Shift to a More Digital, Ecosystem-Driven Model


What do you do when the “physical” becomes impossible?

Well, that was the challenge facing literally every business in the world when the pandemic hit and turned all things digital, causing a huge shock to economies and to consumers’ way of life.

“People didn’t want to touch coins and notes at that time, so there was a massive reduction in ATM volumes and traffic, therefore a reduction in the use of cash,” Shahrokh Moinian, managing director at J.P. Morgan Chase, told PYMNTS’ Karen Webster in an interview.

This triggered a “dramatic” surge in card payments and bank account-linked electronic payments like ACH credits and instant payments across the U.K., Europe, the Middle East and Africa.

“There was also what I would call the flourishing of wallets,” Moinian added, referring to the surge in wallet use for purchases and peer-to-peer (P2P) payments. The concept of buy now, pay later (BNPL) also took off, forcing businesses and their banks to pivot their existing business models and payment offerings to meet what would soon become the consumer’s digital day-to-day routine.

And as consumers shifted their shopping online and away from physical shops, many large brands seized the opportunity to follow them, quite literally, with new direct-to-consumer (D2C) offerings.

For corporates that are new to the D2C game, this shift was much more complex than simply adding a new channel or “going online” – it meant launching an entirely new business, serving an entirely new customer segment, whose expectations of an online experience were shaped by the biggest and best in the business: Amazon, among others.

“The[se] businesses had to put together an entire eCommerce platform, figure out the logistics, figure out how to accept a variety of digital payment methods from consumers, service those customers, process returns and manage disputes – and they were not used to that,” Moinian remarked. “They were basically used to getting a type of B2B payments from retailers, and now the consumer wants to pay via instant payments, wallets […] and that was a revolution.”

Helping Corporates Make the Digital Pivot

Almost overnight, the features and functions that are table stakes for eCommerce were no longer enough. Merchants with years – or maybe even decades – of experience doing business online introduced a new set of payment requirements for companies whose systems were set up to process a single order of 500 items from a single buyer, rather than one item each for 500 new consumers.

Discounts, rewards and loyalty programs also had to become a de-facto part of the value proposition.

Adding to the complexity of those who are new to the D2C game, Moinian said, was digitally verifying the identity of these customers and authenticating them.

In an effort to avoid channel conflict and acquire new customers, many brands introduced new personalized products and bundles via subscription offerings. Some took a longer view of the opportunity and explored using their products as platforms for lifestyle-esque marketplaces in their own right, partnering with complementary products and services to add more value to the consumer bundle, increase basket size and add more revenue to the top line.

“Companies were thinking, ‘what else can I add?’ Not necessarily my competitor’s products, but what else is required if I buy shoes? I may also need socks or T-shirts or shorts,” Moinian said. “And if I’m not the producer and the manufacturer of [a] product, can I get other merchants to come in and sell those on my marketplace so that I can have a captive marketplace, versus just selling my own [single product]?”

This introduced even more complexity with payments to those partners and supplier financing options, as well as cash flow and liquidity management for CFOs and treasurers.

Digital Shifts Drive M&A Activity

The shift to digital has spurred more than the transition to new D2C models and the growth of marketplaces; it’s also put the fragility of the supply chain front and center for everyone.

Moinian noted that consolidating and safeguarding the supply chain has been one of the key drivers of the hike in global M&A activity – particularly in EMEA, as larger companies recognize the need to protect key aspects of the supply chain and stabilize the financial health of the suppliers.

M&A deals so far this year have exceeded 2020 levels, topping $4 trillion worldwide, with more than $657 billion of that activity taking place in Europe alone.

The shift to a “more eCommerce-oriented business, more platform and ecosystem-driven” model is another factor driving the M&A trend, Moinian said — and a key driver for J.P. Morgan’s recent acquisition of 75% of Volkswagen’s payments business.

The deal, which aims to transform cars into rolling payments platforms, puts the large U.S. bank at the center of in-vehicle payment services, which is estimated to hit $4 billion in 2021.

Read more: Connected Economy 2021: JPMorgan: Customer Experience Will Drive Super App Future in the US

Moinian said that M&A introduces a different set of challenges from a treasury and finance perspective, depending on what type of deal is at play: a spinoff, a sale of part of an asset, a sale of an entire company or a takeover by another one.

That’s why every treasurer J.P. Morgan works with wishes they had a playbook to help them through the transition – something Moinian’s team recently put together, given the spike in M&A activity and the bank’s work in helping clients on the transaction side of these deals.

As Moinian noted, “[one side of the deal] is about creativity, the other one is about making it work – but I think [balancing the two] is the secret to success.”

Treasurers are tasked with managing the transition and successfully migrating all accounts and ERP integrations, yet they don’t want to “pull the plug” before they are sure that funds will flow in and out of the proper accounts and that cash will be applied to the right accounts, since “debts need to be paid.”

Setting up dashboards to provide more transparency into the risk and liquidity of the acquired company or the acquired assets is also critical to helping the treasury and finance teams gain real-time access to data to better handle any emerging issues.

And despite the General Data Protection Regulation (GDPR) requirements in Europe, tapping into the abundant amount of macro-level data available could eventually help ecosystems better understand consumer behavior, how they spend their money and what steps they would like to take.

“Data has never been so important at a macro level, and it will help us give the client a much better experience down the line,” he said.



About: Forty-seven percent of U.S. consumers are shying away from digital-only banks due to data security worries, despite significant interest in these services. In Digital Banking: The Brewing Battle For Where We Will Bank, PYMNTS surveyed over 2,200 consumers to reveal how digital-only banks can shore up privacy and security while offering convenient services to satisfy this unmet demand.


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