Direct-to-consumer demystified: The impact on treasury

Peter Cunningham

Peter Cunningham,
EMEA Head of Consumer & Healthcare Sector Sales
Treasury and Trade Solutions, Citi

Selling direct to consumers offers enormous potential opportunities for companies but treasury must be involved; otherwise the benefits could be lost to increased costs.

The fast-moving consumer goods (FMCG) sector has been transformed in the past decade. While many people still buy familiar branded products like razors, cosmetics or coffee from retailers, what they choose, and how they purchase them are quickly changing. Shopping baskets are being unbundled as digital disruptors and new engagement models cut out the middleman and create new links with consumers through frictionless subscription plans and other models.


Initially, many incumbents were complacent about this competitive threat, but some are now recognising the need to engage directly with consumers – as a result the industry is being turned upside down.

FMCG sector e-commerce sales are expected to increase from 10% penetration today to 40% by 2026. This growth potential is built on solid foundations: research by Nielsen shows that 90% of consumers would buy directly from a brand if they could while 63% would consider auto replenishment for household goods.iii

Direct-to consumer (D2C) covers a variety of strategies, ranging from a one-time sale via an e-commerce site or marketplace, to subscription plans and rental or sharing models. All represent a huge change in business model for FMCG companies, which have traditionally reached consumers via retailers.

For incumbents, disintermediating retailers potentially increases margins. D2C also has potential working capital benefits for FMCG companies; sales to retailers are on an open account basis with an average days sales outstanding (DSO) for the FMCG industry of 60 days. In contrast, D2C sales effectively have no terms – DSO is reduced to the time taken to settle the transaction, which is usually two to three days for credit cards and PayPal.

Companies, unsurprisingly, welcome these DSO gains. However, the evidence to date shows that many incumbents and new entrants are focused solely on the potential opportunities associated with gaining a better understanding of the end consumer, gathering data and offering a customised experience to build brand loyalty, customer retention and grow sales.

Too often companies fail to consider the repercussions of D2C from a treasury and shared services perspective – namely the order-to-cash cycle, cost of collection and FX exposure. Put simply, treasury in many FMCG firms is not plugged into the D2C strategy. Unless this changes, many of the benefits of the D2C economic model may be eroded.

A new way of doing business

As an FMCG company moves from a wholesale model to a D2C model average transaction values fall and volumes increase dramatically. Consequently, there is a need to focus on every step of the sale and collection process to ensure any process breakage is eliminated. Otherwise the sheer volume of transactions may result in unsustainable costs.

In EMEA and North America the most common D2C payment options are debit and credit cards and PayPal. All other things being equal, this represents a significant increase in the cost of collection compared to the current B2B sales model where invariably companies receive ACH payments from their retail customers. The increased costs of collections associated with D2C can more than offset any working capital benefits from the model.

Furthermore, D2C potentially broadens the range of currencies that companies receive. If FX conversion is left to card acquirers and other payment providers, companies may receive retail rather than wholesale FX rates, which significantly increases costs. Card declines may also become problematic because of mismatches involving currencies and potential fraud challenges if people buy from a website outside their home country.

Focusing on payment methods

If treasury is involved in making decisions about payment methods, it can help the company avoid the pitfalls described above while helping the company to ensure the payment experience is as smooth as possible for consumers.

Rather than using debit and credit cards or PayPal, subscriptions using direct debits or instant payments (using a request-to-pay model) may be preferable. From the consumer’s perspective, they can be designed to work in a similar way to a normal checkout experience using a credit or debit card. However, for the company they offer working capital benefits: request-to-pay because settlement is instant; direct debit because the company initiates the collection and can therefore collect according to its schedule. Moreover, both have lower costs than debit and credit cards or PayPal.

The potential savings are vast. If a company with €50 billion in sales moves 8% of these to D2C without treasury oversight, the working capital benefits could be more than outweighed by the increased collection costs. With treasury’s engagement there is a potential to reduce these costs by up to 89%, resulting in an overall benefit of €60 million. Treasury oversight can also help to ensure that FX costs are minimised and risks are understood and mitigated where necessary.

Lowering costs and making the most of local markets

FMCG companies’ move to D2C should not be driven solely by sales – for it to deliver sustainable results treasury must be engaged. Citi’s mission is to work with corporate treasury to help it support the business’ objectives. For FMCG companies embarking on a D2C strategy that means presenting a local face to end consumers, with local pricing and a wide range of familiar local ways of paying (both existing and emerging).

To deliver this, Citi has embraced an ecosystem approach, using the capabilities of fintechs and other partners such as card acquirers and digital wallet providers. These complement the bank’s global network and direct access to existing local market clearing infrastructures, which facilitate instant payments and request-to-pay schemes, and capabilities such as dynamic currency conversion to provide its clients with a comprehensive global payments and collections solution. Citi’s approach eliminates the complexity of working with a patchwork of providers in each market.

This core functionality can be overlaid with a range of additional services such as virtual accounts and Payer ID that enable companies to more easily identify consumer payments and streamline the accounts receivable reconciliation process and can help to ensure they have a robust and scalable solution to manage the massive increase in volumes associated with D2C.

D2C will transform the FMCG sector in the coming years: Citi can help both incumbents and new entrants make the most of the opportunities that emerge.

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Direct to Consumer Trend