J.P. Morgan’s top e-commerce banker is paying more attention now to serving suppliers, in addition to the big selling platforms such as Amazon.
“The focus is now on the supplier side and outbound payments, which supporting wallets and remittance services,” said London-based Ron Karpovich, global head of e-commerce solutions.
“In 2019 our business is about service to suppliers, so they can pay to a cross-border wallet or a bank account. We want to provide cash-management type services to small suppliers selling globally.”
Big and messy
E-commerce is now a $2.6 trillion business, with Asia Pacific accounting for $1.3 trillion of that. China’s B2C online market alone is $1 trillion.
Moreover it is growing fast: in Asia Pacific’s case, by 18% per annum, according to a presentation at Money 20/20 in March by Simon Black, CEO at PPro Group, a London-based payments fintech.
And, say bankers and fintechs, online commerce still remains only 10% of total retail spending worldwide.
But amid this growth is confusion, with over 2,000 e-commerce payment methods worldwide, of which 450 are significant, Black says. Among the top ones, more than 150 are based in Asia.
In 2019 our business is about service to suppliersRon Karpovich, J.P. Morgan
The expansion of China-based internet companies is a big contributor to the sector’s growth, given the region’s high penetration rate for smartphones.
Effecting payments and treasury functions in this high-growth market is complex, however, due to the proliferation of providers. Take someone paying for a ride with Grab in Singapore. A cash transaction with a taxi driver requires no processing at all; a credit card payment involves as many as 10 players. To use a Grab, Uber or Didi app to pre-pay drivers can be simple, if it’s all done via a closed loop environment (such as using AliPay), or it can be incredibly complicated.
Payments + treasury
Banks serving this space started off by serving passengers, getting money from the buyer to the platform. Karpovich says J.P. Morgan is now trying to address how to get money to the manufacturer or supplier of the service; in this example, the driver.
Karpovich joined J.P. Morgan six years ago in the U.S. with a brief to look after forex and cross-border business for corporations. The business of serving card acquirers was deemed separate from payments. But he says the silos don’t work in e-commerce. “More corporates are looking at this from both a treasury and a payments perspective,” he said.
Companies in this space set up to fail fastRon Karpovich, J.P. Morgan
He now runs a wholesale team combining acquirer cards and payments with transaction banking for e-commerce businesses. The technology for the two areas remains separate but the process of getting the buyer to pay the seller has elided into a single transaction, he says.
Startups in payments tech have positioned themselves at the acquirer side of the classic four-pillar business model. This is because that’s how they get close to the merchant, and the merchant is the one who determines payment rails.
Winning merchants used to be about better Point of Sale machines or seamless integration into a payments infrastructure run by Visa or Mastercard. Now it’s also about selecting electronic wallets, be it via mobile or contactless cards or QR codes.
More corporates are looking at this from both a treasury and a payments perspectiveRon Karpovich, J.P. Morgan
Merchants are trying to work out whether it’s worth it to, say, onboard WeChat Pay. A hotel – a seller to Chinese tourists – might want to have WeChat Pay available at all of its properties worldwide. But WeChat Pay isn’t available in the U.S., there may be other regulatory issues, and each hotel has local banking and wallet relationships.
So it’s not so obvious to a chain that they should add WeChat Pay (or whatever wallet) globally unless it sees enough demand. And then it has to ask itself whether by offering WeChat Pay it will, in fact, attract tons of Chinese guests.
These are the kind of issues that Karpovich is now consulting clients about. Regulation and licensing, as well as intense competition, can make it difficult to serve either buyers or sellers.
The pace of innovation and competition makes it hard for companies to make decisions, including banks.
“Companies in this space set up to fail fast,” Karpovich said. “So they build fast, and they need a payments solution. It’s a great model for them, but it’s hard for a bank like us to serve them. We need to align better with that.”