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Corporate treasury’s next big opportunity: other people’s money

Post-pandemic, as businesses grow and scale their e-commerce platforms, the matter of third-party money (3PM) is coming to the fore. How can treasurers effectively navigate the multitude of new considerations 3PM brings and enable the digital and e-commerce ambitions of their businesses?

Many more of today’s global treasurers are increasingly handling funds that don’t necessarily ‘belong’ to the firm. This is because an increasing number of companies – who, pre-pandemic, may not have been as focused on digitizing and ‘platformizing’ their business models – are now being thrust into a market increasingly dominated by e-commerce and digital platforms.

As a result, companies of varying industries and geographies are exploring different ways to connect with their customers online to help them remain relevant, improve the customer experience and increase the loyalty and lifetime value of customers in their ecosystem. And it doesn’t end with customers; the same expectation of being able to do business digitally is just as true for their suppliers, employees and other third-party stakeholders.

As digitization of business models becomes a reality, more and more companies are holding or processing funds on behalf of third parties, which we refer to as third-party money (3PM). In other words – companies and their Treasurers are increasingly getting into business activities that involve handling other people’s money.

3PM: The basics

3PM is a different kind of cash to traditional working capital – whether day-to-day working capital or investible proceeds and retained earnings. The fundamental difference is one of ownership: corporate cash belongs to the company and appears on its balance sheet; conversely, 3PM is cash held on behalf of someone else, so it needs to be classified as such and accounted for separately.

Depending on a company’s licensing status and the nature of its operational activities that involve 3PM, there are a myriad of considerations, obligations and risks that must be evaluated. These may include legal, regulatory and commercial considerations – which treasurers must navigate jurisdiction by jurisdiction.

Digital platform growth and 3PM

Companies are adopting many different strategies to capture the promise of e-commerce, many of which inherently involve 3PM. Examples include:

  • Expansion by marketplace operators and gig-economy operators in terms of the scope of products and/or services they offer
  • Growth in stored value and consumer fintechs in terms of product offering, wallet balances, and target client segments
  • Traditional companies shifting towards digital value chains and ecosystems including third-party marketplaces, loyalty programs, payment processing and stored value capabilities
  • Expansion by payment processors and facilitators in footprint and B2B/B2C focus

Treasurers and 3PM

In dealing with 3PM, treasurers have to figure out how they will manage many new aspects:

  • Whether they need (or want) to be licensed to handle or process 3PM in a particular jurisdiction for the activities their company plans to operate
  • How to safeguard third-party funds and manage other regulatory obligations
  • Whether to invest in building the requisite technology, legal, compliance and financial expertise in-house or partnering with a financial institution and/or software provider

As companies embark on the journey of digital and business model transformation, a critical change is taking place in the role of the treasurer as they evolve from being arms-length financial and risk managers to critical partners to business leads in enabling their company’s digital transformation and ecommerce growth ambitions.

3PM in action: an example

A customer returns a product. The process is cumbersome, funds aren’t returned for a few days, and once the customer gets their refund, they are out of the company’s ecosystem.

Companies looking for ways to create loyal  customer relationships might instead choose to create a digital wallet in which the refunded amount can be held – thus keeping that customer in their ecosystem. This, in turn, could be coupled with a discount coupon to further encourage customers to “re-spend” their funds with the company. By keeping that customer in their ecosystem, the company is now holding their customers’ cash – this is 3PM. The sticking point is that this cash does not belong to the company. Therefore, treasury needs to understand and navigate the associated implications and considerations before this option can even be offered to customers in the first place. Lastly, let’s not forget that all this must be done in tandem with effective management of corporate cash flows.

More companies than ever are considering digital platform business models, and J.P. Morgan is uniquely positioned to help treasurers on this journey by acting as their trusted partner to guide them through the right entity setup, licensing, regulatory and risk considerations to enable their business strategy.


Connect with your J.P. Morgan representative to find the right solution for your business.

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