It’s not exactly a new term since it’s been mentioned since 1990s when referring to the internet, but new economy is the buzzword right now. The new economy sector comprises of new high-growth industries that are on the cutting edge of technology and digital connectivity, which is a significant driving force of economic growth and productivity today. It demonstrates a new way of doing business with the emergence of new and exciting sub-sectors, such as fintechs and digital assets. It also paves the way for the emergence of shared economy, streaming economy, gig economy and blockchains coming through mobile web services, which are radically changing the business landscape.

“The new economy players are reshaping the nature of work, including how we work, as well as breaking boundaries,” says Kriti Jain, Asia-Pacific head of new economy, fintechs and platforms, corporate cash management, at Deutsche Bank.

Indeed, the new economy sector underpins a fundamental shift in the global economy. “New economy is actually becoming a key driver today and it has actually outpaced the growth of the rest of the global GDP by 2.5x during the past 15 years,” adds Jain. “Some of the new economy players are becoming much larger than the traditional manufacturing companies. It kind of redesigned the capitalist system around more environmental and social goals.”

One of the key trends defining the new economy sector is the emergence of borderless commerce. Businesses are recognising that they need to be where their customers are, which is pretty much digital anywhere around the world. Another trend is the creation of the ecosystem, with partnerships between various players, such as technology providers and cloud computing blockchains. “We are seeing cloud customer service solutions happening as companies scale up and quickly deliver optimally to their customers. We also noted last-mile logistics fulfilment companies and financial institutions coming together to enable this rapid growth.”

“Treasury teams are now shifting from just being cost centres to be strategic partners and enterprise-wide collaborators”
Kriti Jain, Asia-Pacific Head of New Economy, Fintechs and Platforms, Corporate Cash Management, Deutsche Bank

The objective is all about providing a full digital experience and a full digital value chain. Says Jain: “The customers are increasingly demanding a digitally-enabled experience, which has come up a lot more in the post-Covid-19 environment when everything is done online and through the e-commerce platform. We are seeing a lot of digital interaction between suppliers, and manufacturing and service companies. The key requirement is real-time communication with customers, integration to real-time information, and end-to-end systems on transactions and reconciliation which are enabling this business model.”

So how is treasury imperative in the new economy? As Jain points out, treasury is playing a key role in supporting the growth of the new economy sector. “The treasury teams are now shifting from just being cost centres to be strategic partners and enterprise-wide collaborators,” she notes. “They are providing input into their strategy and ensuring the growth is sustainable and financially-efficient, which is key because the growth prospects are 10 times than what a traditional company would see. It is important that whatever you do in your treasury systems, or how you design your treasury workflows, because they’re in such close contact with the customer, you have to ensure an end-to-end transaction flow. And while the systems as well as the region are complex, what the customers need is a simple digital workflow. That’s where treasury comes into play.”

In terms of managing their treasury flow, the new economy companies face a lot of issues and challenges, which are mostly related to globalisation. “When everything is moving towards global digitisation and being borderless,” Jain says, “the customer expectations and behaviours are varied in different countries and in different markets”.

Navigating regulatory environment

So how do businesses, while trying to be global and standardised, meet these different expectations and behaviours in different markets? Certain markets in Asia, such as Vietnam and Indonesia, for instance, are still pretty much cash-oriented, whereas markets such as Singapore and Hong Kong are completely digital and moving towards a cashless society.

At the same time, the regulatory environment and the payments infrastructure are very diverse in Asia. Jain explains, “The regulatory and political landscape in Asia is very different and in the face of globalisation, it is also facing a lot of diversifications. We see a lot of cross-currency controls being put in place. So, when we talk about cross-border transactions being seamless, how do you manage that in a situation where there are local currency restrictions in different markets and the instant payment systems are all domestic in nature? These are some of the big challenges that new economy players in the region are facing.”

Indeed, diversification, according to Jain, is the key challenge for new economy companies when navigating the regulatory environment. “We have different jurisdictions in Asia that have different agendas,” she says. “And there are multiple regulators in each jurisdiction that have different sets of rules when it comes to managing payments, whether it’s for e-payments, payment service providers, or even for securities.”

“Banks know how to seamlessly integrate the various accounts across various jurisdictions, how to manage liquidity or how to inject liquidity into the system”

The regulatory environment adds a layer of complexity for business as new economy companies scale up beyond their home market. “It is important to understand how to comply with the requirements so that you can effectively expand in new markets,” Jain adds. “It also underpins how do you effectively manage your cash management and liquidity.”

Some of the key areas the new economy companies face in different jurisdictions are the barriers to enter the markets:

• The incorporation of the business;
• The stringent controls in doing business;
• The different taxes that are being applied;
• Whether it has to be a resident account structure or a non-resident account structure; and
• What are the activities that are restricted whether it’s offshore and onshore.

Understanding all these nuisances on regulatory landscape and regimes is important,” she reflects.

New economy players are also facing issues relating to foreign exchange as they scale up their businesses regionally and even globally to capture opportunities. “The ability to pay and collect cross-border seamlessly and at scale to manage the related cross-currency and liquidity risks, while catering to local markets, are the other challenges the new economy players are facing,” notes Jain.

With the evolution towards borderless businesses, Jain calls for the new economy treasurers to deepen their collaboration with their service providers in order to navigate the different payment and collection systems as well as market infrastructure in various countries.

“The banks are knowledge warehouses,” she points out. “They know how to seamlessly integrate the various accounts across various jurisdictions, how to manage liquidity or how to inject liquidity into the system. The new real-time connectivity also helps when leveraging on open banking framework, with the API (application programming interface) connectivity. Having a strong banking ecosystem gives the treasurers access to all of these options. It helps them reduce costs, increase the operational efficiency and the time to market.”

This article was first published in The Asset 16 January 2023 here, together with two explanatory videos from Kriti Jain, Asia-Pacific Head of New Economy, Fintechs and Platforms, Corporate Cash Management, Deutsche Bank providing further insights around treasury management in the new economy

You can watch Kriti Jain explaining more about the importance of treasury in the new economy in the following two videos

Video 1

How important is treasury management in the new economy?

Video 2

How is treasury imperative in the new economy?