also means their reliance on banks will shift. With SWIFT gpi, treasurers will have instant insight into where their payments or receivables are at the push of a button — without having to call their bank. There are other products, such as virtual accounts, that are facilitating auto-matching and easier reconciliations, which again will reduce bank enquiries. Innovation is therefore leading to more of a self-service environment to enable treasurers to be more in control and less reliant on status checks from banks.” The hope is that SWIFT gpi could help to speed up some of the cross-border payment challenges that are common when operating in Africa. “Transfers from Africa to India can take a week before the value is realized,” notes Ngoshi. “Because of the time pressure we have in delivering, we sometimes have to borrow on our commercial paper program to cover the lag.” Numerous African-based e-commerce platforms have taken off, particularly across Sub-Saharan Africa (SSA). These are feeding new consumer expectations into the corporate treasury world, of faster, more seamless electronic payment methods.