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Addressing the root cause of today’s growing commerce crisis

businessman having stress in the office SBI 300977035 - Global Banking | Finance

By Justin Floyd, Founder RedCloud

Picture222 - Global Banking | Finance

In the current climate, it seems as though we can barely go a week without another international trade issue emerging. From the impact of the pandemic to the HGV driver shortage, the global supply chain has become a major talking point – particularly as it’s pushing up the price of consumer goods practically everywhere.

But as our supply chains continue to keel over at the first hint of external pressure, it’s time to stop attributing these problems to one-off external factors or labelling the overall situation as ‘unprecedented’. In fact, the trade issues we’re now experiencing have been decades in the making and should come as no surprise to anyone within the global FMCG industry.

Quite simply, the supply chain is no longer fit-for-purpose. A once straightforward relationship between brands, distributors and merchants has become over-complicated by the presence of thousands of intermediaries, informal distributors and agents. Consumer goods worth trillions of dollars get stuck in the system and never make it onto merchants’ shelves.

Worse still, the vast majority of these relationships rely upon manual trading processes and cash transactions. $19 trillion of non-digitised payments occur between merchants and distributors every year, adding at least 10% to the cost of the goods because cash is so expensive to handle and move around the world.

The more convoluted, opaque and inefficient the supply chain becomes, the more it constrains economic activity. And, from an international trade perspective, there are more profound repercussions to the current over-reliance on cash and antiquated manual trading – namely, that we are locking millions of merchants in emerging economies out of the financial system.

Merchants that pay for everything in cash can’t build up a digital trading profile, restricting their access to financial services and credit products. And unless we find a way to get these local merchants online, there’s no chance of bringing down the cost of consumer goods because it won’t be possible for any FMCG brand or manufacturer to operate an efficient supply chain.

So how can we make this happen?

The need for new networks

Our Byzantine international finance system is ill-equipped to support the needs of circa 500 million local merchants in some of the world’s fastest-growing economies. Many of these merchants – from enterprising street vendors to grocery store owners and café proprietors – can’t even access basic banking in the first place. In Mexico, for example, more than 50% of people are unbanked; just 31% have access to credit products, and credit is extremely expensive.

Similarly, existing international payment networks won’t be able to coax merchants into digital trading. The card companies all charge them hefty transactions fees and subject them to lengthy settlement periods for basic payment processing.

And while various FMCG giants have tried to build digital trading platforms for their merchants, uptake has been poor because these brands have put their own sales ambitions well ahead of merchants’ needs.

Instead, we need digital networks that put merchants first, addressing the financial, operational, and logistical pain points they experience every day with technology that will allow them to buy better, sell smarter and pay simpler – without the prerequisite of a bank account or prior trading record.

Taking cash out of the equation

The rapid pace of global smartphone adoption makes creating vibrant new digital commerce ecosystems a real possibility. Specifically, we can now use apps to allow merchants to make and receive payments digitally, removing the friction and risk created by handling cash, speeding up the distribution process, and allowing merchants to trade with a broader range of brands and bring new products to their communities for the first time.

The challenge is how to enable merchants to ‘upload’ their cash to sit within these apps. We’ve solved this problem at our business by partnering with the owners of 100,000s of local cash deposit outlets and ATMs. Once the merchant’s cash exists within the digital infrastructure, everything else becomes possible. We can use apps to show merchants what consumer goods are available locally – from essentials like rice, pasta, and coffee to niche items that cater to local tastes. We can also give merchants instant access to additional digital SKUs they can sell in-store, such as phone credit, Netflix subscriptions and railcard top-ups, providing a handy new revenue stream.

As merchants use these tools to build up a digital trading profile, it becomes easier to determine how their businesses are performing – insight which can then be used to offer them affordable financing for investment. All of a sudden, there is a safe and sustainable way to solve a $4.9tn global inventory and asset financing shortfall, helping entrepreneurs in emerging economies invest in the equipment and stock they need to grow their businesses.

A profitable, equitable way to deliver consumer goods to the world

By 2025, over a billion new merchants will have been created worldwide to meet the needs of five billion new middle-class consumers – consumers who will want to buy instantly and buy locally.

The best way to make goods more accessible and affordable to these consumers is to eliminate the plethora of existing supply chain inefficiencies and empower merchants to run their businesses more effectively.

Specifically, if we can bring these merchants into the digital ecosystem and eradicate cash from the supply chain, there is the potential to create a true ‘sell anywhere’ economy, whereby any FMCG brand can connect with any local merchant in any market. After decades of ever-increasing complexity within our supply chains, this approach would restore transparency and simplicity to these relationships, not to mention bringing a raft of new market insights into play for the first time.

This can only happen if the commerce technology we build is open and accessible to all – a far cry from the walled gardens and closed networks of existing eCommerce. But frictionless, open, digital commerce has to be the goal if we are to avoid sleepwalking into a pricing crisis that could see billions of consumers priced out of the market for consumer goods.

Global Banking & Finance Review


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