GOLD CASH MANAGEMENT WINNER………In 2005, PepsiCo Inc.'s treasury helped develop a sophisticated system that provided a single view of its global cash in bank accounts. But while treasury was dealing with euros and rupees, it also had its hand in tackling the problem of nickels and dimes facing
its Frito-Lay division. At 47,000 of the 430,000 retail locations, sales representatives would deliver orders of Frito-Lay snacks, generate an electronic bill on the spot and then wait for the clerk to count out the money to pay for the delivery. Needless to say, the reps ended up carrying increasingly more cash–collecting cumulatively about $1 billion annually. At the end of the day, they would convert it into money orders and overnight the deposits to the corporate lockbox. The process was dangerous, time-consuming and error-prone. For the corporate treasury, it meant delayed access to funds.
So, PepsiCo's treasury posed a question: Would these merchants be willing to move to electronic payment if the right program were offered to them in the right way? Although the assumption was that these customers–convenience stores, Mom-and-Pop grocers and delis–would be a hard group to convert, treasury discovered that many of these enterprises already had entered the world of electronic banking by accepting state Electronic Benefit Transfer cards or selling state lottery tickets. The decision became obvious: build a payment system that was easy to use, secure and helpful to the merchants. The answer was SmartPay, a campaign to get merchants to authorize ACH debits from their bank accounts by signing the slip from the hand-held electronic device.
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PepsiCo decided to launch SmartPay in one of the nation's highest crime areas–inner city Detroit–where the safety premium would be most conspicuous. It was a street-smart pilot with surveys, letters and promotional literature written in English, Spanish, Korean and Arabic. PepsiCo decided to offer just direct debits, because they were the simplest, cheapest way for PepsiCo to collect and because merchants generally preferred not to leave cards with clerks, reports Juliet Armstrong, senior treasury manager for cash management.
What the PepsiCo team found was that small merchants were surprisingly receptive. SmartPay turned out to be a time-saver for stores that often only had one or two people working on a shift and little time to count cash. On the best route, 95% of the customers converted to cashless payments; overall, 35% in the Detroit pilot territory converted. Customer retention in the pilot zone was 100%. With SmartPay, the Frito-Lay reps also saved time since they no longer had to count cash, buy money orders and prepare overnight deposits; they simply had to download the data into the mainframe sales system, which then created a direct debit file for secure transmission to Frito-Lay's concentration account at JPMorgan Chase.
Although the cash-handling problem was not completely eliminated in Detroit, the surprisingly brisk uptake encouraged PepsiCo to jump into full U.S. rollout, starting in other high-crime areas. By the end of this year, the service will be offered to 50,000 customers on 4,000 routes. If the program maintains a high acceptance rate, PepsiCo plans to expand the program globally.
Another important and unexpected byproduct of the program: Sales increased faster among customers using SmartPay because merchants were no longer limited to cash on hand. From treasury's point of view, it is a total win-win: processing a direct debit is 75% cheaper than processing a cash transaction, and the funds are available overnight as opposed to the next day. "We're seeing multimillion dollar savings just from hard costs like postage and buying money orders," reports Renee Garbus, vice president and assistant treasurer. "And that doesn't count gains from increased rep productivity and higher sales."
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