Treasury’s Role in Creating a Digital Marketplace

Online marketplaces have been popularised by Big Tech corporates such as Uber, Amazon, Meta, and Apple. They are a rising aspect of 21st century commerce as digitalisation and the sharing and gig economies advance. A whitepaper produced by Deutsche Bank and TMI outlines the steps corporate treasurers should take to create and support these innovative areas for buyers and sellers.

Digital marketplaces are sophisticated online ecosystems that serve as intermediaries connecting multiple stakeholders in an online economy. They can be found in both the B2C and B2B arenas, and their uptake by companies across many different industry sectors is increasing apace.

Indeed, research by Forrester has already shown a shift of more than $2tr. from traditional retail, dealer, and reseller channels into these platforms in recent years^[1] and growth is expanding. Amazon serves as a prime example of a digital marketplace that caters to both B2B and B2C customers. It connects businesses with a platform to reach consumers (B2C), while also providing services like Amazon Business, which enables B2B procurement.

“While buyers enjoy greater choice, faster delivery, and cost reductions, sellers gain access to a larger client base with reduced risk,” says Matthaeus Sielecki, Head of Embedded Finance Solutions, Cash Management at Deutsche Bank.

He further highlights that a marketplace helps marketplace operators increase their share of wallet through third-party reseller commissions. “Additionally, it provides them with deeper market insights, allowing them to monitor platform usage, encompassing search and transaction data. This valuable data can be monetised or leveraged to enhance the platform, creating a more integrated customer journey and compelling value proposition for buyers and sellers.”

Sielecki differentiates between four different business model archetypes which overlap and evolve.

• Digital marketplaces: These platforms facilitate the exchange of goods, services, or information among a diverse array of participants, including businesses and consumers. They offer a wide range of products or services, harnessing network effects to attract a large user base. They prioritise user experience, personalisation, and convenience, making them a go-to destination for both buyers and sellers.
• Platform business models: While digital marketplaces primarily focus on facilitating transactions, platform business models encompass a broader spectrum of activities. Airbnb exemplifies this by connecting individual hosts (B2C) with travellers, but it also extends its offerings to Airbnb for Work, facilitating bookings for business travellers (B2B).
• Subscription-based business models: These models involve customers paying periodic fees to access a service or product continuously. Adobe’s Creative Cloud offers subscription plans for individual graphic designers and photographers (B2C), as well as enterprise-level subscriptions for businesses seeking creative software solutions (B2B).
• Direct-to-customer models: These models involve brands selling their products or services directly to consumers, bypassing traditional intermediaries. Nike’s DTC approach sells athletic apparel and footwear directly to consumers (B2C), but it also has a separate division, Nike for Business, offering customised solutions to corporate clients (B2B).

All these business models use technologies such as open APIs as a means of data exchange, payment acceptance and connectivity, and the use of data-driven algorithms to optimise the customer journey beyond matching supply with demand efficiently, drive upselling, and so on.

Of course, there will be hurdles to overcome when setting up a digital marketplace. But the trend is clear, most especially in Asia where Alibaba, Tencent and others already host retail, media, payment options, cloud provision and many other services all under one roof.

The concept of a ‘single app to rule them all’ is also gaining ground whereby a user accesses a digital marketplace on their mobile and transacts for everything they need within its secure environment. Non-core activities are catered for via partnerships reliant on open API connectivity once the community is built.   

Treasury’s to-do list

Treasury’s involvement is vital in monetisation of these platforms, setting up the finance, funding and operation of this type of new business model, especially as the need for good cash management in these fast-paced ecosystems is high. For example, instant payments and refunds already need to be built into these emerging new structures, alongside diverse payment acceptance mechanisms from cards to embedded banking services.

All this needs to be worked on by treasuries, as does the mechanics of splitting money among partners in a new ecosystem – not to mention the tax, regulatory, and cash optimisation elements, all of which can be helped by treasurers existing banking and fintech relationships.

Settlement, compliance risk and FX mitigation issues also need to be addressed, particularly in the case of a cross-border digital marketplace. Incorporating a deeper understanding, typically found in treasury functions, along with data orchestration capabilities and scalability, is crucial to prevent the need for restructuring down the road to manage expected growth.

Despite the significance of these considerations, Sielecki observes, “treasury is often overlooked in the early stages of marketplace development, as the business prioritises speed to market over initial efficiency.” This initial exclusion can result in escalated payment processing costs, high FX fees, and redundant internal efforts when a marketplace starts to scale up.

This challenge becomes particularly evident when a multitude of smaller local Payment Service Providers (PSPs) are employed to establish a presence across various countries instead of implementing an overarching, optimised cash management system. To prevent frequent restructuring and to strike a balance between the need for rapid market entry and the mitigation of financial risks, treasury involvement should begin from the very inception of the marketplace project.

Deutsche Bank and TMI’s new Digital Marketplaces Whitepaper examines all these issues in turn – with chapters dedicated to setting up, supporting and sustaining a digital marketplace, with examples and in-depth analysis. The key steps necessary to ensure marketplace success, effective payments, UX and efficient cash management and operation are to: 

• Define the core competencies needed to build a digital marketplace, then decide which processes to retain/develop and which to outsource or insource.
• Promote a holistic marketplace approach internally to gain input from every department and angle, with treasury as a key project co-ordinator and contributor. Treasurers who understand digital payments and data mastery as key drivers of 21st century commerce can rise to the C-suite.
• Always be guided by what will deliver the best UX. This may vary by geography or sector. Transactional and behavioural data analysis can later be used to further improve the experience.
• Showcase treasury’s banking and payment relationships, and the products and advisory services they can access at an organisational level, such as FX, to alert other functions to what is possible. The most efficient, flexible digital structure will result. Easy payment acceptance and speed are crucial UX considerations, as are splitting payments for multiple partners in diverse ecosystems, commissions, reserves, chargeback refunds, finance options for large purchases, tax liability allocations and so on. Treasurers can contribute to all of this. A payment gateway may also be beneficial, but each business must work out what is best for them.      
• Ensure treasury’s early involvement in marketplace strategy. This can help balance the need for speed to market with the mitigation of financial risks, including counterparty, credit and FX risks.
• Be wary of regionally diverse technical and regulatory requirements, especially for payment processing, KYC/AML, and data protection regulations.
• Structurally, think about data flows: the more end-to-end integration, automation and strong data management are enabled, the better. Think about how open APIs can be used as a means to power easy data exchange and payment, and how other supporting technology trends, such as blockchain (often described as the ‘new web’), may have a role in the future.  
• Consider outsourcing payment integrations, settlement orchestration and reporting to a major banking partner.
• Use payment and other data flows to offer an end-to-end service with front-end up-selling and back-end sweeping capabilities. Link sales, payments, banks, ERPs, invoicing, treasury, reconciliation, and cash management to ensure seamless data flows for user and business optimisation. Sharing insight into platform flows with banks can help them bundle more services and find cost optimisations.
• Integrate bank services such as local payments, insurance, lending, and trade finance, to encourage buyer and seller activity and release working capital.