Treasury and Payments
Virtual Solutions in a Real World
Today’s businesses are immersed in interesting times. Customer behaviors are changing rapidly, supply chains are continually transforming due to geo-political realities and platform business models are disrupting traditional industries.
To stay in front of a continually changing environment, you need an innovative, reliable partner to help you build your payment strategy and develop your account solutions.
In this article, we examine a few real-world use cases for e-Commerce and Platform businesses and look at the future of virtual solutions.
Use case 1
Use case 2
Use case 3
Rapidly expanding eCommerce company enacts full treasury transformation
The e-commerce and platform space is experiencing rapid growth with global sales hitting $4.2T in 20211. While focusing on expansion over the last decade, many clients established decentralized operating models, cash management operations and account structures. These clients are now seeking optimized operating models and scalable account structures to support their next level of growth.
About
A leading online payments service provider and marketplace operator serving 1+ billion buyers and 2 million sellers in over 200 countries, servicing major global merchants and all affiliates.
The challenge
With a decentralized operating model and each entity managing its own payments and collections from one location, our client’s lack of FX centralization and liquidity management led to fragmented liquidity and a suboptimal support structure for their global cash operations.
The solution
With a solution powered by J.P. Morgan, our client achieved centralization by integrating Virtual Reference Numbers (VRN) into the Virtual Account Management (VAM) structure. VRN was used to separate the C2 flows, while VAM was used to separate treasury flows. We also implemented three levels of liquidity structures – cash concentration, multi-currency notional pooling, and local multibank sweeping structures – to accelerate the movement of funds and extend the operation window for fund movements.
The results
Our client achieved simpler reconciliation, resulting in more accurate cash flow forecasting. In addition, their treasurer had real-time visibility and insights into their cash positions. The solution provided a centralized structure enabling significant cost savings and funding efficiencies, which is scalable to accommodate exponential growth.
Challenges faced
- Account structure inefficient to support global cash operations and time-consuming reconciliation
- Fragmented liquidity - frequent overdrafts costs while affiliates had surplus funds
Solution offered
- Local account structures with VRNs for cash reconciliations
- Centralized Liquidity: Regional cash pooling for operating entities, with funding enabled by regional notional pools of In-House Bank and intercompany flows segregated by VAM
Business impact
- Efficient cash management
- Significant cost savings and funding efficiencies
- Model scalable to accommodate global exponential growth
Enhanced visibility of omni-channel sales receivables for sporting goods manufacturer
About
A large multi-national corporation manufacturing and marketing sporting goods, footwear and apparel. They sell to retail accounts and a mix of independent distributors, licensees and sales reps in virtually all countries through retail stores and digital platforms.
The challenge
Granularly tracking revenues and profitability for each channel and store they operate was critical for our client. As their business grew, they opened bank accounts for each store and sales channel. This account structure was cumbersome to manage and operate. They had difficulty separating receivables from sales channel, and the increasing number of accounts utilized led to manual, inefficient reconciliation.
The solution
We implemented a VAM structure to separate receivables from each customer and installed operating activities, with J.P. Morgan underpinning a single physical bank account. In addition, we also enabled a self-service capability for adding virtual accounts for subsequent stores or online channels.
The results
The VAM structure enabled superior receivables tracking and simpler reconciliation, while the self-service capability allows our client to add virtual accounts as their business expands. Ultimately, they were able to use our VAM solution for granular revenue tracking without scalability concerns.
Challenges faced
- Difficulty in segregation of collections from sales channel
- Growth in number of accounts utilized led to manual and inefficient reconciliation
Solution offered
- Virtual accounts for granular monitoring of flows for each market-place and retailer
- Self-service capability to add virtual accounts
Business impact
- Superior performance tracking of sales channels
- Solution scalable to keep pace with growth of its sales channels
Potential solutions for the future: Automated transfer from pay-in to pay-out location for payment service providers
As we look to the future of virtual account solutions, we may have the ability to manage pay-in and pay-out with virtual accounts for each customer on a client’s platform. Traditionally, VRN solutions enabled simple identification and reconciliation of receivables for Payment Service Providers. Clients often ask if there is a better way to trace the pay-ins from their customers to pay-outs to the intended beneficiary.
We expect to see a solution enabling clients to map a Virtual Account to their customers for both pay-in and pay-out activities across one or multiple currencies. This could be applicable for clients entering into payment facilitation or wallet provisioning, and for those seeking some form of sub-ledgering capability. With this, you could automate transfers between these virtual accounts at periodic intervals, or at end-of-day. This solution could increase ease of reconciliation between pay-ins and pay-outs, resulting in better visibility and traceability over your cash movements.
Challenges faced
- Traceability between pay-ins and corresponding pay-outs
Solution enhancement offered
- Virtual account offering enhanced to enable pay-ins to be mapped to pay-outs
Anticipated business impact
- Increased efficiency in reconciliation coupled with better visibility over cash movements
Conclusion
The business landscape will continue to evolve as new factors come into play. Our virtual solutions, which include Virtual Account Management, J.P. Morgan Wallet and Virtual Reference Numbers, can help you transform your business and address your strategic and operational goals, allowing you to:
Enable e-Commerce and Platform business models equally, as well as traditional business models
Increase working capital management efficiency by establishing well-functioning OBO or IHB operations
Establish efficient cash forecasting
Improve your DSO KPI and granular revenue recognition through payer identification
Our team of solutioning and servicing experts will work with you to support and deliver on your needs, enabling you to meet your business objectives, implement industry-focused solutions at scale and plan for the future.
For more information on how you can optimize your liquidity and multi-currency strategies contact your J.P. Morgan representative today
© 2022 JPMorgan Chase & Co. Member FDIC. All rights reserved. The statements herein are confidential and proprietary and not intended to be legally binding. Not all products and services are available in all geographical areas. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations. Visit jpmorgan.com/disclosures/payments for further disclosures and disclaimers related to this content.
